COP28 Highlights: Exciting VCM Developments

? Global Momentum Builds for VCM with High-Profile Support: Momentum to revive the VCM gained traction, with government officials, conservation groups, and industry leaders, including the US climate envoy, John Kerry, the EU Commission President, Ursula von der Leyen, and the former UK Prime Minister, Tony Blair, advocating for its use to fund environmental actions. Despite acknowledging flaws, Kerry expressed optimism at a COP28 event, stating that it could become “the largest marketplace the world will have ever known.” At a separate event with von der Leyen, World Bank President Ajay Banga emphasized that there was no other scalable way for resources to reach developing countries.

?? European Countries Takes Bold Step to Ensure VCM Integrity: A coalition of European nations, led by the Netherlands, Germany, France, Spain, Finland, Belgium, and Austria, has introduced a framework to combat greenwashing and restore integrity in the VCM. The joint recommendations put forth by these European nations aim to enhance transparency, ensure high-quality credits, and establish credible claims. Crafted to guide companies in alignment with the Paris Agreement, these recommendations can serve as a foundation for EU-level frameworks. The coalition recognizes the pivotal role of effective and trustworthy VCM in advancing faster and more ambitious climate action.

? CFTC Paves the Way for VCM Derivatives with New Guidance: In a landmark move, the Commodity Futures Trading Commission (CFTC) issued proposed guidance and requested public comment on listing VCM credit derivative contracts. This guidance outlines factors for CFTC-regulated exchanges to consider when designing and listing these contracts, ensuring compliance with relevant regulations and promoting market integrity. This action culminates years of CFTC work on carbon markets and climate impacts on financial markets, said Chairman Rostin Behnam. The proposed guidance affirms CFTC commitment to setting high standards for transparency, liquidity, and price discovery in these emerging markets.

? Historic Collaboration Among Independent Standards to Increase Consistency Across the VCM: The world’s leading independent carbon crediting standards—ACR, ART, CAR, GCC, GS, Verra/VCS—have announced a historic collaboration aimed at amplifying the positive impact of activities under their standards. This partnership seeks to elevate transparency and consistency across the VCM. The major voluntary carbon standard setters have committed to aligning best practices and enhancing transparency, with plans underway to establish a comprehensive integrity framework for carbon crediting programs, marking the onset of a new era of collaboration in the field.

? SBTi, VCMI and ICVCM to Establish Universal Guidelines for VCM: The SBTi will collaborate with several key organizations, including VCMI and ICVCM to establish a comprehensive integrity end-to-end framework with consistent guidance on decarbonization, including the use of carbon offsets for residual emissions. This framework aims to provide science-backed methods for decarbonization and offsetting residual emissions, offering companies clear guidance on achieving net-zero goals. It marks a milestone in the VCM’s evolution and underscores the growing demand for high-quality offsets. By streamlining the process, offering consistent guidance, and building investor confidence in offsetting, this initiative aims to significantly simplify carbon management for companies and ensure the integrity of the VCM.

? VCMI’s Enhances Claims Code to Include Scope 3 Flexibility: The VCMI has expanded its Claims Code of Practice, aiming to standardise how companies declare their use of high-quality carbon credits. The new guidance includes a Monitoring, Reporting, and Assurance (MRA) Framework and introduces an identity mark for ‘Carbon Integrity’ Claims, along with a new claim category, ‘Scope 3 Flexibility.’ Commending VCMI’s new guidance, U.S. Special Presidential Envoy for Climate, John Kerry, stated: “By creating sound guardrails for the use of high-quality carbon credits, the new VCMI guidance will provide strong assurance that this finance will help deliver the greater climate action we so urgently need.” Following the original Claims Code published in June, companies could make Silver, Gold, or Platinum Claims using the framework, supporting initiatives combating climate change and showcasing commitment to science-based emissions reductions.

? Challenges Remain for International Cooperation with Unsuccessful Article 6 Negotiations: Negotiators at COP28 failed to advance international cooperation under the Paris Agreement’s Articles 6.2 and 6.4 due to technical disputes, especially regarding transparency and integrity safeguards. Despite the Supervisory Body’s year-long efforts, no consensus was reached, leaving the Article 6.4 implementation text undecided. The impact includes ongoing revisability of Letters of Authorisation for A6.4ER transfers and uncertainty about the scope of the Article 6.4 Mechanism on avoidance credits. This is concerning for buyers who may have paid a premium, as Letters of Authorisation can still be revised or revoked. Approval is likely delayed until the next UN climate summit in Baku in November. COP28 also fell short on key details for Article 6.2, allowing existing pilot deals to continue for now.

For more details:

  1. The Guardian
  2. Government NL
  3. CFTC
  4. Verra
  5. ICVCM
  6. Business Wire
  7. S&P Global