The role of Core Carbon Principles and Carbon Credit Ratings

Integrity is the word of the moment in the voluntary carbon markets (VCMs). Recently, the Integrity Council for the VCM (IC-VCM) released the first drafts of its Core Carbon Principles (CCPs) and Assessment Framework, outlining its plan to assess carbon credit types and methodologies. How does this fit into the wider VCM landscape, and the role of carbon credit ratings agencies?

What is the IC-VCM?

The IC-VCM was spun out of the TSVCM (taskforce on scaling the voluntary carbon markets). The principle is simple: ‘build integrity and scale will follow’. The IC-VCM aims to develop and enforce minimum threshold standards for credit quality to ensure that investments in VCMs are channeled to effective climate solutions, and give buyers and the wider confidence in the integrity of the market.

In July this year the IC-VCM released draft documents outlining its proposed approach, including its Core Carbon Principles (CCPs) and Assessment Framework (AF). These documents are open to public consultation until 27 September, and final versions are expected by the end of this year. 

The VCM landscape

Several initiatives focused on market integrity exist across the VCM, some with confusingly similar names and acronyms. Recently, two in particular have released draft guidance: the IC-VCM and the VCMI (VCM integrity initiative). While the IC-VCM is focussed on credit quality and integrity, the VCMI looks at how those credits are used, and claims from credit buyers.

In addition, there are a number of other initiatives focusing on market integrity on both the supply side (e.g. ICROA, CCQI) and the demand side (e.g. The Nordic Code and The Oxford Offsetting Principles). In general, these reflect broadly similar principles but vary in the exact scope or approach to guidance and accreditation. The table below gives a brief overview of some of the main initiatives in this area. 

What do we know about the IC-VCM’s CCPs?

1. Assessment level

The IC-VCM is not planning to assess credits at a project level, but will assess both the program and the project type (considering factors such as the type of mitigation activity and methodology applied). IC-VCM assessment will consider not just the frameworks, but also how they are implemented and enforced. Credits will not be CCP eligible unless they meet the criteria at both levels. ‍

2. The high level principles

There are 10 core principles to ensure that credits create real, additional and verifiable climate impact with high environmental and social integrity. These include project design criteria such as additionality and permanence, good program governance and transparency, and wider market considerations such as no double counting and supporting the transition to net-zero emissions. 

‍3. Assessments will be forward looking only

The launch event and current guidance indicated that existing credits in the market will not be assessed. Instead, assessments will only be relevant to credits issued after the guidance is finalized and the program and credit type has been approved. It is likely that standards will have to adapt methodologies to comply with the CCPs.

‍4. Additional tagging

The CCP assessment will also surface key information relevant to buyers’ preferences. Proposed tags include whether a corresponding adjustment has been applied, and whether the credit derives from emissions avoidance or removals activities. Exactly which tags will be assessed has not yet been finalized. 

What don’t we know yet

1. What will change as a result of consultation responses?

A number of questions and concerns have been raised about the stringency of the requirements and whether these can be realistically assessed in the proposed timescale. There are also some outstanding questions to be answered in the consultation, such as a position on corresponding adjustments. The final guidance will almost certainly see some changes from the current documents, and it is possible some fundamental aspects will be changed. 

‍2. How will the CCPs be applied?

Although the high level concepts of the CCPs are clear, it is less clear how these will be applied and assessed in reality, given the many constraints of timescale, resources, variability between projects, programmes, methodologies etc. 

‍3. Will the CCPs set a quality floor or a high quality bar?

One fundamental issue that has divided opinions is how stringent the CCP requirements should be. On the one hand, to ensure confidence in the market and encourage increased investment, the CCPs should be an absolute guarantee of high quality and therefore require the highest standards across the board. On the other hand, there is a concern that the standards proposed currently are unrealistically high. If only very few credits meet the requirements, crediting standards could be discouraged from applying for CCP accreditation, meaning CCPs do not add value to the market. Additionally, if a majority of credits are not approved this could damage the reputation of the VCMs, therefore having the opposite effect to the original intention of supporting the scaling of VCMs. Finding the optimum balance will be a tricky task for the IC-VCM. 

‍4. Market coverage

Any standard and methodology will be able to apply for CCP accreditation. It’s likely that the major VCM project methodologies such as those from the main four registries - Verra, Gold Standard (GS), Climate Action Reserve (CAR) and American Carbon Registry (ACR) - will face pressure to be assessed against the CCPs. Smaller, more niche standards may be less incentivized to adapt their methodologies for CCP approval. Another big question is whether project types under the new crediting mechanism of the Paris Agreement, currently known as the Article 6.4 mechanism, would be assessed.  

‍CCPs and ratings platforms

Once CCP assessments have been implemented across the market, won’t carbon credit ratings become redundant? This is a common misconception as on the surface both are assessments of quality, but actually CCPs and carbon credit ratings serve different purposes. 

IC-VCM has a valuable role to play in improving integrity and scaling VCMs. However, market players who are committed to achieving real climate impact and want to avoid reputational risk and wasted spend should consider the value of project level due diligence. Unlike the binary CCP approval, carbon credit ratings give a nuanced insight into multiple aspects of quality at the level of individual projects. 

CCPs and Sylvera ratings are complementary, rather than overlapping:

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Thus, relying solely on CCPs presents risks to credit buyers:

• Missed opportunity & delayed market entry

Credits issued against a CCP certified methodology may not reach the market for several years as CCP will not be backwards looking, and the process of finalizing the guidance, adapting methodologies, assessing standards and credit types and then issuing credits will be lengthy.

• Uncertain whether CCP will provide a high quality floor

The conflicting needs for the CCPs to balance high environmental integrity of credits and sufficient market liquidity mean that they are unlikely to be an absolute guarantee of quality. 

• Lack of project level performance insight

Sylvera’s analysis demonstrates that the quality of projects of the same  project type can be highly variable - a project can be bad, even if the methodology is good - but this is lost with standard and methodology-level assessments. 

A complementary approach

The IC-VCM is a hugely valuable initiative, well aligned with our values and mission at Sylvera. In the recent Sustainability Leaders Panel at Sylvera’s Carbon Markets Summit, IC-VCM Chair Annette Nazareth recognized the value of a number of organizations working together to increase transparency and accountability in VCMs:

“One positive outcome would be a race to the top, where companies are competing not only for robust disclosure, but robust practices.”

In working towards this shared aim, we are able to achieve different things and serve different audiences. Sylvera will continue to engage with IC-VCM to ensure VCMs have the biggest and most positive impact on the climate, nature, and local communities.