(Bloomberg) -- The market for carbon offsets faces renewed upheaval after a major category of credits failed to win approval from a key oversight body.
The Integrity Council for the Voluntary Carbon Market has decided that its Core Carbon Principles label can’t be used on carbon credits issued under existing renewable energy methodologies. The move affects about 236 million credits, or 32% of the market, the ICVCM said in a statement on Tuesday.
The development has the potential to deliver a serious blow to a market that’s already contracted by almost a quarter from a 2022 peak. But it’s also the latest sign that efforts are underway to clean up carbon offsetting, a practice that’s drawn regular criticism for allegedly enabling greenwashing.
According to the ICVCM, existing methodologies used for the offsetting structures in question are “insufficiently rigorous in assessing whether the projects would have gone ahead without the incentive of carbon credit revenues.”
The assessment is welcome and “sends a signal to clean up the market from the many low quality credits that are still available,” said Gilles Dufrasne, policy lead at Carbon Market Watch, a nonprofit.
For years, climate experts have warned that renewable energy credits are largely worthless. That’s because in most countries, renewables already represent a competitive alternative to fossil fuels, meaning any additional revenue from carbon credits is unlikely to steer decisions on whether to build or expand green energy capacity. Instead, extra income has tended to go to developers.
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Renewable energy credits have proved popular among corporates. In 2022, they made up about half of all offset purchases, rising from 38% a year earlier, according to a study by Bloomberg. Companies that have focused their offsets procurement on such credits include Volkswagen AG, Etsy Inc. and TotalEnergies SE, Bloomberg has previously reported.
The credibility of the voluntary carbon market via which such credits are traded has faced scrutiny following a series of investigations showing that a variety of offsets weren’t meeting their stated emissions-reduction claims. The ICVCM, an industry-led governance group, has been trying to address such concerns by limiting its stamp of approval — the CCP label — to credits that pass its quality threshold.
To carry the CCP label, a credit must be issued by one of the five offsets programs that ICVCM has vetted and be generated using an approved methodology. In June, the ICVCM announced the first two categories to be green-lit: projects that capture and destroy methane from landfills, and those that remove ozone-depleting gases from discarded equipment such as air conditioners. These also drew criticism, however, with CarbonPlan, a research nonprofit that specializes in offsets, alleging they offer no additional emissions reductions beyond those that would have occurred without credits.
On Tuesday, the ICVCM announced two further methodologies that merit a CCP label: one for projects that detect and repair methane leaks in the gas industry, and another for those that capture methane from landfill sites. The group rejected a methodology for projects in the magnesium industry that reduce the release of sulfur hexafluoride, a gas that traps 22,000 times as much heat ton-for-ton as carbon dioxide.
The guidance body is in the process of assessing further categories of carbon credits, including the popular but controversial REDD+ forestry methods. A decision on those is expected in the coming months. For now, roughly 27 million credits are eligible to carry the CCP label, which is about 3.6% of the market, the ICVCM said.
The group has left the door open to new “more rigorous” renewable energy credit methodologies once these are developed, on the basis that they help spur clean energy build-out in places where it’s not yet established.
Juerg Fuessler, managing partner at consultancy Infras and a member of the ICVCM’s expert panel, welcomed the board’s decision but said alternative approaches to offsets should be explored to help boost renewables uptake in developing countries. “More adequate instruments such as international de-risking need to be rapidly deployed to help poorer countries,” he said.
For the ICVCM, carbon credits remain an important financing tool. “We are taking the tough decisions necessary to build a high-integrity voluntary carbon market that can be scaled to meaningfully fund climate solutions,” Annette Nazareth, chair of the ICVCM, said in a statement.
(Adds comment from Fuessler in 12th paragraph.)
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