INTERVIEW: Voluntary carbon market investments to resume upon clearer guidance: IETA

Investments in the voluntary carbon market are likely to resume soon after clearer guidance has been issued, Dirk Forrister, president & CEO of the International Emissions Trading Association told S&P Global Commodity Insights in a recent interview.

"When I talk to them [VCM investors], they don't say that they're out of the market. They're just evaluating what their options are and waiting on investments until they see what the ICVCM [Integrity Council for the Voluntary Carbon Market] produces," Forrister said.

ICVCM is due to issue an assessment framework, called the Core Carbon Principle, defining which types of carbon credits can be deemed high quality.

ICVCM told S&P Global that the framework is likely to be completed in early July. The first batch of CCP-compliant credits could hit the market as early as the end of the third quarter.

"There's also a twin initiative, the VCMI [Voluntary Carbon Markets Integrity Initiative], that is focused on the claims made by corporates and giving guidance on what are appropriate ways to say that you're using carbon credits," Forrister said.

VCMI plans to release the Claims Code of Practice on June 28, S&P Global reported previously.

"Once you get those two things [ICVCM and VCMI's guidance] in place, then I think that sets the stage for another phase of growth in the voluntary market," Forrister said.

Growing interests in Asia

Forrister noted an upswing in "pretty serious carbon market programs" in Asian countries, which he thought ultimately would have their sights set on international cooperation.

Most developing countries had made climate commitments based on what they can afford. "But when you compare that to the world clearing price [for emission mitigation], they've got enough low-cost mitigation potential to meet their target and to sell," Forrister said.

"By selling, they'll attract technologies," he said. "That puts them in a position so that in the next period they're well ahead of the game in terms of compliance. It's kind of a win-win on the seller's side."

Onboarding state enterprises

Forrister said an increasing number of state-owned companies in Asia were showing an interest in carbon markets and joining IETA, notably those in the power, oil and gas, chemicals, mining, iron and steel, and cement sectors.

"I think there's a lot more potential," he said. "State-run efforts, particularly in power, will be important players. The State Grid of China has been a member of ours for a while, but we're still hoping to build out."

China was more inwardly focused with the power sector, covered by the domestic compliance emission trading scheme, yet to be allowed to offset their emissions with international carbon credits.

"But if and when it does, it is likely to stimulate those companies to get more interested in the networks that IETA brings," Forrister said.

Carbon nationalism

One hurdle for today's VCM is the emerging trend in carbon nationalism. Some project host countries that used to supply significant volumes of VCM credits to buyers globally have called for a pause in credit exports.

"They [the host countries] described it [the ban for carbon credit exports] as hitting the pause button while they get their plans together," Forrister said. "That's perfectly understandable. But if the pause button gets stuck there, they can miss the boat in terms of early investments."

Forrister said there had been a fair amount of confusion about crediting under Article 5 of the Paris Agreement.

Article 5 is a result-based payment system, enabling communities in forested regions to be paid directly for positive climate impacts.

It has been embraced by some rainforest nations as simpler than the carbon market, as well as avoiding the VCM's middlemen, perceived to be adding a healthy premium.

"Our read of it [Article 5] is it doesn't have the same methodological requirements and MRV [monitoring, reporting, verification] requirements that the Article 6 world requires," Forrister said.

It had not been accepted yet in carbon markets set by governments or by CORSIA [Carbon Offsetting and Reduction Scheme for International Aviation].

It was appropriate for governments to ensure finances were channeled towards their domestic forestry assets, "but it can be counterproductive if they send that negative signal that they're walking away from carbon markets," Forrister said.

CBAM's ripple effects

Meanwhile, IETA's Asian members are nervous about how Europe's carbon border adjustment mechanism or CBAM would affect trade.

From 2026, CBAM is set to progressively impose carbon tariffs on emission-intensive commodities exported to the EU, levelling the playing field with carbon costs in the EU ETS.

Platts, part of S&P Global, assessed EU emission allowances at Eur94.59/mtCO2e ($103.33/mtCO2e) on June 20.

"I should say [there is nervousness] not just in Asia. That's true in the US and that's true in Europe, because companies in Europe like free trade and they don't want to see retaliation," Forrister said.

"We don't really like to see climate change become a tool of trade tension."

Forrister said he expected diplomatic discussions on whether countries that export CBAM-eligible commodities to the EU can use VCM credits to offset their CBAM-eligible emissions.

How the discussions would evolve depend on the detailed implementation plan for CBAM, which is yet to be produced by the EU.

"I've had the chance to meet with those officials and they're being very quiet about what the specifics are in their plan," he said.