At a time when prices in the voluntary carbon market are gradually increasing, there is a segment proving to be even more expensive than regular carbon credits — Fairtrade-certified credits.
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The current minimum prices of Fairtrade-certified premium projects are Eur14.50/mtCO2e ($17.16/mt) for forest management credits and Eur9.10/mtCO2e ($10.77/mt) for renewable energy credits. These are substantially higher than the prices prevaling in the market for regular carbon credits.
The S&P Global Platts CNC -- reflecting nature-based credits -- was assessed at $7.45/mtCO2e on Sept. 9 while the Platts Renewable Energy Current Year Assessment was assessed at $2.24 on the same date.
Fairtrade International, the global NGO that creates Fairtrade Standards traditionally used worldwide for agricultural products and metals, certifies carbon credits in a similar way. These credits are priced quite higher than regular carbon credits because of the additional guarantee of quality, as well as because a significant proportion of the selling price is transferred directly to the local communities responsible for the project.
Ownership of the credits lies with the local households implementing the project, enabling them to directly participate in the voluntary carbon market. Under the Fairtrade Climate Standard, carbon emissions must not only be reduced by the producers of the credits in developing countries, but also by the end-buyers. Fairtrade also has stringent requirements for communities to classify as a producer organization.
The debate around quality credits and cheaper-priced credits is a constant in the voluntary carbon market. Developers are constantly trying to meet demands from both buyers in search of quality credits and those who want more economically priced credits to meet offsetting requirements.
"Though the market is still mainly focused on low-priced credits there is an increasing interest for the quality of the projects and transparency on how investments are spent. Fairtrade certified projects mean transparency of the value chain, getting the proceeds to the producers and assuring buyers pay the real price of a credit," said Linda Lap, manager, marketing and communications at FairClimateFund. The FairClimateFund specializes in Fairtrade projects as an implementer and facilitator with a portfolio that include cookstove projects in India, Ethiopia and Burkina Faso, as well as reforestation projects in Peru.
"FCF wants to demonstrate that the carbon market can benefit those who are the most vulnerable to the effects of climate change in a fair and effective way," said Lap.
All Fairtrade-certified credits have to be initially certified by the Gold Standard. Only credits that already have a GS certification can apply for Fairtrade certification.
"The underlying standard is Gold Standard. The key differences are in the way that the project needs to be organized, i.e., within Fairtrade's definition of a 'producer organization'. The credits must sell at the Fairtrade minimum prices to qualify as Fairtrade Carbon Credits. If the credits are not sold at those minimum prices, the credits are simply Gold Standard carbon credits," said Sarah Leugers, communications director at Gold Standard. "The primary benefit is that the communities financially benefit from carbon finance."
While these credits aim to meet higher community and sustainable development goals, there are additional challenges.
"Given the current carbon market crisis where carbon prices have fallen so low, carbon projects targeting rural communities run the risk of no longer taking place as they struggle to be financially viable. In addition, the complexities of setting up a project and the expertise needed also make the carbon market more inaccessible for these communities. It takes extra time and effort to transfer skills and knowledge to the communities, empowering them to tackle climate change and become more resilient," said Lap.
According to the Gold Standard, the minimum prices of the projects was a barrier initially as it was difficult to convince buyers to pay significantly higher than market prices.
"We understand that the requirements for producer organizations make it very difficult to retroactively certify a project as Fairtrade, and still challenging to start a project from scratch within the framework of Fairtrade producer organizations," said Leugers.
Deutsche Post DHL Group, which started one of the first Fairtrade-certified projects, now no longer uses the certification. In an email to Platts, the company said it stopped using Fairtrade certification because of the additional costs of the projects that were not offset with sufficient demand. They now stick to Gold Standard and VCS certified projects.