Voluntary carbon markets and integrity: what really happened at COP26?

Since their inception, voluntary carbon markets have been the subject of widely differing opinions. Some proponents believe they are the silver bullet for addressing climate change in the short term, whilst some activists believe they have no value and actually perpetuate the problems. 

As so often with these things, the reality is complex, nuanced, and somewhere in between. 

Opposing activists say offsetting gives a “license to pollute,” allowing countries or companies to emit all the emissions they want as long as they can afford to buy carbon credits to offset them. Markets of the past have been called tools for greenwashing, they have been accused of funding projects with low environmental integrity or that have undermined the rights of Indigenous peoples and local communities (IPLCs), and they have been blamed for delaying energy transitions.

But voluntary carbon markets are an important tool that, among a host of others, can help keep the goals of the Paris Agreement in reach. It’s important to stress the very clear consensus among leading climate and environmental groups that rapid decarbonization is the most urgent priority and that voluntary use of carbon credits is supplemental action to compensate for residual and hard-to-abate emissions on the path to net-zero. 

It is also important to clarify that in the context of this piece, we are talking about forest carbon credits, as opposed to credits generated through other actions. It is equally important to note that forest carbon credits and nature-based solutions (NBS) are not synonymous. NBS carbon credits are only one mechanism of channelling finance toward actions that protect, preserve and restore nature – but they have potential to be a very powerful channel. To combat climate change, we need to rapidly shift away from fossil fuels AND reduce GHG emissions from the forestry, agriculture, and land sectors, and empower nature to remove carbon from the atmosphere. And one of the largest barriers to doing this is funding. Voluntary carbon markets, when designed with high social and environmental integrity and participation with communities, can bring billions of dollars of funding to local communities and stewards of the forests to help protect and restore natural carbon sinks. 

At COP26, the Voluntary Carbon Market Initiative (VCMI) hosted an event at the Nature Zone that sought to tackle head-on some of the oft-cited critiques of voluntary carbon markets and provide space for an informed, balanced discussion. Not surprisingly, the event attracted a wide audience, including carbon market critics, and received media attention for a high-profile walk-out by Greta Thunberg. Much of the media coverage at the time was overly simplified and failed to reflect the highly substantive discussion and debate that took place among panellists and audience members – providing insight into how to handle this controversial topic in a thoughtful and productive manner. 

Taken together, the interventions offer insight into how we can push the conversation forward on how voluntary carbon markets can, when working alongside science-based decarbonisation strategies, supercharge climate action.

Manuel Pulgar Vidal of WWF artfully chaired the event, steering panellists directly into the most pressing issues. Jennifer Morgan of Greenpeace and Teresa Anderson of Action Aid directly challenged panellists to address past failures and difficulties associated with voluntary carbon markets. 

Below are the responses from key leaders in the VCM field on some of the important questions surrounding the future of carbon markets (edited for brevity). 

What does high integrity mean? How can you ensure high integrity? 

• • Tariye Gbadegesin, VCMI: The definition of integrity is quite broad, moving, and alive. It is a multi-stakeholder approach, and a key principle is an inclusivity and openness, to ensure the right people are engaged. We need carbon markets to work for all parties, so it is essential that care is central to how carbon markets grow. Capital, with the right guardrails and voices and listeners, can support local livelihoods and poverty alleviation. 
  • Beto Borges, Forest Trends: High integrity means taking into account the needs of IPLCs who are stewards of forested land, who have been practising nature-based solutions for generations. High-integrity credits cannot push people off their land. These markets need to be inclusive, and IPLCs need to be in the middle of the discussion. Additionally, offsets need to be transparent in how they are generated and how they are used. 
• Usha Rao-Monari, UNDP: Integrity means listening to people, it means grounding the solutions in the context in which they exist. It means talking to stakeholders and rights holders in countries and coming up with climate action solutions. It also means, on the supply side, putting the money into the highest integrity environmental and social projects. It means promoting the appropriate local governance that puts in place mechanisms, structures, and processes that allow for integrity.

What role do offsets have in companies’ climate plans, and how can companies contribute to high integrity offsets?

• Mark Engel, Unilever: Companies need to set carbon emissions reduction targets and net-zero targets, and carbon offsets cannot be a get-out-of-jail-free card to allow companies to fail to decrease their emissions. Instead, carbon markets can be used to raise ambition. Markets are useful to mobilise investment in the restoration and protection of nature, which is in desperate need of financing. But any investment needs to happen in partnership with Indigenous peoples and local communities, who are the stewards of the land. 
• Cynthia Cummis, World Resources Institute: Companies need both near term (5-10 years) and long term (net-zero by 2050 or sooner) science-based strategies. For most companies, long-term net-zero targets require a 90 to 95% absolute reduction in carbon emissions. So there are a remaining 5-10% of emissions, and these remaining residual emissions can be neutralised through permanent removals, potentially through carbon markets. Carbon markets can also help companies go even further, and make investments in “beyond value chain mitigation.” 
• Mark Carney, UK Finance Advisor for COP26: Companies, even those with net-zero targets, currently do not compensate for their emissions. And they should. So it’s not just at the endpoint, where they can’t decarbonise anymore, but emissions all the way down. If that is going to be possible, there must be a market for carbon offsets. 

How can companies contribute to the supply side? 

• Mark Engel, Unilever: Unilever has announced a fund of 1 billion euros to get involved in projects on the ground. By linking brand recognition to these projects, you can ensure high integrity, because a company wouldn’t want to be associated with projects that don’t have high integrity.
• Bill Winters, Standard Chartered: Offsets should be used to support what we call a high-ambition corporate claim, where companies are compensating on the way to net-zero. For our clients, we won’t provide financing to anyone without a net-zero strategy. Our job is not only to provide the stick but also the carrot, in the hundreds of billions in financing that’s required to help those companies transition to a low-carbon business model. And then companies, like Unilever, can apply pressure from the other side, saying “we won’t buy from you if you don’t have net-zero targets.” 

Why not spend money and effort on decarbonisation and emissions reduction strategies? 

• Mark Engel, Unilever: Decarbonisation and carbon markets are not mutually exclusive– you can do both. And we want to be in the discussion, and not out. We want to shape the future together, and we want to be part of the conversation on integrity, both environmental and social. 
• Mark Carney, UK Finance Advisor for COP26: Carbon markets are a way to channel money from the richest companies in the world to the local peoples and Indigenous communities that are stewards of the land. We are potentially talking about $150 billion going to Indigenous peoples of the world, to emerging and developing economies. Markets are complementary to absolute reduction. Carbon markets, properly structured, are catalytic for new technologies, are cross-border, and can have significant benefits for nature and biodiversity. 

Carbon offset markets of the past have had clear room for improvement: inadequate protections for leakage, permanence, indigenous rights, to name a few. How are these issues being addressed? 

• Mark Engel, Unilever: We have to look forward because there is a lot of baggage and history. There needs to be agreement on how the past is phased out, so we can deal with the history where we have not always got it right. 
• Hindou Ibrahim, Association of Peul Women and Autochthonous Peoples of Chad: Respect has to be key. Rights-based approaches have to be central to all the negotiations. Communities need to be at the tables and be integrated into decision making because only local communities should decide what we can do about our land. The $1.7 billion announced for local communities was a great first step, but we don’t need promises, we need action, to see that money on the table. 
• Hugh Sealy, Integrity Chair-VCM: We made mistakes, but we also pumped more than $250 billion into developing countries. In order to avoid those mistakes, we need to bring integrity to the market before we scale it up. 
• Rachel Kyte, VCMI: Up until now, the path to hell was paved with good intentions. But now people are prepared to learn from the mistakes of the past and build the new voluntary carbon markets from the bottom up. Only through science and integrity can we get to scale. Slowly, slowly we have to build something that works from both the supply side and the demand side. We need to be clear that both greenwashing and corruption are toxic to climate action, and we need to go together on this journey. 

To watch the whole event, visit https://www.youtube.com/watch?v=gAFQv8qDb_k and go to the 6 hour, 47 minute mark.