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UK proposes program to verify carbon allowances globally
The UK has launched the latest effort to standardize and improve the verification of corporate carbon allowances traded around the world through the Voluntary Carbon Markets Integrity (VCMI) initiative.
"Integrity is the watchword. With less than a decade to keep 1.5˚C alive, there is simply no room for greenwashing," said Alok Sharma, president-designate of COP26, in a statement released by VCMI.
The intent of VCMI, said Sharma, is to bring greater reliability to calculation of carbon credits so that the corporations can use carbon trading to do their share of meeting the Paris Agreement goal of limiting global temperature increase to 2 degrees C and, preferably, 1.5 degrees. The new program will provide guidance to carbon trading markets to ensure that the allowances they trade can be verified and result in real reductions.
Comments are being accepted through September 2021, with the organizers planning to announce the detailed program in time for COP26 coming in Glasgow, Scotland, in November.
The US is a co-funder of VCMI, which also has participation of governmental groups such as United Nations Development Programme and World Economic Forum; governments such as Chad, Cambodia, Kenya, Mexico, and Mexico; private companies such as Ford; and NGOs such as the Science-Based Targets Initiative and World Wildlife Fund.
Indicative of US support, US Special Presidential Envoy for Climate John Kerry is a member of the VCMI steering committee. "We welcome the VCMI's focus on clear norms for companies to use high-quality carbon credits, including toward their net zero targets in a way that is credible, transparent and aligned with the goal to limit global warming to 1.5 degrees," Kerry said.
Multinational collaboration is a key element of the concept, said IHS Markit Global Head of Strategic Governance Advisory Christine Chow. (IHS Markit did not participate in the development of VCMI.)
"Carbon markets out there today are disjointed. What's missing is the global approach," Chow said.
IHS Markit is among the private companies building a carbon allowance registry, she added, in this case a meta-registry that compiles information from other allowance tracking programs.
Enhancing corporate commitments
In the consultation document that outlines VCMI, the initiative's organizers said that their goal is to be a central resource for companies that have committed to reducing GHG emissions that will complement their efforts to prevent climate change.
"Investors and companies do not currently have the tools to easily compare quality features and/or cost of carbon credits," they said.
They are trying to solve how companies can be assured—and assure the public—they are moving towards their goals. "At the time of writing, more than 3,000 companies have signed up to the UN's Race to Zero campaign, and more than 1,500 companies have committed to set science-based greenhouse gas emission reduction targets as part of the Science Based Targets initiative," they said.
"But integrity is crucial. VCMs have faced criticism in the past, e.g. around poor environmental integrity, greenwashing, or mis-selling. Without integrity, VCMs will not fulfil their potential to channel finance in line with the Paris Agreement temperature goal," they wrote.
Terms such as "net zero" or "carbon neutral" can be manipulated or unclear, and work must be done on improving the integrity of the "supply side" of credit created and the "demand side" of how they are used.
"We need to know that when somebody makes a claim that they are carbon neutral or that they are on the pathway to carbon neutrality, that stands up," Rachel Kyte, VCMI co-chair, said. "We need to know that when an offset is used as part of a claim to be carbon neutral, that is a genuine trade."
No more double-counting, less use of offsets
At the top of VCMI's list is to end the double-counting or "double-claiming" of credits that occasionally occurs.
"There are situations in which both the host country where the credit was generated and the purchasing company make some use of the emission reduction or removal represented by the carbon credit," VCMI said in its consultation document. "For example, the host country may report them as pertaining to government action, while the company uses the same emission reduction or removal to make claims about their climate performance."
The other key element of the plan is to diminish the purchase of offsets by corporations to reach their climate pledges.
"The imperative for overall and absolute emissions reductions globally, to keep 1.5˚C within reach, necessarily means the end to 'traditional' offsetting—where carbon credits are purchased instead of reducing avoidable emissions within the value chain of a company," VCMI explained. "Concerns exist that simply counterbalancing emissions potentially carries a disincentive for actual and steady emission reductions within corporate boundaries. The major risk has always been that offsetting would turn into a cheap license for companies to continue polluting and delaying their own GHG reductions."
To end or reduce this practice, the registry will define terms such as "offsetting," "compensation," and "neutralization," and track corporate use of each form of emissions balancing or abatement.
For IHS Markit's Chow, the value of VCMI will be realized if it is able to bring those ideas to life. It's less about counting allowances, because the systems to track it are fairly well established, she said. "It's the governance that is the difference with the VCMI plan. Having the buy-in of the US and the UK is what stands out, and could bring many stakeholders together," she said.
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