Taskforce calls for focus on quality carbon offset credits

London — The voluntary carbon market must focus on environmental integrity of offset credits in order to scale up to meet the challenge of reaching net-zero emissions by 2050, a private sector-led taskforce said in a report Jan. 27.

The report by the Taskforce on Scaling Voluntary Carbon Markets set out a blueprint for expanding the market in order to help meet a global 570 billion mt cumulative CO2 budget by 2050.

"The Taskforce believes significant expansion of the market, through a step-change in the scale of supply and demand of high quality, additional, verifiable, and traceable carbon credits will be critical and can be achieved," the taskforce said in the report.

The group – led by UN Special Envoy for Climate Action and former Bank of England governor Mark Carney – is a private sector-led initiative working to scale an effective and efficient voluntary carbon market to help meet the goals of the 2015 Paris Agreement.

"Every year, the world emits approximately 51 billion mt of greenhouse gases into the atmosphere," said Microsoft founder Bill Gates in a foreword to the report.

"To avoid the worst impacts of climate change, we need to reduce that number to zero – and we need to do it in the next 30 years. This will be one of the hardest challenges humanity has ever faced, but we can meet it if we act boldly to reduce emissions worldwide," he said.

The taskforce underlined the importance of reducing absolute emissions in all sectors of the global economy, but voluntary carbon markets will be critical to help offset emissions in sectors that are hard to decarbonize, it said.

Global carbon budget

To remain within a 570 billion mt cumulative CO2 budget from 2018 to 2050, net greenhouse gas emissions must fall by 23 billion mt by 2030 – a reduction equivalent to 1.5 times the total emissions from all oil consumption in 2019, the taskforce said.

To reach the net 23 billion mt reduction by 2030, 2 billion mt will likely need to come from sequestration and removal.

"In theory, there is sufficient supply potential to match this need, with approximately 3 billion mt from nature-based sequestration such as reforestation and 1-3.5 billion mt from technology-based removal such as bio-energy with carbon capture and storage (BECCS) and direct air capture with carbon capture and storage (DACCS)," the taskforce said.

However, this supply potential is subject to significant mobilization challenges, it said.

Achieving 2 billion mt of emissions sequestration and removal by 2030 requires a 15-fold scale-up of voluntary offsetting in 2030 compared with 2019 levels, assuming carbon credits are used to finance all these actions, it said.

"This will involve a significant step up in corporate commitments, which are sized at just 0.2 billion mt in 2030 based on evidence today," it said.

Clarity on quality, transparency

To achieve a step-change in scale, there are some structural challenges that remain to be solved, the taskforce said.

"Today, some buyers struggle to navigate various standards and to find high-quality carbon credits at transparent prices," it said.

"For a new market participant, it may be difficult to understand what constitutes a high-quality credit, especially as the views on additionality, permanence, and leakage evolve, considering advances in science, technology, and market views on appropriate crediting baselines," it said.

A new voluntary carbon market needs to provide a productive forum for companies to support the path toward net-zero emissions – not only through nature-based solutions and cost-competitive technologies, but also through investment in new, expensive technologies that will address the hardest to decarbonize parts of the global economy, the taskforce said.

Many companies will gravitate toward the most cost-effective options available, so there is a need for institutions to encourage investment in the projects and technologies that are the most difficult to commercialize, it said.

"For example, heavy emitting industries – like oil and gas, aviation and manufacturing – could establish effective partnerships that commit their voluntary carbon mitigation activities toward developing these challenging low carbon solutions," it said.

The taskforce is chaired by Bill Winters, group chief executive of Standard Chartered and is sponsored by the Institute of International Finance. The taskforce is supported by a consultation group composed of representatives from around 120 institutions including S&P Global Platts.

Core Carbon Principles

The taskforce identified six key areas where efforts are required to achieve a large, transparent, verifiable and robust carbon market: establishing core carbon principles, core carbon reference contracts, infrastructure, offset legitimacy, market integrity and demand signaling.

Core carbon principles should define threshold quality criteria for a carbon credit and additional attributes in a framework for accommodating diverse buyer preferences, and standards underlying methodologies should be assessed against the CCPs to ensure high integrity, the taskforce said.

On core carbon reference contracts, standardized spot and futures contracts allow trading at scale and provision of clear pricing signals, while a secondary market for carbon credits can help buyers manage price risks, increase liquidity and retain flexibility, it said.