Voluntary and compliance carbon offsets need to be more interchangeable to achieve a dynamic global market, voluntary market stakeholders said.
Making the offsets more fungible will help encourage their use as companies ranging from commercial airlines to LNG suppliers deal with a host of voluntary and compliance programs to reduce global greenhouse gas emissions.
There is a huge potential to "blend" the two markets, Naomi Swicard, chief program officer at Verra, home to the Verified Carbon Standard, said at the North American Carbon World virtual conference.
"A tonne should be a tonne," she said.
That's already happening in aviation through the Carbon Offsetting and Reduction Scheme for International Aviation (Corsia), the UN International Civil Aviation Organization's program to hold global aviation emissions at a 2019 baseline, Swicard said.
Participation in Corsia is voluntary from 2021-26 and starting in 2027 compliance will be mandatory for all aircraft operators. Several airlines including Delta and JetBlue have already started purchasing voluntary carbon offsets as they develop their Corsia strategy. The US is participating in the voluntary phase.
Greater clarity is needed on when voluntary offsets can be used for compliance programs, Macquarie commodities and global markets managing director Scobie Mackay said.
For example, through development of the carbon border adjustment mechanism in Europe, there is increased demand for carbon-neutral LNG cargoes, he said.
"If I import a carbon neutral LNG cargo, by bundling high quality carbon offsets, does that offsetting count for the purposes of the [border adjustment]? That will be critical in terms of shaping demand, depending on how regulators look at different project types," Mackay said.
It is critical that governments support voluntary carbon purchases for compliance programs, according to Kim Carnahan, director of disruption technologies at energy management company Engie Impact.
That will depend on the ability of countries to reach an agreement this year on Article 6 of the Paris climate agreement at the UN's COP 26 summit in Glasgow, Scotland, in November. Article 6 will set the rules for how international emissions trading could be used under the agreement and how countries make corresponding adjustments to their emissions pledges as those credits move across borders.
"We need governments to not just adopt Article 6 rules under Paris, but also to help facilitate private sector entities to acquire these units going forward," Carnahan said.
Aside from fungibility between voluntary and compliance markets, there is no fungibility of carbon offsets just within the voluntary carbon market at the moment, the panelists said.
"The challenge to fungibility is the distinction between units based on buyer preference," Swicard said.
Many corporate buyers have interests in certain project types, and different project types carry different price tags. Nature-based offsets, including forest creation and reforestation, have been fetching a premium in the market.
"Some companies have a big impact on forest and land use so want to focus on those activities, or have societal benefits of projects — distinctions that can be made that make it hard to get to standardized pricing," Swicard said.
