LSE policy brief explains the voluntary carbon market

A POLICY brief, from the London School of Economics, explores how the voluntary carbon market (VCM) can support the goals of the Paris Agreement and advance global sustainable development.

Policy analyst Rob Macquarie says that the brief argues that the sale of carbon credits must finance real emissions reductions and removals, achieve co-benefits wherever possible, and not undermine companies’ own decarbonisation efforts. Furthermore, if the voluntary carbon market can address questions over its credibility, it could make critical contributions to a sustainable transition.

The policy brief explains that the voluntary carbon market refers to the global trade in carbon credits that takes place outside the scope of legally mandated (compliance) instruments. The market is now at a critical juncture, says the brief. Once fully formed, its new architecture and norms must create a legitimate and effective role for the voluntary carbon market within the international climate policy framework.

The voluntary carbon market allows companies and other non-state actors to take action on emissions beyond decarbonising their own value chains to support the global transition to net zero and sustainable development. It can facilitate investments in nature and land-use change.

However, the potential of the market in the sustainable transition is undermined by a lack of transparency in non-state actors’ climate mitigation strategies, including whether their use of credits represents additional action, and uncertainty over the quality of credits themselves.

Policy uncertainty towards carbon markets, capacity constraints in host countries (where financed activities take place), and low carbon prices are further barriers to beneficial activities receiving finance through the voluntary carbon market.

Mr Macquarie says that more clarification is needed on how the market can complement carbon market mechanisms created by Article 6 of the Paris Agreement. If forthcoming guidance from leading initiatives is clear, consistent, and workable, it has the potential to support a positive paradigm shift that includes a greater focus on contributions to climate mitigation and positive sustainable development impacts, rather than simply compensation for emissions.

The guidance should also enable a radical improvement in transparency, which can contribute to efforts to evaluate impact, address integrity gaps and improve standards over time.

Government strategies, laws and regulations should be used to support the voluntary carbon market to channel finance to priorities not covered by other sources and move towards wider governance of net zero.

Indigenous Peoples, local communities, women and other frontline groups should be supported to participate fully in development and implementation of programmes and projects issuing carbon credits.

Click here to download the full policy brief, The voluntary carbon market and sustainable development 

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