June 21, 2024

On Tuesday, the Biden administration unveiled new guidelines on “responsible participation” in the voluntary carbon market, or VCM – the system that allows companies to say they have canceled their greenhouse gas emissions by purchasing carbon credits. Theoretically, each carbon credit a company buys represents one metric ton of CO2 reduced or avoided through projects that would not have happened without the financing – such as tree planting or the installation of wind turbines.

The guidelinessigned by President Joe Biden’s top climate and economic advisers, as well as the secretaries of the Treasury, Energy and Agriculture, is intended to boost the market’s credibility after a series of investigations revealed that numerous credits are ineffective.

One guideline calls for credits to meet “credible atmospheric integrity standards,” and another says companies must complement offsets with reducing their own carbon footprints. The guidelines also call for environmental justice safeguards to ensure that credit-generating activities – of which there are many in the global south — do not harm local communities.

For the most part, the 12-page document reflects existing guidance from informal watchdogs of the voluntary carbon market, including the Voluntary Carbon Market Integrity Council and the Voluntary Carbon Markets Integrity Initiative. In this way, the guidance is a kind of validation of the work not-for-profit governing bodies have already done – and of carbon markets themselves.

The new guidelines are intended to help address a crisis of confidence in carbon credits, many of which have been found to be ineffective by recent studies and investigations. Some credits come from renewable energy projects that would have been built anyway, even without funding from the VCM. Others are generated by protecting natural ecosystems that were never threatened. Still others are based on projects that store carbon in ways that are probably won’t last more than a few years. Last year, the Commodity Futures Trading Commission – a federal regulator – created a new task force to address potentially widespread fraud and market manipulation within the VCM.

According to s 2022 analysis from the World Economic Forum, less than one fourth of 137 global companies surveyed planned to use carbon credits to meet their emissions reduction targets; 40 percent of them mentioned the risk of reputational damage.

Some environmental groups have praised the Biden administration’s guidance as a way to lend legitimacy to the voluntary carbon market. Amanda Leland, executive director of the nonprofit Environmental Defense Fund, said in a statement that the Biden administration’s “vote of confidence” could help the VCM reach $1 trillion by 2050, implying that this growth will tilt towards green jobs and climate resilience in the developing world.

The global VCM is currently valued at approx $2 billion. It grew rapidly in 2021 before declining in 2022 and 2023.

Critics said the new rules no longer address fundamental concerns about the effectiveness of carbon credits. Some VCM compensation projects send only a small fraction of the funds they generate to the communities they are supposed to benefit, while the rest of the money gets gobbled up by dealers, registries, investors and other middlemen. And for a number of reasonsscientists say it is inaccurate to equate a ton of carbon stored in biological systems with a ton of carbon released by burning fossil fuels—yet this assumption underlies the VCM.

Proponents of carbon markets are still trying to “fit the circle of climate science into the square of carbon accounting,” Steve Suppan, a policy analyst for the nonprofit Institute for Agriculture and Trade Policy, told Grist.

Peter Riggs, director of the nonprofit Pivot Point and a co-coordinator of the Climate Land Ambition and Rights Alliance, said the federal guidelines are more concerned with creating a smooth market environment than with the integrity of carbon credits.

“Generating rules for secondary markets and clearing credits can help with carbon market liquidity,” he told Grist. “But if the underlying accounting is still flawed, these moves only create systemic risk – in the same way that credit defaults did during the financial crisis.”

Instead of carbon markets, Riggs and others have argued for a system of climate finance that allows countries, companies and other polluters to support conservation and carbon sequestration activities without claiming it as an offset.

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