Voluntary Carbon Markets Integrity Initiative sets out new guidelines

“This means that carbon credits must be generated by activities that truly go beyond business-as-usual and benefit host communities – the supply side – and that their use increases overall greenhouse gas mitigation rather than substituting for existing actions – the demand side,” it said.

“Without clear high integrity rules for both aspects, voluntary carbon markets will rightly continue to be viewed with suspicion, companies will be afraid to invest, and their potential will be lost.”

According to the code, before companies buy any carbon offsets, they must have disclosed their annual greenhouse gas emissions and their near-term reduction targets, validated by the Science Based Targets initiative, besides having publicly committed to reaching net zero emissions no later than 2050.

They must also demonstrate that they are on track to reach their near-term reduction goals.

Companies can then select one out of three tiers of claims to make, based on the percentage of their own residual emissions that will be offset by buying carbon credits.

The release of the VCMI claims code follows public concern about the credibility of credits from one key category – deforestation prevention projects – flagged earlier this year by several media reports in Europe.

“Clearly [they are] a very important part of the market,” VCMI’s executive director Mark Kenber told the Post in an interview ahead of the code’s launch. “At the moment, forest protection is getting less than 3 per cent of the financing it needs to protect standing tropical forests, so we need to find an answer.”

VCMI was launched two years ago with backing from funders including the UK government, the philanthropic arm of hedge fund Children’s Investment Fund Management, Bezos Earth Fund and technology giant Google.

The VCMI code’s launch will have implications for Hong Kong, where blue chip companies are seeking to buy high quality voluntary carbon credits to offset carbon footprints they cannot reduce by their own efforts.

Hong Kong has also indicated an ambition to become a regional market for carbon credits trading, bridging global demand for carbon offsets and China’s potential credits supply.

Voluntary credits are issued by carbon offset registries on climate mitigation projects, for each unit of emission reduction or removal that is verified. The robustness of the registries’ standards and methodologies are key to the quality of the credits issued.

Voluntary credits traded globally jumped nearly fourfold to US$2 billion in 2021 from 2020, according to data compiler Ecosystem Marketplace. The most popular categories include renewable energy and forestry projects.

VCMI is considering providing compliance relief for some companies, Kenbar said.

“For companies that are just starting or are halfway on the net zero journey, how we incentivise them [to do more on decarbonisation] is part of the work we are doing in the next few months on introducing flexibility,” he said. “We hope to have a package by the end of the year that will be attractive both to multinationals and domestic mid-market companies.”