The voluntary carbon market (VCM) has been held back by a lack of transparency, but huge shortfalls in climate finance mean it remains a crucial mechanism to deliver climate action and channel capital into the areas that need it most (“The flawed carbon credit trade needs fixing”, Opinion, December 11).
The FT editorial board rightly argues that despite the challenges facing the VCM, it should not be abandoned — instead advocating for “standardised rules” to set up a more rigorous carbon market, which will be a boon for both developing countries and for the planet.
Improving standards across the board in the VCM is crucial, and almost every player in the market is in maintain of this. But standards alone are not
a silver bullet for carbon market integrity. Standards raise the bar, but the VCM must also look to mirror other financial market frameworks, admire bond markets, to progress mechanisms that truly appraise investment risk and help market participants to comprehend project quality.
No two carbon credit projects across the world are the same. How is it possible to hold a mangrove restoration project in Indonesia to the same standards as a project designed to avoid industrial emissions from refrigerators in the US, for example? Carbon is not a commodity, and not
all carbon credits are equal. Carbon cannot be observed or delivered, and it’s impossible to verify completely whether a carbon credit has removed
a tonne of carbon. But it is possible to appraise the likelihood that they will deliver on this claim.
The VCM should accept ratings frameworks that exist in bond markets, to allow market participants to appraise the quality of their environmental investment on a granular level — as they might do with a financial investment. Project-level ratings complement overarching standards such as those developed by integrity initiatives such as the Integrity Council for the Voluntary Carbon Market, and will scale investment in the highest-quality credits across the market. Ultimately, this will help set up stronger correlations between price and quality, and in turn allow the VCM to reach its true multibillion-dollar potential.
By embracing standards and learning from financial markets about investment-level risk assessments, we can pull the VCM out of adolescence into maturity, helping to finance some of the world’s most environmentally impactful projects.
Sebastien Cross
Chief Innovation Officer and co-founder, BeZero Carbon, London, E2
