COP28: Harmony Fans the Flames of the VCM

This blog was written by Anthesis CEO, Stuart McLachlan and is part 4 of a series of insights on this years’ Conference of the Parties 28 (COP28) in the United Arab Emirates.

Offsetting has had a challenging year. The tide of suspicion about offsetting rolled back in, inundating the shifting sands of the carbon markets with – in my view – woeful consequences for a vital component of early climate action.

Of course, there’s plenty of complex stuff to deal with when it comes to the voluntary carbon market (VCM) and the choices companies face in their net zero roadmaps. As ever, the framing of these questions in the media tends to dial up the real or imagined dilemmas and difficulties.

• Everyone wants to move to ‘quality’ offsets – but is there a definition of quality?
• We need integrity in the VCM, but how will this be harmonised across different bodies?
• We need a mathematical correlation between a tonne of carbon sequestered or emission unit avoided and a tonne of carbon emitted – but how is this possible when we are pegging it to natural ecosystems that are dynamic and unpredictable?
• If companies invest in projects adjacent to or in their value chains, how do such insetting strategies relate to Scope 3 emissions?
• And how can we reconcile prioritising removals over avoidance credits with the impact on forestry now being destroyed because of uncertainty in the offsets market?

And so it goes on. At Anthesis we are unequivocal in our support for voluntary carbon markets and their role in unlocking capital to relieve pressure on planetary systems. At COP, it was bizarre to find myself in endless discussions about the need for a functioning carbon market when in truth we have one. It’s not perfect but isn’t it good enough? Scrutiny is vital, but when that scrutiny becomes so intense that it paralyses the entire market, something’s gone wrong. The market needs to work so that companies can at least enter it – aware of both the jeopardy and opportunity it entails. There is bound to be uncertainty – the world hasn’t gone through this level of transformation before. But we are on borrowed time so sitting in the waiting room for perfection to arrive must give way to the experimentation that will improves these markets.

The debates continue but happily, a slew of announcements at COP give me hope for a more positive direction of travel. An interesting proposal to rebadge certain nature based credits as resilience credits (i.e. you are investing in planetary resilience as opposed to neutralising your measurable residual emissions) might usefully reframe some of the debate. The Voluntary Carbon Markets Integrity Initiative, SBTI, The Integrity Council for the VCM (ICVCM) are coming together to form an end-to-end integrity framework providing guidance on decarbonisation which includes the use of offsets for residual emissions. Meanwhile, Verra, Gold Standard, Climate Action reserve, ACR at Winrock, ART and Global Carbon Council have announced that they will collaborate to establish consistent standards on quantification, verification and permanence and to connect back in to the ICVCM. And the US commodities regulator the CFTC will announce its guidance on carbon credits as a way to see carbon markets scale.

The value of the carbon trading market worldwide could expand to $100bn by 2030, up from $2bn in 2022, according to Morgan Stanley. In Dubai, John Kerry made the point that purchases linked to cuts in carbon dioxide emitted by burning fossil fuel and deforestation could create the largest marketplace the world will ever have known, but that ‘fly-by-night operations’ touting cheap carbon credits in voluntary markets in recent years have ‘done an injustice to everybody’. Scrutiny and quality are a good thing if they help rather than hinder companies taking responsible action to offset their residual emissions and, in turn, keep 1.5C alive.

Collaboration was my buzzword in yesterday’s post. In this arena it seems ‘harmonisation’ is where the action is. It’s been an uncomfortable year for the VCM but perhaps a pause for a moment of intense scrutiny is not all bad especially given Kerry’s comments. This pause may be coming to an end as COP28 and the involvement of leading NGOs fires up confidence in the future of the VCM. At Anthesis, we continue our commitment to reduction first, and then to offsetting of residual emissions, and to continuous improvement in quality as the science and the markets strengthen.