June 2024 VCM Updates: Section B
This article is an automatically translated version of the original Japanese article. Please refer to the Japanese version for the most accurate information.
This is a newsletter from Sustainacraft Inc. This article is Section B (Major Regulatory Trends) of VCM Updates (Voluntary Carbon Market Updates).
This month, we cover the following two topics:
- Biden-Harris Administration (White House) Announces Principles for Responsible Participation in Voluntary Carbon Markets
- EU Adopts Position on Green Claims Directive
Regarding point 1, most of the content emphasizes what is always highlighted in discussions about Carbon Credit quality, namely:
- Prioritizing reductions within one's own Value Chain, in line with the mitigation hierarchy
- Utilizing high-quality Credits (when used)
- Properly disclosing their use
While there are no major surprises in these points, it is noteworthy that Principle 5 explicitly states that buyer-facing frameworks "should consider" allowing **Carbon Credits to Offset** **Scope 3 emissions** for "hard-to-abate" companies. This struck us as a statement from the Biden-Harris Administration addressing the lack of progress and prospects for Scope 3 Emission Reduction within companies. Although the buyer-facing frameworks are not explicitly specified, it is presumed that the phrasing refers to initiatives like VCMI or SBTi.
The Green Claims Directive, point 2, complements existing legislation designed to prevent Greenwashing and prohibit misleading environmental claims. It now includes clear penalties for violations. Furthermore, the use of Carbon Offsets is only permitted for Residual Emissions, and such Offsets must be certified under the EU's Carbon Removal Certification Framework (CRCF). This implies that most Avoidance Credits, which have historically accounted for the majority of VCM Issuances and Retirements, are unlikely to be usable in this context. A vote is scheduled to take place at a future plenary session. Details on CRCF are introduced in this article, so please refer to it as well.
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(Updated on 2024/6/21, partially revised on 2024/8/5.)
«VCM Updates Structure (June 2024)»
A. Voluntary Carbon Credit Market Trends
- Credit Issuance and Retirement Analysis
- Project Pipeline Analysis
B. Major International Regulatory Trends ← Subject of this article
B. Major International Regulatory Trends
(1) Biden-Harris Administration (White House) Announces Principles for Responsible Participation in Voluntary Carbon Markets
The Biden-Harris Administration, through the White House, has announced "a Joint Statement of Policy and new Principles for Responsible Participation in Voluntary Carbon Markets (VCMs)" for responsible participation in the Voluntary Carbon Market. This statement is jointly signed by the Secretary of the Treasury, the Secretary of Agriculture, the Secretary of Energy, and several other advisors.
Repeatedly emphasized is the importance of using "High-integrity" Credits, stressing factors such as Additionality and ensuring project activities do not cause adverse environmental or social impacts. The term "**demand integrity**" is also used. This refers not only to the quality of Carbon Credits from the Project Developer side but also to the Buyer's responsibility to prioritize GHG Reduction within their own Value Chain and to focus on quality rather than quantity or price when sourcing Carbon Credits. Furthermore, it is mentioned that the details of purchased and Retired Credits should be disclosed.
Below, we introduce the seven announced principles and their explanations.
1) Carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarbonization.
Requirements for each project include being Additional, having Permanence, adopting robust Baselines, and undergoing Validation and Verification.
It states that Baselines should ideally vary over time and, where possible, adopt performance-based Baselines (which likely refers to Dynamic Baselines such as VM0045 for IFM, VM0047 for ARR, and VM0048 for REDD+ in Verra's recent Methodologies). As a government statement, it includes technical content reflecting recent revisions aimed at stricter Methodologies in the VCM.
Requirements for Credit Issuing bodies are also described, similar to the program-level requirements of the Core Carbon Principles (CCP).