Numerous recent studies have decimated the validity of the voluntary carbon
market
(VCM). A recent University of Cambridge-VU Amsterdam study shows a
mere six percent of
REDD+ offsets certified by Verra — the
world’s leading carbon standard — are valid. And even more recent analyses by
the
Guardian
and The New Yorker
present mounting evidence that many offset schemes exaggerate climate benefits
and underestimate potential harms.
Chris Neufeld — Head of Development
at the recently launched Climate Vault, a platform
leveraging compliance markets to produce higher-quality offsets — isn’t
surprised.
The VCM has been
built
on four independent registries and thousands of independent project developers
left to self-regulate. Based on the growing amount of findings invalidating
their claims, self-regulation isn’t working very well.
“The voluntary market, frankly, is a reaction to the lack of government
oversight in this area,” Neufeld told Sustainable Brands® (SB).
“Ultimately, everything has to come together to make one unified market if we’re
ever going to have success with this challenge.”
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The structure of the VCM lends itself to bad actors and mistakes, blemishing the
entire industry. The biggest structural flaw in the VCM, Neufeld explained, is
misaligned incentives favoring profits over progress: The more credits that get
approved, the more money accrediting organizations make.
Fixing the VCM
Climate Vault is using the compliance market as a
mechanism
for organizations to reduce emission today with credible solutions while using
the value of the allowances to support nascent carbon-dioxide-removal (CDR)
technologies necessary to prevent catastrophic climate change. Up until now,
standards have not existed for CDR. That’s where
Covalent comes in.
Covalent is a new, forward-crediting platform for CDR projects that ensure at
least 1,000 years of permanence — connecting CDR innovators with financing
needed to scale. As Covalent CEO and co-founder Onur
Eren explained, the issue of
permanence is the most important factor in the carbon-removal domain: Without a
guarantee that carbon captured from the atmosphere won’t be reemitted,
carbon-removal activities — and any offsets generated from them — are a farce.
Covalent rules out offsets generated from nature-based offset
projects,
point-source capture and renewable energy. But companies relying on permanent
storage solutions are not nearly as developed as nature-based credit generators,
which is why Covalent is building the infrastructure for these companies to
receive the funding, access to markets and scale they need to remove excess
carbon from the atmosphere. Covalent’s inaugural project issued one million
forward-carbon-removal credits for Carbon Limit
— a Florida-based firm producing a cement additive enabling concrete to
actively absorb CO2. Covalent’s Certification Standard — which has been adopted
by carbon verifier Bureau Veritas — requires
a minimum 1,000-year permanence and limits leakage to no more than 0.01 percent.
While shorter-term carbon-storage solutions are essential to safeguard
biodiversity, promote wellbeing and provide short-term climate benefits, they do
relatively little to guarantee carbon will stay locked up indefinitely. Offsets
from nature-based carbon sinks readily give up carbon to the carbon cycle in a
century’s or even decade’s time; a millennial timescale is needed for a
permanent solution. The only guarantee against the Anthropocene is permanence.
“If we only focus on nature-based solutions, then we are passing the problem on
to future generations,” Covalent’s COO and co-founder, Göker
Avci, told SB. “If we just keep
investing in avoidance projects and renewable energy projects, it is simply
impossible to reverse climate change.”
To receive Covalent forward
crediting,
projects must remove intended emissions from the atmosphere within five years of
forward crediting. Covalent only allows companies to claim forward credits (to sell on the voluntary market) if
they have achieved net negative emissions. There are plenty of criticisms for
forward crediting, and Covalent is attempting to build an integral standard to
make forward credits a trustworthy carbon-removal mechanism.
“Forward-crediting claims must be more than hypothetical claims,” Eren said.
“This is necessary for carbon-removal companies to build trust with prospective
buyers.”
Whether in compliance or voluntary markets, carbon-mitigation projects will need
to build confidence in their technologies and secure funding, Eren continued.
“The most project-friendly method for these projects to come to life is through
forward-credit sales,” he said. “Therefore, we see the future of the market
largely centered around forward crediting.”
Covalent’s forward credits are tangible and live on the blockchain, ensuring
transparency and traceability — key for ensuring emissions reductions stated in
forward credits are actually realized.
“Once we build a market based on transparency and visibility, we believe this
will also promote transparency and traceability in other parts of the market,
too,” Eren continued.
Covalent only originates credits on its platform. It does not sell them; so,
Covalent-originated credits have to go to third-party marketplaces for purchase.
Companies wishing to mint offsets with Covalent need to have their projects
verified by a third party (such as Bureau Veritas) to ensure they meet
Covalent’s standards.
Neufeld foresees independent accrediting organizations such as Covalent as
contributing a much-needed push for standardization in the CDR space. But again,
regulations must bring this reality into play — ultimately, standardization and
enforcement must happen one way or another. He foresees voluntary and compliance
markets converging into a single unit as both work independently to create
better offsets.
“That’s partly why we launched Climate Vault: an alternative to sidestep all of
this and tap into the compliance markets as an alternative to the challenges of
traditional offsets,” Neufeld said.
Though challenging right now, he thinks it’s inevitable that the market will
eventually get there. A requisite is putting a universally agreed upon price on
carbon.
“Just one single carbon market that everyone can tap into, where you have the
same price per tonne no matter where you are in the market,” Neufeld said.
“Without a price associated with [carbon], I don’t see how you can make progress
or enforce that.”
The compliance market is worth $851
billion
across the globe’s 30 markets, compared to the $2
billion
voluntary market. Unlike voluntary markets (which are based on projects
including
afforestation
and renewable
energy),
compliance markets set a cap on emissions within a jurisdiction and then rely on
market forces to drive emissions reductions. Usually, companies take the
cheapest option toward decarbonization, which almost always means real emissions
reductions and avoidance. It’s always easier to keep something from going into
the atmosphere than it is to pull emissions
out,
the latter being an essential function that VCMs are attempting to do.
“[Compliance markets] are a much more efficient mechanism than a more
project-based approach,” Neufeld said.
But compliance markets do little to address the CO2 that’s already in the
atmosphere, Neufeld warned. That’s why Climate Vault uses profits generated from
compliance-market offsets to scale CDR projects. Right now, CDR isn’t
incorporated into compliance markets; but Neufeld believes that will likely
change in the short term as CDR technologies reach economies of scale. To get
there, will require political buy-in and commitment. Establishing a national
carbon market would do this.
“There needs to be more and continued commitment of establishing guidelines and
political will to make these changes,” Neufeld said. “As that happens, I think
the importance of the voluntary market will start to fall away.”
Because the basis of the VCM is to invest in climate-friendly projects in need
of financing, Eren believes VCMs are still an essential part of the equation to
help scale needed technologies — even amidst a growing need for universal
language and compliance markets.
“It's unrealistic for a single mechanism to meet all requirements,” he said.
“Therefore, the differing scopes of certification mechanisms allow projects
engaging in emission-reduction/removal activities to proceed with mechanisms
that cater to them the most — thereby paving the way for advanced
standardization.”
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Christian is a writer, photographer, filmmaker, and outdoor junkie obsessed with the intersectionality between people and planet. He partners with brands and organizations with social and environmental impact at their core, assisting them in telling stories that change the world.
Published Nov 9, 2023 1pm EST / 10am PST / 6pm GMT / 7pm CET