At a glance

• The US government’s new Voluntary Carbon Markets Joint Policy Statement and Principles highlights VCMs as a powerful tool to mobilize substantial private capital for global climate change mitigation projects.
• The potential of VCMs can only be realized when suppliers, buyers and the market adhere to stringent standards of transparency, accuracy, and integrity.
• This document reinforces established priorities and actions previously outlined by civil societies, international organizations, governments, and multilateral forums.
• This endorsement by the world’s largest economy provides a strong market signal and a clear, government-backed, pathway for companies to enhance their climate strategy.

Summary of the new US policy direction

On May 28th, the Biden-Harris Administration unveiled a new policy direction with the release of their new Principles for Responsible Participation in Voluntary Carbon Markets (VCMs), emphasizing the US government’s resolve to advance a high-integrity VCM. The principles underscore a commitment to responsible market development, with clear incentives and guardrails in place to drive ambitious and credible climate action and generate economic opportunity. 

The stated purpose is to direct private capital towards innovative technological and nature-based solutions and preserve and protect natural ecosystems through responsible participation in the VCM. To fight climate change, “we need to mobilize enormous amounts of private capital,” said John Podesta, Mr. Biden’s senior adviser for international climate policy – amounts that, Podesta suggests, can be unleashed by the VCM. 

The market for carbon credits, currently valued at $4.7 billion, could soar to $1 trillion by 2050, provided regulatory frameworks evolve to support their integration into emissions trading and carbon tax systems. This much-needed endorsement underscores the importance of the VCM in achieving net zero, emphasizing the need for genuine emissions reductions and substantial capital investment in nature-based projects and carbon-removal technologies. Importantly, Treasury Secretary Janet L. Yellen stresses that the voluntary carbon markets can only unlock this great “power of private markets to reduce emissions, [...] if we address significant existing challenges.”

Principles for Responsible Participation

The US government encourages the private sector and other stakeholders in the carbon credit value chain to responsibly participate in VCMs. More specifically, it suggests the following “Principles for Responsible Participation” to help the VCM achieve its potential:

1. Carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarbonization.
2. Credit-generating activities should avoid environmental and social harm and should, where applicable, support co-benefits and transparent and inclusive benefits-sharing.
3. Corporate buyers that use credits should prioritize measurable emissions reductions within their own value chains.
4. Credit users should publicly disclose the nature of purchased and retired credits.
5. Public claims by credit users should accurately reflect the climate impact of retired credits and should only rely on credits that meet high integrity standards.
6. Market participants should contribute to efforts that improve market integrity.
7. Policymakers and market participants should facilitate efficient market participation and seek to lower transaction costs.

The document offers a call for more corporates to engage with the VCM, noting that it “applauds organizations that are engaging with these markets in ways consistent with these principles and encourage more to do so”.

This is a joint position agreed upon by the White House, the Department of the Treasury, the Department of Energy, and the Department of Agriculture. Significantly, these important agencies have come together to make this statement. The principles are high-level but establish a strong foundation for future work. This represents a clear signal that the US Government intends for carbon markets to flourish and believes that elevating the standards for quality is an essential component in achieving that goal.

The US government is aligning with existing industry initiatives

These principles seek to elevate concepts previously developed by civil society, international organizations, governments, and multilateral forums. Industry efforts like the Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Market Integrity Initiative (VCMI) have been making great strides towards this shared goal. By establishing their ten fundamental, science-based Core Carbon Principles for identifying high-quality and high-integrity projects that create real, verifiable climate impact, the ICVCM has raised the bar on carbon credit assessment. The first tranche of CPP-certified credits that meet these high standards are expected for this year. The VCMI ‘Carbon Integrity’ Claims, on the other hand, offer guidance to companies and other non-state actors on how to credibly incorporate high-integrity carbon credits into their climate commitments, ensuring these actions are clear, transparent, and consistent. This collaboration between VCMI and ICVCM seeks to establish a comprehensive model for a VCM with integrity, providing clear instructions from both the demand and supply perspectives.

The change in the US government’s guidance is just one of many indicators that these and other efforts are now bearing fruit. It is also reflected in the recognition of environmental attribution certificates as a tool to tackle climate change by the Science-Based Target Initiative (SBTi) when they are sufficiently supported by policies, standards, and procedures.

Importance of government endorsement

The message from governments during COP28 was clear: high-integrity voluntary carbon markets are an important part of the climate solution. Much like the USA, several European governments proposed a new framework to enhance integrity at the end of 2023. Simultaneously,  governments in middle-income countries are increasingly incorporating crediting frameworks into their policies to support both compliance and voluntary markets.

Governments can engage with carbon markets in various roles: as regulators, project proponents, or facilitators. Host countries worldwide, particularly those in the Global South that have not sufficiently benefited from VCM activities on their soil, are diligently working to establish robust legislative frameworks for efficient carbon markets.  For instance, in the Nairobi Declaration, the African Union has highlighted carbon markets as a means to materialize Africa’s potential and ambition to be a vital player in the architecture of global climate change solutions. This is already reflected in integrity-focused policy frameworks of countries like Kenya, where carbon trading projects are now required to undergo mandatory environmental and social impact assessment under Kenya’s environmental laws, with others expected to follow suit. These global policy changes provide a strong market signal for investors and buyers worldwide. 

More broadly, the US Government is playing an increasingly important role in carbon removal markets. For instance, the Department of Energy has introduced significant initiatives like the $35 million Carbon Dioxide Removal Purchase Pilot Prize, the $100 million Carbon Negative Shot pilot program, and the $3.5 billion Regional Direct Air Capture Hubs. Then, why is this particular document so important? There is no shortage of guidance documents in the VCM – some issued by governments, others from a range of non-state actors. While this document by the US government reiterates known priorities and required actions, Its significance lies in the endorsement of the VCM by the largest economy in the world. This support sends a strong signal that the VCM is here to stay, acknowledging past challenges and providing a clear, government-backed, pathway to elevate standards and realize the potential of the VCM. 

A call for market participants to enhance  market integrity efforts

As recognized by the US government, the market structures underpinning VCMs are quickly evolving. Advances in the development of market infrastructure to improve transparency and liquidity are much needed, as well as the integrity of market transactions. CEEZER's mission is to contribute to these efforts by supporting high-integrity suppliers, providing market transparency, and lowering transaction costs.

CEEZER welcomes this development, reinforcing our commitment to enabling companies to responsibly manage unavoidable emissions through our unified platform. We are dedicated to helping businesses build scientifically-backed carbon credit portfolios that maximize climate impact today and support the growth of innovative climate solutions.

For more information on how CEEZER can help your company navigate the evolving carbon market landscape, please visit our website.

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