Reinventing the Wheel
So the Task Force on Scaling Voluntary Carbon Markets has published its final report with recommendations on how to streamline the non-compliance offsets sector and make it more efficient, transparent and… dare I say it, respectable.
The real work is really just starting for the more than 400 entities – private sector companies, governments, academics and NGOs – to set up a governance system and legal structures that will encompass as much of the voluntary market as it can.
The basic underlying idea is that voluntary offsetting should exist alongside making in-house emissions reductions and that a structured offset market could unlock hundreds of millions of tonnes of these reductions in a way that the disparate, somewhat “Wild West” (to quote one stakeholder) market currently doesn’t.
So the TSVCM aims to set up a governance body that would take responsibility for setting or at least approving standards across the market: offset quality, methodologies, infrastructure such as registries, legal agreements, for example.
Now, I’ve said this before, but all of this echoes the effort that the United Nations undertook when the Marrakech Accords established the guidelines for the Clean Development Mechanism.
Of course, the CDM was set up to be a compliance mechanism through which Annex B countries could meet their Kyoto Protocol targets. The voluntary market came into existence to serve those participants that weren’t covered by any compliance mechanism.
But the advent of the Paris Agreement has ended any distinction between Annex B (developed) and non-Annex B (developing) countries. Instead there is a community of more than 190 nations bound by their own National Determined Contributions to the global effort.
And instead of the CDM, we have a new project-based mechanism laid down under Article 6.4 which – more or less – replicates the functions of the CDM. Indeed, the delay in agreeing on how to implement Article 6 stems in part from disagreements on whether or not to import projects and methodologies from the CDM into the new system.
So we now have the TSVCM building an Executive Board, a secretariat, and a set of rules and guidelines that will do much the same thing as the CDM Executive Board, secretariat and rules have done, and which will probably resemble the idealised structure of an Article 6.4 Executive Board, secretariat and rules as well.
The question to me is whether we need two separate bodies to do much the same thing.
If we go back to the experience with the CDM, we see that the system struggled from a lack of demand (only the EU really bought CERs in any meaningful volume) and a lack of confidence. Compliance demand just wasn’t there.
But there were, at one stage, plenty of buyers who were happy to buy CERs for voluntary offsetting purposes, and there still are today. So the CDM met both compliance and voluntary demand.
Offset standards organisations like Verra and the Gold Standard also developed project methodologies that answered the demands of both the mandatory and voluntary markets at the same time.
So when – finally – UNFCCC negotiators reach agreement on Article 6, and the work starts to build an Executive Board, a secretariat, and a set of rules and guidelines, where is that going to leave the TSVCM?
Consider the position of the actual market participants. Project developers can choose which standard to adopt, which methodology to use and therefore which market to target.
Standards organisations are able to walk both sides of the street by developing protocols that meet the requirements of either the voluntary market, or Article 6, or even both.
Intermediaries will buy or sell whatever the market wants.
But if you’re a large corporate buyer with a desire to offset your carbon footprint with high-quality, respectable and legally-backed offsets, will you choose to buy voluntary offsets that may or may not count towards a country’s NDC? Or would you buy UN Article 6-approved reductions that you can proudly say have contributed towards your country’s target? Which one tells a stronger ESG story?
Surely one system can answer the demands of everyone. If countries and companies are both buying carbon offsets to help speed the journey towards net zero, do they need to be “voluntary” or “compliance”? Why do we need two sets of standards and rules? Two governance bodies?
(Just as an example of the efficiencies that are possible, Colombia’s national carbon tax can be paid for with offsets. Happily the country decided not to reinvent the wheel by developing its own offset standards, but has allowed the retirement of offsets created under protocols developed by Verra and the Gold Standard.)
The TSVCM was created essentially because governments dropped the ball after the Paris COP in 2015. But the two years since the Madrid COP have seen explosive growth in offsetting demand, with both governments and private sector companies pledging to reach net zero by 2050.
Whether you like it or not, offsets are going to be part of that process. UNFCCC Parties are going to come under immense pressure to agree on Article 6 in Glasgow. If they don’t, then the TSVCM will be positioned to take over to provide the world with an offset mechanism that will (probably) work.
Which would you rather have?