Core Carbon Principles

Introduction

The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) is an initiative that is working to enable the scaling of voluntary carbon markets to help meet the goals of the Paris Climate Agreement. The TSVCM was initiative by Mark Carney, who is the UN Special Envoy for Climate Action and Finance. The TSVCM has a unique value proposition: bring together all parts of the carbon offset value chain (including buyers and sellers of carbon credits, standard setters, the financial sector, market infrastructure providers, civil society, international organizations, and academics) and provide recommendations on the most pressing pain-points preventing the scale up of voluntary carbon markets.

The TSVCM has released a number of reports. In January 2021, the Phase I report was released. This document provided a blueprint for creating a large-scale, transparent carbon credit trading market. The report outlined six topics for action:

1. Develop Core Carbon Principles (CCP) with a taxonomy of attributes to ensure credit are high integrity.
2. Increase market liquidity by introducing core carbon reference contracts.
3. Develop carbon market infrastructure including trade, post-trade, financing, and reference data.
4. Increase demand for carbon offsets by offering a simplified buyer experience and clear investor guidance on the use of offsetting.
5. Develop consensus on the legitimacy of offsetting by creating clear alignment across all market actors on the critical role of offsetting to achieve net zero targets.
6. Assure market integrity by developing strong processes to support market fairness, efficiency, transparency, and reduced risk for fraud.

In July 2021, the TSVCM released their Phase II report which outlines further details on development and implementation. The report includes four chapters:

1. The first chapter sets out the objectives and focus of the TSVCM. In particular, the difficulties faced by the market today, the Taskforce activities, governance, legal principles, and approaches to credit-level integrity and Article 6.
2. The second chapter details a blueprint for a future governance body with the mandate to implement, host, and curate a set of CCPs; provide oversight over standard setters; and coordinate interlinkages between individual bodies.
3. Chapter three outlines a standardized legal framework underpinning credit issuance and trading contracts with common language on liability, ownership, and delivery among other details.
4. The fourth and final chapter dives into the CCP threshold standard, analyzes credit eligibility criteria, and proposes a taxonomy of additional attributes.

What is a Core Carbon Principle?

So, what is a Core Common Principle (CCP)? The CCPs are being developed to help market participants understand the minimum threshold for what constitutes a high-integrity credit. There is also a component of the CCP definition to ensure robust governance and oversight with regard to the CCP designation process. The TSVCM has stated that they do not intend to make the CCP an exclusionary tool for any offset credits in the market, but to simply label high-quality credits as meeting the CCP criteria. The ultimate goal of the CCPs is to catalyze more robust, transparent, and liquid carbon markets. The CCPs alone will not be enough, but will need to be supported by market infrastructure that promotes data transparency, funding availability, ease of access, and price transparency.

High-level principles of credit integrity for defining CCPs will look to align with the International Carbon Reduction & Offset Alliance and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). These principles include:

• Real – No ex-ante crediting
• Based on realistic and credible baselines
• Monitored, reported, and verified – Using accurate and conservative measurements, followed by validation by accredited verifiers
• Permanent – Should consider long-term permanence, buffer requirements, notification of losses, and safeguards after crediting period
• Additional – Including regulatory and financial additionality
• Leakage accounted for and minimized – Requires assessment, mitigation, deduction, and monitoring procedures
• Only counted once – Credits cannot be registered under multiple programs
• Do no net harm – Prior and ongoing impact assessments, stakeholder consolations, and grievance mechanisms

The TSVM has transitioned the mission to scale high-integrity voluntary carbon offsets to a new governance body known as the Integrity Council for the Voluntary Carbon Market (IC-VCM). The new governance body is made up of independent members with diverse skills, experience, and expertise. The IC-VCM will assess: 1) which standards may issue CCP credits; 2) which methodology types may issue CCP credits; and 3) the additional attributes that CCP credits must be tagged with (e.g., biodiversity benefits). The first standard taxonomy on additional attributes include:

• Project type: removal or avoidance or mixed
• Removal/reduction method: nature-based or technology-based
• Storage method: biological, geological, products, or no storage
• Co-benefits: may be associated with technology catalyst befits, or UN Sustainable Development Goals as an example
• Corresponding Adjustments: to reconcile project-level transfers across international boarders

While the IC-VCM has not yet defined CCPs beyond the detail outlined in the TSVCM’s Phase II report, the market for CCP-aligned offset credits is already being developed. The commodities marketplace provider Xpansiv has plans to introduce a new voluntary emissions reduction (VER) standard contract based on initial principles. After naming its board members last month, the body will now set out on its mission to establish, host, and curate CCP eligibility guidelines and additional attributes; publish a CCP assessment framework for offset standard setters; and establish eligibility principles for VER suppliers, and validation and verification bodies. This work is targeted to be completed over 2022.

While the work the IC-VCM is undertaking will bring much needed clarity to the question of what constitutes a high-quality carbon offset, it is important to note they are not focused exclusively on negative emissions technologies. The CCPs are a much broader standard that will still permit lower-quality avoidance-based credits to be recognized and used towards a company's voluntary greenhouse gas commitments. As long as avoidance activities are recognized as voluntary carbon offset claims, the voluntary carbon market will be unable to dispel concerns about quality.

Conclusion

In our view, the voluntary carbon market can gain trust by being simple and transparent. Each tonne of carbon that is added to the atmosphere can only be offset with a carbon removal. That carbon removal must be permanent over geologic time. The permanence of sequestered carbon dioxide must be monitored and verified to ensure a reversal does not occur. Most offset credits are wrapped in complexity, opaque baselines, and jargon. It does not have to be this way. The IC-VCM should take note as they set out their work to curate CCPs. The definition for what constitutes high-quality is simple: remove carbon from the atmosphere.

Acknowledgments

We would like to thank Steven Andersen for providing insights and expertise that greatly assisted this research.

Steven Andersen is a Senior Vice President in J.S. Held’s Environmental, Health, and Safety (EHS) practice. Steven has spent over 17 years in the EHS industry, with specific experience in air emissions management systems, information management systems, and data integration. He commonly fills the role of sponsor on large scale implementation projects, consults on Environmental, Social, and Governance (ESG) strategy and data management, and has performed the role of solution architect on many air emissions system implementations. As the founder and chief executive officer (CEO) of Frostbyte Consulting, Steven was responsible for strategy, partnerships, and business development. Under Steven’s leadership, Frostbyte grew into a company that delivers ESG and EHS advisory and information systems globally across all industry sectors.

Steven can be reached at [email protected] or +1 368 209 1012.