Voluntary carbon offsets 'need new oversight body'

The voluntary carbon offset market needs a new body to monitor it and define the standards that offsets should meet to be part of the proposed core carbon contract, a report published today says. The report was produced by a taskforce led by the former governor of the Bank of England, Mark Carney, and Standard and Chartered chief executive Bill Winters

The taskforce, which was initiated by the Institute for International Finance and facilitated by consultancy firm McKinsey, said a new "umbrella governance body is needed to fulfil governance roles not addressed by existing bodies".

The taskforce proposes defining a "core carbon contract" which would be a standardised product listed on exchanges. The voluntary offset market is highly diverse with multiple verification bodies and project types leading to a wide range of prices connected to the perceived quality and additional benefits and attributes a project has. The new governance body "will need to have the ability to impose guardrails or make exclusions in order to ensure sufficient quality", it said.

The taskforce has set up working groups to advise on the core carbon contract definitions and on the governance body with both groups expected to deliver their recommendations in June.

The new governance body would also monitor market participants and "that their conduct does not put into question the robustness of any credit sold on the market".

Linkages to mandatory schemes

The report said mandatory compliance schemes such as the EU's emissions trading system (ETS) or California's Cap and Trade should consider opening up to accepting a "certain percentage of private standard carbon credits" to benefit from added liquidity.

This is likely to be controversial — the EU ETS phased out the acceptance of certified emissions reductions (CERs) because of concerns over their climate benefits and the fact that they added supply to the market, weighing on prices. California has also sought to reduce the amount of offsets it accepts.

Some non-governmental organisations (NGOs) and environmental campaigners have expressed concerns that the voluntary carbon offsets market could fail to drive any significant change and benefit to the climate.

John Sauven and Craig Bennett, the chief executives of Greenpeace and the Wildlife Trusts, respectively, wrote to Carney yesterday and warned that "there is a danger that it becomes a large international greenwashing exercise, creating a market with low standards but high PR value."

There are also concerns that voluntary carbon offset markets "risk causing active harm to the integrity of compliance carbon markets", particularly if there was any linkage and companies were permitted to use offset credits to cover or partially cover the carbon produced in a country that has a mandatory carbon scheme.

"Even if a high standards approach is endorsed by UN states, interaction between compliance markets and low standards voluntary markets would expose the former to the problems with the latter", the letter from Greenpeace and the Wildlife Trusts states.

Cop 26 and Article 6 negotiations

The letter also expresses concern that the taskforce blueprint "may set the stage for the carbon market settlement in the upcoming Cop 26 negotiations".

Cop 26 is due to take place in December and a key area of negotiations is Article 6 of the Paris Agreement, which concerns international carbon markets. There is little clarity on the rules around accounting for offsets in countries' national determined contributions, which could lead to double counting, where the country that produces the offset through a climate mitigation project claims it but so does the country that purchases the offset. Avoiding this is known as corresponding adjustments.

The taskforce says it "does not take a position on the Article 6 negotiations: as a principle, it has developed and will continue to develop its recommendations such that the voluntary market can adapt to the outcome of the negotiations", which are a matter for governments. "A market for corporate and country-level offsetting can and does coexist as the rules around accounting and trading continue to be developed," it said. But it "acknowledges that the carbon market is in a period of transition from a regulatory perspective, especially in relation to the Article 6 negotiations."

Argus Media was a member of the consultative group of the taskforce.

By Eleanor Green