Climate

The fight to define the carbon offset market's future

The world’s largest carbon offset issuer is fighting a voluntary effort to standardize the industry. And the fate of the climate could hang in the balance.

Smoke billows from smokestacks and a coal fired generator at a steel factory in Hebei, China.

It has become increasingly clear that scaling the credit market will first require clear standards and transparency.

Kevin Frayer/Getty Images

There’s a major fight brewing over what kind of standards will govern the carbon offset market.

A group of independent experts looking to clean up the market’s checkered record and the biggest carbon credit issuer on the voluntary market is trying to influence efforts to define what counts as a quality credit. The outcome could make or break an industry increasingly central to tech companies meeting their net zero goals.

Globally, Verra — short for the Verified Carbon Standard — issues roughly two-thirds of the carbon credits on the voluntary market, including credits for renewable energy and forestry and land use, among other types. Established in 2007, the registry is the longtime face of the market’s status quo.

But as demand has surged for carbon credits — particularly as the tech industry looks to meet its net zero targets by offsetting a (small) portion of its emissions — it has become increasingly clear that scaling the credit market will first require clear standards and transparency. In fact, this is precisely the conclusion that forced a 400-member industry task force on scaling the market to change tack in 2021. In its wake, the Integrity Council for the Voluntary Carbon Market emerged. It published proposed reforms — including establishing an agreed-upon definition for credit quality and evaluating methodologies accordingly — in July.

While Verra initially supported the effort, it has since taken issue with the specifics of even these modest potential reforms. Last week, the organization demanded that the council make a “course correction” and took particular issue with the approach that gives credit types that meet the quality definition a thumbs-up in a note to stakeholders.

“We especially fear that the principles-based review of programs has been supplanted with a blunt, one-size-fits-all approach that seeks to directly set the scope and rules of the market,” Verra wrote in mid-September. Verra also argued for program-by-program evaluation rather than one that evaluates the quality of specific credit types.

In a new analysis, the climate research nonprofit CarbonPlan said Verra’s objection was “melodramatic” and “about control.”

“The Integrity Council is running a voluntary, opt-in labeling effort — nothing more,” the CarbonPlan team wrote last week. “The Integrity Council isn’t proposing to do anything about credits that fall short of its standards, nor is it clear how they could if they wanted to.”

Carbon markets are essentially the Wild West. Countless methodologies exist to define what makes for a quality credit, and imposing order on any lawless frontier is proving to be a challenge. But the stakes couldn’t be higher.

A BloombergNEF analysis found that the carbon offset market could be worth as much as $550 billion by 2050, a time period when net zero commitments will come due. However, absent global standard-setting, it is possible that there won’t be enough quality offsets to keep up to the demand. That could mean a lot of money gets wasted on ineffective credits while causing the planet to overheat to dangerous levels.

The fact that this initial attempt does not have the support of the voluntary market’s biggest player does not bode well. CarbonPlan speculated that at the root of Verra’s objection is a concern that its credits are not “robust enough” to meet the benchmark set out by the council’s proposal, and that new standards “could threaten their dominant position on the supply side of the voluntary market.”

Verra, for its part, maintains that its concerns are with the process’s efficiency, not with its proposed scrutiny.

“We don’t wish to see good projects unable to move ahead because the methodology they are using is waiting too long in line for its assessment,” Andrew Howard, Verra’s senior director for climate policy and strategy, told Protocol. “Verra is confident the VCS program will meet the ICVCM’s quality thresholds.”

Verra proposed several specific “course corrections” for the council, ostensibly with efficiency in mind. First, it argued for evaluating entire programs rather than specific credit types or methodologies. CarbonPlan said that approach “doesn’t pass the laugh test” given that it would force the council to give the whole swath of Verra credits a thumbs-up without acknowledging how much, for instance, a renewable energy credit’s methodology might differ from that of a forestry credit.

“That is no way to confront the well-documented challenges in the voluntary carbon markets, many of which are present in Verra’s offerings, and it would force the Integrity Council to either bless most of the market uncritically or categorically exclude its largest player,” CarbonPlan said.

In response, Verra said the council should sample or use spot checks to make sure all of a program’s credit types deserve the council’s approval, but that relying on a methodology-by-methodology evaluation rather than more efficient approaches would leave the council at risk of “seriously bogged down.”

Verra also took issue with the proposal to step up standards over time and suggested that the council use existing aviation industry offset standards. Taking that approach, though, would ignore the very real need for sharper offset standards and the reality that the aviation industry’s standards are rife with loopholes.

Regardless of what shape the council’s final reforms take, though, Verra doesn’t have to participate in the council’s proposed benchmarking if it doesn’t want to. If the registry does opt out, it would seriously undermine the scope of any new standards by making two in three carbon credits exempt.

That puts the council in the midst of a tug-of-war as Verra pulls it to change its plan and CarbonPlan and its other supporters urge it to stay the course. Should the council allow itself to be swayed by Verra’s concerns, CarbonPlan said it could put its very independence at risk.

“Either [the council members] accede to Verra’s demands and abandon any claim to independence, or they forge ahead and work with only a minority of the current market,” CarbonPlan summarized via Twitter. “We hope they will choose the latter.”

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