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A Primer on the VCMs

July 22, 2022
A guide to the voluntary carbon markets (VCMs)
A guide to the voluntary carbon markets (VCMs)

Rejecting offsets is no longer an option if we are to stay within our 1.5 target. This is particularly the case for industries where decarbonization is still proving difficult to achieve, such as aviation and shipping.

This is one of many reasons that we are seeing more organizations tap into the voluntary carbon markets (VCMs), but the temptation to favor price over quality is a risky and dangerous strategy that can have detrimental repercussions. That said, how do you conduct the necessary due diligence to identify high quality carbon credits? 

Download the full guide

First, get an idea of how VCMs work

This is easier said than done because the market is loaded with jargon and methodologies, but there are a few fundamentals that can help navigate your understanding of the market:

  • Carbon credits are tradeable units sold by project developers on the market. The credits have been created with the purpose of reducing, avoiding or removing GHGs in the Earth’s atmosphere and by purchasing project credits you are normally funding a project's activities.
  • Owners of carbon credits can retire these credits, meaning they can never be sold on and as a result, have a sole claim to the CO2 avoided or removed, so they can claim to have offset, or compensated, the CO2 they have emitted. The other option would be to trade the credits through a carbon exchange platform
  • Carbon credit projects can be broadly divided into 2 projects: carbon avoidance and carbon removals
How carbon credits are measured

Engage in high quality projects that align with your organization’s sustainability goals

There are a number of project types that make up the VCMs, but it’s important to decide which ones reflect your company’s goals. For example, if you are looking for credits that offer co-benefits that go beyond carbon avoidance and removal, then nature-based solutions like REDD+, or cookstove projects would be the ideal option.

These project types broadly make up the VCMs

Keep on top of policy & regulations that are shaping the market

Although the voluntary carbon markets are not regulated, they are influenced by the broader policy environment relating to climate change. This is expected to evolve in the coming years as the interest in the market grows. Here are some of the key policy and regulatory initiatives that you and your company should be aware of:

Invest in due diligence

Determining carbon credit quality is no easy feat. It takes time and resources to not only understand what makes projects high quality, but to also gather information specific to each project; for example determining if an ARR project is using monocultures which could make it more vulnerable to fires or pest outbreaks. 

Before you buy credits, it’s vital to interrogate the following project attributes:

  • Carbon performance: credits issued are based on a project’s emissions reductions or removals. This information comes from the verified audits of projects, following the developer’s monitoring. 

Why does carbon performance matter: As a buyer, it’s vital to know if the project is accurately reporting on its activities which directly translate to its overall avoidance or removal of CO2 or CO2e. 

  • Additionality: The concept of additionality is fundamental to a project’s integrity and to qualify as a carbon offset. A carbon credit project should result in emissions avoided or reduced that would not have otherwise occurred if the project didn’t exist.  

Why does additionality matter: Carbon reductions achieved with the funds from credits need to be over and above any business-as-usual activities that would have happened without credits being sold and the project being developed.

  • Permanence: This refers to the time period that carbon will likely remain sequestered or avoided.  

Why does permanence matter: Risk factors such as human activity and disasters can affect the longevity of a project’s impact, which will ultimately affect its emissions reductions. 

  • Co-benefits: Some carbon projects, such as nature-based ones, go beyond emission reductions by implementing activities that benefit local communities and biodiversity. 

Why does co-benefits matter: If a project were to protect a forest, but disrupt the livelihood of local communities by cutting off an essential income supply then it is a poorly designed project and does not align with UN Sustainable Development Goals (SDGs). 

Our independent carbon ratings platform analyzes these four areas amongst other key project information to provide sustainability teams, organizations and their stakeholders with a transparent picture of specific carbon credit investments, their potential impact and how to best manage the risks associated with the VCMs. 

To get more information on VCMs and how to conduct carbon credit due diligence, download our guide below.

Download the full guide

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