This study reviews the current state of voluntary carbon markets (VCMs) globally, with particular reference to those in developing countries. Based on a stock-taking analysis, it identifies key barriers to VCM development and explores pathways for enhancing quality and interoperability across markets.
The study identifies the following key challenges facing VCM development:
- A lack of clear policy signals from governments and limited guidance from international organizations regarding the role of carbon credits as a tool for facilitating sustainable finance and achieving global climate goals;
- Heightened integrity concerns, reflecting issues related to standard setting, verification practices, double counting, and transparency, which reinforce perceptions of green-washing.
- Insufficient consideration given to the interoperability of standards and market connectivity, due in part, to the rapid development and fragmentation of crediting schemes.
- The disjuncture between most VCMs and compliance emission control regimes, which holds back the growth of both VCMs and compliance markets.
- Policy ambiguity regarding cross-border transactions of carbon credits.
- The high costs associated with the development, measurement, reporting, verification (MRV), and registration of carbon credits that limit the benefits to communities hosting carbon projects in developing countries.
This study proposes several options to address these challenges and enhance the quality, scale, interoperability, and inter-connectivity of VCMs.
These include:
- Providing policy clarity on the role of VCMs within national and international carbon pricing mechanisms, with international organizations playing a supporting role through technical assistance and global coordination.
- Creating demand for carbon credits by leveraging offset mechanisms that link VCMs with compliance markets or carbon taxes, consistent with Article 6.2 and 6.4 of the Paris Agreement.
- Enhancing the quality and integrity of carbon credits by promoting the adoption of Core-Carbon-Principles by the Integrity Council for the Voluntary Carbon Market (ICVCM).
- Promoting interoperability among VCMs through the establishment of cooperation mechanisms.
- Adopting technological solutions to improve the distribution of benefits to communities in developing economies and moving to an impact based approach beyond CO2 offsetting.
- Developing operational rules for cross-border transactions.
- Enhancing capacity building for VCM regulators and key participants in developing countries.