UK government reveals principles designed to 'offset' doubts in the voluntary carbon markets
Published on 9th Dec 2024
High-integrity voluntary carbon markets can unlock institutional investment and scale carbon reduction projects
The UK government has laid out a set of principles aimed at increasing integrity in the voluntary carbon and nature market (VCNM) ahead of a proposed consultation early next year. The VCNM principles were introduced at COP29 in Baku on 15 November 2024, coinciding with significant progress that the delegates made in establishing a framework for international voluntary carbon markets (VCMs).
Concerns over the credibility and transparency of VCMs have damaged their reputation. In the policy paper accompanying the VCNM principles, the government acknowledged the need to increase trust in nature markets in order to "unlock scale". The principles are intended to build trust through clear standards for market participants.
The government intends to publish the consultation on steps to raise the integrity and use of VCNMs in early 2025 that will further expand on the principles and provide detail on how they may be implemented. The consultation will invite responses on these proposals and the use of voluntary credits towards reporting on "Scope 3" emissions.
High-integrity markets
The overarching purpose of the VCNM principles is to create a high-integrity market and the government policy paper sets out a number of reasons for doing so. Increasing trust and confidence is essential to be able to scale up the generation and trade of voluntary carbon credits.
By providing clarity on what represents good practice, regulators will be better able to monitor participation in the VCM. This in turn can help mitigate against companies making inaccurate or misleading claims involving the use of voluntary credits.
The policy paper emphasises the need to mobilise financial resources to meet domestic and international net-zero targets and highlights a well-established VCM as a means to do this. The recognition of the need to bridge the finance gap to meet net-zero targets was echoed throughout discussions at COP29.
VCNM principles
The government policy paper has established six principles for voluntary carbon and nature market integrity.
The first principle is that credits should be used "in addition to actions within value chains". This is to ensure that companies use voluntary credits to complement rather than replace internal efforts to reduce their emissions.
The second principle relates the quality of the voluntary credits themselves. Organisations that supply credits should ensure they are "high integrity", which requires meeting criteria such as additionality, independent verification and avoiding double counting.
Principles three, four and five govern the way companies use and report on voluntary credits they have purchased. Companies should ensure they "measure and disclose" any planned use of voluntary credits in their sustainability reporting. They should also "plan ahead" for any use of voluntary credits in their transition plan disclosures. Once purchased, companies should take care to ensure that any environmental claims made involving the credits are accurate to avoid risks of greenwashing.
Principle six requires co-operation between those participating in the VCM. This involves information sharing and transparency to ensure coherence in a "fast-evolving space".
Osborne Clarke comment
The VCM has been plagued by doubts regarding the credibility of delivering its aims: reducing carbon emissions. The introduction of a consistent set of governing principles is a step in the right direction for building trust in the market. Aligning these principles with international standards and best practices will help to create a unified global market, which may improve credibility and in turn the scalability of carbon reduction projects.
Questions remain on the ability to unlock the potential of the VCM fully, given the voluntary nature of net-zero targets. The upcoming government consultation will provide an opportunity for VCM participants to comment on the effectiveness of the VCM.
This Insight was written by Julian Wolfgramm-King with the assistance of trainee solicitor Georgia Higgs.
