Our key takeaway: Carbon offsetting is an element of many companies’ and financial institutions’ net-zero commitments. Carbon credits can be an effective tool when applied as part of a larger carbon mitigation hierarchy, with emissions avoidance and emissions reduction prioritised before compensation. We need meaningful guardrails and standards for carbon offsetting to ensure that it doesn’t become a substitution for more meaningful efforts to reduce the amount of greenhouse gas emissions in our atmosphere. The Voluntary Carbon Markets Initiative is putting forward a proposed Claims Code of Practice to set those standards—and is focusing on credibility, transparency and quality. Strikingly, what constitutes a high-quality carbon credit, per the VCMI, is one that is grounded in respect for human rights, worker protections, meaningful stakeholder engagement and community participation—in short, a just transition.
The Voluntary Carbon Markets Initiative (VCMI), a multi-stakeholder platform “established to help ensure that voluntary carbon markets make a significant, measurable, and positive contribution to achieving the Paris Agreement goals while also promoting inclusive, sustainable development,” has launched a draft Claims Code of Practice (open for consultation until 12 August 2022):
- What is the VCMI Claims Code and why is it needed?: VCMI developed the Claims Code to define a framework for credible voluntary use of carbon credits by companies and other non-state actions, and associated public claims that companies and others make about their contributions towards net-zero goals. As more and more companies and financial institutions make public claims about becoming carbon neutral, there is an increased need for a shared set of rules on what “good” looks like. According to VCMI, “[v]oluntary carbon market integrity is essential to unlock private sector capital. All stakeholders need assurance that the use of carbon credits strengthens—rather than undermines—global climate action.” Without this clarity, VCMI points to the risk that companies may rely too heavily on carbon credits rather than investing in “GHG abatement action within companies and their supply chains that is essential for addressing climate change.”
- Four steps to make credible claims: The Claims Code includes four core steps that companies and other actors need to take in order to ensure that their claims about carbon credits are credible: (1) As a prerequisite, meet the currently accepted climate mitigation hierarchy that puts offsetting at the bottom; per VCMI’s prerequisites, companies should “only use carbon credits in addition to—not as a substitute for—science-aligned decarbonization across their value chains.” (2) Identify and distinguish the types of claims being made. The Claims Code recognises two different types of claims that companies may make towards their net-zero goals: “Enterprise-Wide Claims represent achievement at the enterprise level as companies progress toward their longterm net zero commitment,” while “Brand-, Product-, and Service-Level Claims represent achievement across the full value chain of a specific brand (line of products or services), product, or service.” (3) Purchase “high-quality credits.” While VCMI does not provide public criteria determining what constitutes a high-quality credit, it supports “the work of CORSIA [Carbon Offsetting and Reduction Scheme for International Aviation] and the IC-VCM [Integrity Council for the Voluntary Carbon Market] to identify cross-cutting quality criteria for carbon credits,” including social and environmental criteria (more on this below). (4) Substantiate claims by reporting transparently on the use of carbon credits—a key step to ensure that companies and other actors are held accountable for their climate commitments, and efforts to meet those commitments.
- Human rights considerations as criteria for high-quality carbon credits: The Claims Code puts forward basic criteria that carbon credits must meet in order to be considered “high-quality.” These include governance expectations and high environmental substance, but they also include key human rights considerations, which are often misunderstood or passed over by companies purchasing carbon credits. For example, VCMI requires that credits must be “[f]rom activities that, where relevant, are compatible with human rights.” This means that the activities are free from discrimination and that they “protect rights related to gender, labor, health, education, adequate living standards, background, and personal security and safety. The principles of Free Prior and Informed Consent (FPIC), with an emphasis on transparency and participation, are foundational to ensuring these rights in the context of natural resource management.” VCMI also requires that “rights relating to land, food, and Indigenous Peoples must be respected in private-sector climate actions. This means that stakeholders must function as partners (and Indigenous Peoples as rightsholders)—and not merely beneficiaries—both through active participation in market design and governance as well as in project design and implementation.” In addition, carbon credit activities should reflect a just transition: “Carbon credit purchases and the activities they support should result in positive outcomes for local communities and adhere to social safeguards to avoid, reduce and mitigate adverse impacts, with specific attention to vulnerable populations.”