Voluntary carbon markets could realize greater liquidity as US regulators move toward mandating corporate carbon disclosures and other governing bodies move to bolster the integrity of carbon credits.
Increasing integrity in carbon markets will bolster confidence and encourage investments, market stakeholders said last week at the North American Carbon World conference in Anaheim, California.
"Well-meaning companies" are resistant to engaging in voluntary carbon markets because they fear buying a credit that is viewed as "not good enough," said Annett Nazareth, co-chair of the Integrity Council for Voluntary Carbon Markets. This is where "help is on the way."
The Integrity Council, an independent governance body for the voluntary carbon market, will launch a public consultation process in May as it strives to ensure high-quality carbon credits meet certain standards, and to ensure credits trade in high-integrity, transparent markets, Nazareth said. The council aims to make sure the credits are universally accepted for purchases.
US regulators also are taking steps to improve the integrity of carbon markets.
Publicly traded companies would have to disclose granular data about their greenhouse gas emissions and related financial risks, under a landmark proposal from the US Securities and Exchange Commission (SEC). If a company has plans for reducing emissions through carbon offsets, they would also need to disclose that.
The US Commodity Futures Trading Commission (CFTC) has been accepting input on ways to support the growth of climate-related financial products, another sign of the wave of activity from US financial regulators, who say steps on climate risk are needed for the financial system.
These efforts are imperative to develop thresholds that everyone can trust in the market, International Emissions Trading Association (IETA) chief executive Dirk Forrister said. Greater trust could boost the markets that support climate action, he said.
"Getting [this market] to scale is about getting investor confidence," Forrister said. "The SEC rulemaking that has begun, the CFTC rattling their saber on whether it needs to get involved – we might have a carbon market driven by financial regulation rather than by traditional environmental regulation."
The work by the SEC could increase demand for voluntary offsets, particularly for those of "higher-quality" because the offset procurement would be made public, several market participants told Argus at the conference. Companies would be reluctant to buy offsets of more dubious quality, hiking demand — and the price — for higher quality offsets.
The market so far has been fragmented, with certain types of projects commanding much higher premiums over others, hindering moves toward the standardization that many stakeholders have sought.
Organizations that set the environmental standards for offset projects are largely embracing moves toward greater oversight and standardization, which could help protect buyers against accusations of "greenwashing."
"There are too many credits out there where the standards are ambiguous," Climate Action Reserve president Craig Elbert said. "It is going to require vigilance on all of our parts to make sure that the structure is set up properly."
Carbon markets evolving toward a model of third-party assessment and independent verification is a positive development, Verra chief executive David Antonolini said. But the standards must not be overly prescriptive and granular, as bringing standardization to every single project would be "too much."
