Close-up of vertical sign with logos for ridesharing companies Uber and Lyft, with wheels of a car … [+]
The voluntary carbon market is stagnating and trying to save itself by derailing developing countries from issuing carbon credits — which the corporate community might find more attractive. It’s like telling Uber
UBER
Indeed, disrupters are throwing the more established voluntary carbon market off balance, worth about $2 billion and potentially much more. In a white paper, the International Emissions Trading Association tries to discredit “REDD+ sovereign credits” approved by the UN and issued by national governments, saying they will hurt the industry’s reputation and they are not fungible assets that can get exchanged on international markets.
“The voluntary carbon market (VCM) is struggling, and desperation is setting in for those holding VCM credits,” says Kevin Conrad, executive director for the Coalition for Rainforest Nations, in a release. “It’s no surprise that the International Emissions Trading Association (IETA) is coming out with feeble attacks on (sovereign) REDD+ and trying to hold on to its customer base.”
IETA represents the interest of voluntary carbon markets whereas the coalition is an intergovernmental organization consisting of 53 rainforest nations. It’s not a zero-sum game, where the winner takes all. They have the same aims.
Carbon credits help countries and companies achieve their net-zero goals. For example, businesses can’t eliminate their CO2 releases through clean energy use and energy efficiency, causing them to buy credits to save tropical rainforests — natural CO2 vacuums. In effect, companies pay the rainforest owners to keep their trees standing and not sell them for wood or to clear the way for farming.
Xpansiv reports that brokers traded 9 million tons of project-based forestry projects versus about 47 million tons in the first quarter of 2022 — an alarming drop because of the rash of bad publicity surrounding the voluntary protocols.
The voluntary carbon market — private deals negotiated between landowners and intermediaries — has a more significant market share. Still, those credits made up just 200 million tons of emissions reductions in 2021. That’s a fraction of the 500 billion tons needed by 2050. But COP27 in Egypt made it easier for companies to support national efforts to slow deforestation through sovereign REDD+ carbon credits. That is an existential threat to the voluntary market, which does not want to undergo the same level of oversight.
The Big Picture is Clear
PAPUA NEW GUINEA – 1996/01/31: A waterfall comes down a cliff in the rain forest of the highlands … [+]
Under the auspices of IETA, the voluntary market wants to discourage corporations from buying sovereign carbon credits, saying they can’t trade in international markets. Only governments can purchase them, not corporations — an argument tantamount to the taxi authorities telling Uber drivers they can deliver food but can’t carry passengers.
“These results can be used to attract results-based finance under other initiatives and programs and can contribute to the host countries’ nationally determined contributions, but cannot be used as (corporate) offsets,” says IETA, per Carbon Pulse. “It could also potentially mislead many corporates and expose them to reputational risks …”
But that is terrible legal advice. Two unpublished legal analyses — one by an international law firm and the other a global consultancy — conclude sovereign credits are independently evaluated, easily tracked, and transferrable. Those credits are based on historical progress — not future promises, allowing traders to exchange them. Both countries and corporations can purchase them.
Moreover, the Paris Agreement adopted them, and 192 nations have agreed to those standards. Each country must do 54 things before issuing a carbon credit under the sovereign REDD+ mechanism. And those 54 strategies are reviewed twice by the UN, taking a country about four years to complete. More than 86% of countries issuing such credits had to revise and resubmit their evaluations and results.
The rainforest countries distribute nearly all the money to entice corporate and government buyers. The money goes to saving the rainforests and building infrastructure to mitigate climate change’s effects. Remember, many are low-lying nations vulnerable to rising tides and droughts. Consider Papua New Guinea: it has reduced its emissions from the forest by 53% since joining the Paris Agreement in 2015. It rejects carbon credits outside of that framework, saying there is no oversight in “the voluntary world.”
Conversely, under the voluntary carbon credit scheme, an intermediary arranges for a company to buy credits from a developing nation to help them save rainforest areas. The company pays the broker, and then the landowners or project developers get a percentage. The company treats the credit as an expense, and its customers ultimately pay it. The landowners get a pittance of the proceeds.
Chevron
CVX
GM
UL
The big picture here is clear: sovereign carbon credits are a threat to the voluntary market, which has grown to $2 billion. It is therefore trying to muddy the waters to dissuade companies from buying those credits approved by the Paris Agreement and reaffirmed by last year’s Sharm El Sheikh implementation plan. But it won’t work. Just as Amazon
AMZN
Also By This Author:
Voluntary Carbon Markets Give Pennies To Global South
Chaos in Voluntary Markets
Business Mum About On Voluntary Credit Market Turmoil
COP27 Enshrines Sovereign Carbon Credits
Corporates Confused by Carbon Markets
Source: https://www.forbes.com/sites/kensilverstein/2023/04/26/nontraditional-disrupters-threaten-to-upend-the-carbon-credit-marketplace/