On Tuesday, at an event featuring Secretaries Janet Yellen, Tom Vilsack, and Jennifer Granholm along with White House Senior Advisor John Podesta and National Climate Advisor Ali Zaidi – and co-hosted by C2ES — the Biden Administration issued a statement of policy and principles for high-integrity voluntary carbon markets. These principles draw extensively on, and are closely aligned with, the work of leading civil society organizations such as the Integrity Council for the Voluntary Carbon Markets (ICVCM). (C2ES is proud to have helped to establish the ICVCM and to continue to support it, as a founding member of the Executive Secretariat.)
As their name implies, the voluntary carbon markets are, well, voluntary. So why did the U.S. Government weigh in, and why does it matter for the climate?
A bit of background
The voluntary carbon markets give companies (and other private actors) the opportunity to buy credits that represent verified reductions in carbon dioxide or other greenhouse gas emissions, typically as part of corporate climate commitments. These corporate commitments are purely voluntary — as distinct from compliance carbon markets. Existing compliance markets include the cap-and-trade programs in the European Union, California, and elsewhere, as well as international efforts such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) (which is mandatory for airlines traveling between participating countries) and Article 6 of the Paris Agreement (under which countries may transfer emissions reductions as part of meeting their Paris climate targets).
The voluntary carbon markets have attracted a fair amount of controversy in recent months, amid reports that some widely used crediting methodologies are faulty — meaning that carbon credits generated using those methodologies may not result from genuine emissions reductions after all. In effect, the markets are suffering from a “lemons problem.” As in a used-car market, there are good credits and bad credits, and it’s currently very hard for the average buyer to tell the difference. This inconsistency about credit quality is precisely why efforts like the ICVCM — which has established Core Carbon Principles and is in the process of identifying credits that meet them — are needed.
Why the White House is weighing in
So why is the federal government getting involved? Three reasons.
First, the Biden Administration — in line with its comprehensive approach to tackling climate change — is seeking to tap into carbon markets as a source of capital for climate solutions. The Department of Energy, for example, has issued a “Voluntary Carbon Dioxide Removal Purchasing Challenge” that aims to catalyze market transactions to help fund technologies and practices that take carbon dioxide out of the air and store it. The USDA is working with farmers to help them access carbon markets as a means of funding climate-smart agricultural practices that can store carbon in soils.
Abroad, the State Department has championed the use of innovative approaches to high-integrity carbon markets as a means of channeling finance into critical priorities such as protecting tropical forests (through the LEAF Coalition) and speeding the retirement of coal-fired electricity generation and its replacement with renewable energy sources in developing countries through the Energy Transition Accelerator. (C2ES is also proud to have helped establish the ETA and serve as its Secretariat.)
Second, the government has a regulatory interest in high-integrity voluntary carbon markets. That doesn’t mean regulating the quality of credits directly — these are voluntary markets by their nature. But when financial institutions sell futures contracts for voluntary carbon credits, the Commodity Futures Trading Commission (CFTC) has an interest in promoting the integrity of the underlying credits. Indeed, the CFTC has issued its own principles for high-integrity voluntary carbon markets, which also track closely with ICVCM’s Core Carbon Principles, and plans to issue final guidance for carbon credits by the end of the year. Similarly, when companies provide climate-related financial disclosures, the Securities Exchange Commission has an interest in promoting transparency around the carbon credits that companies are buying as part of their corporate climate strategies.
The power of convergence
The third and perhaps most important reason for the administration to get involved is the White House’s power to help set and reinforce norms. By wading into the fray on voluntary carbon credits, and weighing in with its own principles, the Biden Administration is sending a clear signal that carbon credits are potentially valuable — but that they must have high integrity.
In this context, it’s vital that the White House principles so thoroughly draw on and reinforce the work of civil society organizations like the ICVCM and its sister organization the Voluntary Carbon Market Integrity initiative (VCMI). (The White House statement acknowledges both organizations in the principles.)
Here is a side-by-side comparison of the relevant principles in the White House statement with the ICVCM Core Carbon Principle:
As this comparison makes clear, the White House principles closely track the Core Carbon Principles across all major areas, including governance, tracking, transparency, third-party validation and verification, additionality, permanence, robust quantification (including baselines), no double counting, and sustainable development. This convergence is crucial. Establishing clear, widely-agreed-upon norms and standards for behavior is critical to promoting integrity in the voluntary carbon markets, as in any voluntary setting.
Why this matters
The voluntary carbon markets are currently relatively small; their total value reached a high-water mark of $2 billion in 2021, representing nearly 500 million tons of emissions reductions. For comparison, that dollar figure is over two orders of magnitude smaller than the annual value of credits in the EU Emissions Trading System (ETS). But the voluntary markets have the potential to grow by ten or even twenty times. At $20 billion a year, we’d be talking real money for the climate: not a silver bullet by any means, but a significant sum. The markets will only realize that potential, however — and should only realize that potential — if they have high integrity.
By setting out clear principles for high-integrity voluntary carbon markets that are aligned with and reinforce the work of the Integrity Council and other civil society organizations, the White House has helped to lay a strong foundation for a voluntary carbon market that can scale – and make a meaningful contribution to addressing the climate crisis.