US Sets Guidelines for Voluntary Carbon Markets, Carbon Credits

On May 28, 2024, the Biden-Harris administration made a stand regarding sustainability initiatives by releasing a Joint Policy Statement and Principles on voluntary carbon markets (VCMs). Although the rules are for guidance and precedent (i.e. not enforceable), they aim to restore trust in this already volatile and controversial CO₂ mitigation strategy.

This landmark move solidifies the US government's stance on fostering high-integrity VCMs. The statement aims to underscore the vital role VCMs play in decarbonization efforts. It also intends to build trust in VCMs, which have come under the microscope amid rising legal disputes.

About the Statement on Voluntary Carbon Markets

In the statement, the US administration strongly backs the use of VCMs for global net-emission reductions. But the statement also acknowledges the integrity and confidence issues abound for VCM.

It criticizes popular crediting methodologies failing to deliver advertised decarbonization results. These problems caused growing concerns about detrimental societal, environmental, and credibility impacts.

The paper asserts that credits should augment, not replace, emissions cuts.

7 Principles for VCM Adoption in US

To bolster the carbon credit market's integrity, the Biden-Harris administration proposes seven principles. They focus on the supply, demand, and transactional facets of the voluntary market:

1. Carbon credits (and the actions they’re linked to) must meet standards for atmospheric integrity and actual decarbonization efforts.
2. The actions which generate carbon credits must not create any adverse environmental or social effects. When possible, they must also be transparent and supportive of co-benefits and benefits-sharing.
3. Corporations that buy credits should always prioritize CO₂ reduction efforts in their actual operations and value chains.
4. Those who adopt credits must disclose the types of credits purchased and make it public when credits are retired.
5. Credit users must use credits that are designated as “high integrity,” acknowledging the climate impact of older, retired credits.
6. Those in the carbon credits market should work toward improving the overall integrity of credits as a whole.
7. Policymakers and those within VCMs must also work toward making the market efficient for everyone, working to keep transaction costs lower.

These principles aim to complement other government steps like carbon credit disclosure regulations and investments in high-integrity projects.

Ensuring Integrity for Carbon Markets

An initial look at the guidelines certainly leaves room for ambiguity. For instance, the term “integrity” in several of the guidelines lacks clarity. But the statement responds to these issues in several ways.

On the supply side, the statement insists on certifying all credits to rigorous standards. Market participants need to ensure carbon credit uniqueness, reality, verifiability, permanence, and measurement against strong baselines.

The guidelines further demand contingencies to prevent environmental and social harms from projects. Any discrepancies should be reflected and enforced in market activities.

For demand, the paper urges buyers to prioritize in-house emissions reductions. Organizations must first establish clear internal emissions inventories with short- and long-term reduction targets. The administration recommends annual disclosure for purchased or retired credits.

For market structures, the statement pushes for market functionality improvements. This includes the following:

• More incentives for high-integrity credits
• Enhanced transparency
• Fraud prevention
• Global interoperability

Growing Momentum in Support of VCMs

The US administration’s adoption of VCMs follows increased state-level momentum concerning VCMs. It echoes similar action by the European Union to generate a standardized certification framework for carbon removal.

Many businesses rely on VCMs to meet their net zero or carbon neutrality goals, offsetting their emissions. After all, avoiding emissions altogether is a challenging feat in nearly every industry.

In some cases, industries simply cannot decarbonize elements of their operations due to technological or financial limitations. In these cases, VCMs offer one pathway to invest in a lower-carbon future.

Could VCMs Help Global Decarbonization?

VCMs are frequently incorporated in various global decarbonization strategies. They attract private funding, empowering diverse players such as tech firms, entrepreneurs, farmers, and landowners to initiate carbon capture and reduction projects.

Alongside economic growth, these initiatives also spur resource preservation, biodiversity conservation, and investment in local communities.

VCMs are currently valued at around $2 billion, with projections indicating that they could skyrocket to over $1.1 trillion per year by 2050 based on a report from Bloomberg.

Challenges to Carbon Credits Persist

Despite the good news about the Biden administration’s stance on VCMs, they are not without their controversies. Ongoing concerns about the actual effectiveness of carbon credits persist. Criticisms about effectiveness and verifiability continue to pose big problems for this already dubious sector.

An example is a 2023 investigation from The Guardian which found that over 90% of forestry credits certified by Verra, a top VCM platform, did not lead to genuine emissions reductions. The perceived unreliability of VCMs has caused companies participating in them to face accusations of greenwashing.

We’ve also covered some recent controversy related to carbon credits here on the ResourceWise blog.

The Science Based Targets Initiative (SBTi), a globally-recognized leader in decarbonization process planning for corporations, recently came under scrutiny after executive leaders announced the potential addition of carbon credits in their procedures. This announcement contradicted the internal staff’s position on credits, leading to confusion and uncertainty about the organization’s future.

Most notably, a preliminary report from internal SBTi staff has found the use of carbon credits “largely ineffective” in reducing CO₂ emissions. You can read more about this development here:

Read More: Internal SBTi Documents Show Carbon Credits Are Ineffective

Will Credits Become a Worthwhile Carbon Reduction Pathway?

The concerns surrounding carbon credits and their markets have merit. Ongoing issues with legitimacy and effectiveness remain front-and-center in criticism of the option.

The Guardian’s report did face some backlash and responses from a few of the agents involved in carbon credits. But the evidence against carbon credits’ legitimacy was telling of all the ways VCMs could be exploited to greenwash emissions.

Despite being unregulated, governments are acknowledging the role VCMs play in global decarbonization efforts. The Biden Administration's actions make this assertion loud and clear. Increased scrutiny is expected around the tangible impacts of carbon credit projects and their validation protocols.

As VCM integrity becomes more definite, participants hope to experience less exposure to greenwashing or other similar allegations. This will only come courtesy of transparent and sturdy data and verification that underpins any credits used.

Optimism and faith in market participants are both good things for the future of VCMs. But are these sentiments just platitudes without the power to affect change?

The US Joint Policy Statement and Principles is “non-enforceable” on its guidelines. With that in mind, further risk of fraud and greenwashing remains on the table.

The US statement aims to legitimize the use of carbon credits as provable CO₂ reduction interventions—an excellent step to improving decarbonization efforts. In practice, however, it remains to be seen how far non-enforceable guidelines can really lead to the changes the world needs to meet our collective climate goals.

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