Unpacking new US Voluntary Carbon Market Principles

This week US president Joe Biden’s administration has released a joint statement of policy and new principles to promote “responsible participation” in voluntary carbon markets (VCMs) and to promote higher standards. Market participants were encouraged to use the voluntary principles, which will also guide how the US government engages with VCMs, it said. The statement also noted that while its focus is on VCMs, “much of the content speaks to the development and operation of carbon credit markets generally”.

The principles include:

• Carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarboniszation;

• Credit-generating activities should avoid environmental and social harm and should, where applicable, support co-benefits and transparent and inclusive benefits-sharing;

• Corporate buyers that use credits should prioritisze measurable emissions reductions within their own value chains;

• Credit users should publicly disclose the nature of purchased and retired credits;

• Public claims by credit users should accurately reflect the climate impact of retired credits and should only rely on credits that meet high integrity standards;

• Market participants should contribute to efforts that improve market integrity; and

• Policymakers and market participants should facilitate efficient market participation and seek to lower transaction costs.
  

The principles and statement have been co-signed by US treasury secretary Janet Yellen and other senior members of the administration, including energy secretary Jennifer Granholm, senior adviser for international climate policy John Podesta and national climate adviser Ali Zaidi. The administration has already put a range of incentives and guardrails in place to help develop VCMs, it said, including leading on international standards setting, such as the G7’s Principles for High Integrity Carbon Markets and support for the World Bank’s standards for jurisdictional crediting program; support for high-integrity VCMs in international markets; advancing VCM integrity through regulation; and, coordinating action through the interagency Task Force on VCMs. A joint statement by UN special envoys Michael Bloomberg and Mark Carney, and Task Force on Climate-related Financial Disclosures head of secretariat and former Securities and Exchange Commission chair Mary Schapiro, welcomed the publication but called for greater international coordination, highlighting three key steps they said policymakers could take to build on the US principles.

Firstly, they called on the G20 to deliver high-level principles for “globally integrated, high-integrity carbon markets with clear policy objectives, including domestic decarbonization … and their role in supporting decarbonization globally”.

“We must ensure that the principles are inclusive and relevant to the unique challenges and opportunities in emerging markets and developing countries, not just advanced economies,” they said. Secondly, they called on policymakers to adopt common supply, demand, market, and social integrity standards, leveraging work by the Integrity Council for the Voluntary Carbon Market (ICVCM) supply-side standards and labelling.

“To create strong and high-integrity demand, governments should articulate their expectations for companies seeking to decarbonize while using credits as part of their strategy, including how companies make claims related to their use of credits and the disclosures expected,” they said. “This can build on the stakeholder engagement and technical work already conducted by the Voluntary Carbon Markets Integrity Initiative (VCMI).” Finally, the trio said the importance of market integrity to ensure the fair and equitable treatment of participants, must also be recognized, adding: “We must consider the state of play on data and other market infrastructure required to ensure a functioning global market and where gaps need to be urgently addressed.”

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