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Corresponding adjustments should not be enforced in voluntary market: Verra, ICVCM


Article 6, VCM fundamentally different systems

Freeing obligations key to reducing risk

Corresponding adjustment should be optional

  • Author
  • Ivy Yin
  • Editor
  • Haripriya Banerjee
  • Commodity
  • Energy Transition

Corresponding adjustment, a fundamental requirement for carbon trading between countries under Article 6 of the Paris Agreement, should not be obligatory in the voluntary carbon market, executives from Verra and the Integrity Council for the Voluntary Carbon Market said June 8 at the GenZero Climate Summit in Singapore.

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Article 6 requires corresponding adjustments to be made when a country buys carbon credits from another country to fulfill its climate targets, known as Nationally Determined Contributions. Trades in the voluntary carbon market, however, usually take place between non-governmental entities, namely corporates with voluntary commitments.

There has been a heated debate in the carbon industry as to whether the VCM should be Article 6-compliant, especially when it comes to multinational companies buying voluntary credits to offset their operational emissions across national boundaries.

David Antonioli, CEO of the world's largest VCM carbon credit issuer, Verra, and Pedro Barata, Co-Chair of Expert Panel with ICVCM, which sets the code of conduct for VCM suppliers, both highlighted fundamental differences between the VCM and Article 6, and called for the freeing of the VCM from corresponding adjustment obligations.

Overcoming uncertainties

The debate has triggered regulators in project host countries to re-evaluate the workings of the voluntary market after being told to make corresponding adjustments on VCM credits generated in their territories, and consequently giving up the right to claim the credit for the host country's NDC.

This has led to disruptive policies and even direct bans on VCM carbon credit exports, with the resulting regulatory uncertainties putting VCM project investment at significant risk.

"Some people argue that, given that they have not managed to win the argument in the Global North, the governments of the Global South should be enforcing corresponding adjustments for any international transaction. I find that very disturbing," ICVCM's Barata said.

"I won't talk about carbon colonialism or nationalism, but I think it is a bit cheeky to ask the Global South governments to enforce something that the Global North is not doing," he said.

"When Amazon invests in electrifying its vehicle fleet in the United States, which reduces emissions in the United States, nobody says the US need to make a corresponding adjustment," Nathaniel Keohane, President of the Center for Climate and Energy Solutions (C2ES), said at the conference.

"That's a precisely analogous case. I think this gets to the point about where the double standard starts," he said.

There was considerable interest in many countries to leverage the VCM to help drive economic activity, Verra's Antonioli said.

"If we required a corresponding adjustment, that would up-end that whole opportunity that we have in helping to drive finance to help countries get on a sustainable path," he said.

An option, not a must

Antonioli said buying correspondingly adjusted carbon credits should be an option instead of an obligation for companies.

"A company that's buying and retiring carbon credits isn't necessarily reporting to the country where it operates. It's a very different accounting system [compared with country-level emission accounting under Article 6]," he said.

The Verra official advocated VCM participants adjusting their claims. "If you have a corresponding adjustment, you can make a certain claim. And [if] you don't have a corresponding adjustment, you make a slightly different claim. I think we just need to be transparent about that," he said.

Some argued that, without mandatory corresponding adjustment of VCM credits, the private sectors' carbon finance may benefit host countries with less ambitious NDCs, ICVCM's Barata said.

"They're putting up this scary story that somehow countries will be freezing their ambition because of the potential for massive floods of finance coming from the voluntary carbon market. I don't think that's how government entities act in any part of the world," he said.