The voluntary carbon credit market is a market-based approach to controlling greenhouse gas (GHG) emissions. Individuals, companies or governments can purchase credits, often referred to as "carbon credits", to mitigate or offset their own emissions by financing the avoidance, reduction or removal of GHGs from the atmosphere.
The Integrity Council for the Voluntary Carbon Market (ICVCM) is an independent governance body formed by the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) with the purpose of establishing a set of global standards to ensure the integrity of the voluntary carbon credit market.
On 27 July 2022, the ICVCM published for public consultation a draft set of principles for determining a high integrity carbon credit, known as the Core Carbon Principles (CCPs), along with a draft Assessment Framework and Assessment Procedure for determining whether carbon-crediting programs and their methodologies comply with the CCPs. The deadline for submitting comments in the public consultation is 27 September 2022.
The ICVCM is targeting the fourth quarter of 2022 for publication of the official CCPs. The ICVCM will then invite carbon crediting programs to be assessed for compliance with the CCPs. If, as is expected, carbon crediting programs widely agree to be assessed under the framework established by the ICVCM, the CCPs will bring greater uniformity to voluntary carbon market standards.
The CCPs And Assessment Framework
The CCPs comprise ten principles for determining the environmental integrity of a carbon credit. Six of the principles relate to the carbon-crediting program, three relate to the particular carbon credit and one principle relates to both the carbon-crediting program and the carbon credit.
- CCPs relating to the carbon-crediting program
- Mitigation activity information. Under this CCP, the carbon-crediting program must provide information on the mitigation activity that is comprehensive, transparent, publicly available in electronic form and accessible to non-specialists. The Assessment Framework sets out the information that the carbon-crediting program must make publicly available and requires that the program define what information would qualify as confidential.
- Program governance. This CCP provides that the carbon-crediting program shall have effective program governance to ensure transparency, accountability and the overall quality of carbon credits. The Assessment Framework sets out a detailed test for determining if the carbon-crediting program is compliant with the CCP, including that the program must transparently assign roles and responsibilities at all levels of decision-making and the program must have robust procedures to avoid, identify and resolve conflicts of interest in its operations.
- Registry. Under this CCP, the carbon-crediting program shall operate or make use of a registry to uniquely identify, record and track mitigation activities and carbon credits issued to ensure credits can be identified securely and unambiguously. The Assessment Framework sets out the requirements that the carbon-crediting program's registry must satisfy, including that the registry must identify each carbon credit and make available information such that the credit can be traced back to the mitigation activity with which it is associated.
- No double counting. Under this CCP, the GHG emission reductions or removals from the mitigation activity shall only be counted once towards achieving mitigation targets or goals. The Assessment Framework provides three types of double counting that must be avoided: no double issuance (i.e. when two carbon credits are issued for the same GHG reduction or removal); no double claiming (i.e. when the carbon credit is issued for reductions or removals already covered by a compulsory national scheme); and no double use (i.e. when two parties count the same carbon credit for the purpose of reaching their mitigation targets).
- Robust independent third-party validation and verification. This CCP provides that the carbon-crediting program shall have program-level requirements for robust independent third-party validation and verification of mitigation activities. To satisfy the CCP, the Assessment Framework provides that the carbon-crediting program must ensure that mitigation activities are independently validated and verified by an accredited body for compliance with the program's requirements.
- Sustainable development impacts and safeguards. This CCP provides that the carbon-crediting program shall have clear guidance, tools and compliance procedures to ensure that mitigation activities conform with or go beyond widely established best industry best practices on social and environmental safeguards while delivering on net positive sustainable development impacts. The Assessment Framework requires the program to have guidance and procedures in relation to environmental and social safeguards (including human rights, biodiversity and indigenous community impacts) and sustainable development impacts (including provisions ensuring net positive SDG impacts).
- CCPs relating to the carbon credit
- Additionality. Under this CCP, it must be demonstrated that the GHG emission reductions or removals from the mitigation activity would not have occurred in the absence of the incentive created by the carbon credit revenues. The Assessment Framework proposes a two-step test for additionality, namely: an assessment of the overall likelihood of additionality for that type of carbon credit (taking into consideration typical financial viability, barriers for implementation and market penetration rates for that type of mitigation activity); and an assessment of the rigour and thoroughness of the carbon-crediting program's approach to assessing additionality (taking into consideration the program documents and quantification methodologies). In particular, the following three criteria must be satisfied: (i) the mitigation activity must not have been established as part of existing legal requirements; (ii) publicly accessible evidence must show that the generation of carbon credits was considered prior to the start date of the mitigation activity; and (iii) the program must use a variety of approaches to assess the additionality of mitigation activities, including an investment analysis, a barrier analysis, market penetration assessments and positive lists.
- Permanence. Under this CCP, it must be demonstrated that GHG emission reductions or removals from the mitigation activity are permanent or, if they have a risk of reversal, that any reversals shall be fully compensated. The Assessment Framework provides several criteria to determine whether the activity complies with the CCP, including the degree of reversal risk, whether the reversals are sufficiently monitored and compensated and whether there is sufficient institutional strength and stability to stand behind reversal compensation guarantees over the long term.
- Transition towards net-zero emissions. This CCP requires that the mitigation activity shall avoid locking in levels of GHG emissions, technologies or carbon-intensive practices that are incompatible with achieving net-zero emissions by mid-century. The Assessment Framework sets out several considerations to take into account, including that the activity must not involve unreasonable continued reliance on a technology or practice that is incompatible with achieving net-zero emissions by mid-century and must not provide a financial incentive for the continuation of said technology or practice.
- CCP relating to both the carbon-crediting program and the carbon credit
- Robust quantification of emission reductions and removals. This CCP requires that GHG emission reductions or removals are robustly quantified, based on conservative approaches, completeness and sound scientific methods. With regard to the carbon-crediting program, the Assessment Framework provides certain criteria that must be satisfied, including that the program must have a robust methodology approval process which includes public stakeholder consultations and reviews by independent experts and that GHG emission reductions or removals shall be determined ex-post (i.e. carbon credits shall not be issued for emission reductions or removals that are yet to occur). As for the carbon credit, the criteria include that GHG reductions and removals must be calculated conservatively taking into account the degree of uncertainty in data and assumptions, that the calculated emission reductions or removals must unambiguously result from the mitigation activity and that leakage must be taken into account.
The Assessment Procedure
The Assessment Procedure sets out the procedure by which carbon credits are designated as 'CCP-eligible' by the ICVCM. Through the Assessment Procedure, the ICVCM will assess whether the carbon-crediting programs and their specific methodologies comply with the CCPs. There are three steps to being designated as CCP-eligible:
- Step 1: Assessment of carbon-crediting programs. The ICVCM assesses whether the program satisfies CCPs relating to program-level requirements.
- Step 2: Assessment of the types of carbon credits. The ICVCM assesses whether the type of carbon credit meets the criteria in the CCPs relating to credit types.
- Step 3: Identification of CCP-eligible carbon credits. Following completion of steps 1 and 2, the issuing program will identify which specific carbon credits are CCP-eligible and tag them as such in the program's own registry, as overseen by the ICVCM.
The Public Consultation
The ICVCM launched a 60-day public consultation on its draft CCPs, Assessment Framework and Assessment Procedure on 27 July 2022. It is open to comments and submissions from the public until 27 September 2022. The consultation includes virtual briefings, with the first webinar on 3 August 2022 available to watch.
It is intended that comments and suggestions for improvement received from the consultation will inform a revision of the draft documents later this year. The public can send comments and submissions via the BSI website. The ICVCM will record and consider all comments received. The drafts, and further information on the consultation, can be found on the ICVCM's webpage.
The TSCVM created the ICVCM as an independent third party responsible for establishing a set of CCPs against which carbon credits and their supporting standards and methodology can be assessed, and for monitoring compliance with them. The publication of the draft CCPs, Assessment Framework and Assessment Procedure marks the first step of this process.
Once the public consultation process is complete, the ICVCM will invite carbon crediting programs to be assessed for compliance with the CCPs according to the agreed Assessment Framework and Assessment Procedure. If, as is expected, carbon crediting programs widely agree to be assessed under the framework established by the ICVCM, the adoption and application of these principles by carbon crediting programs will bring greater uniformity to voluntary carbon market standards, and contribute to ensuring a high level of integrity in the market. This will provide a strong foundation for the ongoing mandate of the TSCVM to scale-up the voluntary carbon credit market whilst ensuring the integrity of carbon credits traded on the market.
The ICVCM's work may also influence the regulation of carbon markets at an international level under Article 6 of the Paris Agreement. While the so-called 'Article 6 Rulebook' agreed at the 26th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change in Glasgow incorporates many of the same principles that form the basis of the CCPs developed by the ICVCM, including vis-à-vis additionality and permanence, the relevant provisions under the Article 6 Rulebook are high-level as compared to the detailed tests set out by the ICVCM in its Assessment Framework. Thus, it is expected that the standards currently being developed in the voluntary carbon market may impact the standards applied under Article 6 of the Paris Agreement in years to come.
- Negotiations on Carbon Credits Expected to Continue at COP27 (21 September 2022)
- Energy Transition & Industry Impact – Carbon Trading (10 November 2021)
- Scaling voluntary carbon markets: Opportunities and challenges (21 October 2021)
- Scaling Voluntary Carbon Markets: Phase II Report (30 July 2021)
- Scaling Voluntary Carbon Markets: Phase II Public Consultation (16 June 2021)
- Scaling Voluntary Carbon Markets: The Final Report (18 February 2021)
- Voluntary Carbon Markets: A Blueprint (13 November 2020)
Harjas Dhillon (Trainee Solicitor, White & Case, London) contributed to the development of this publication.
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