Voluntary Carbon Market Rankings 2024

Concerns about credibility depressed the voluntary carbon market in 2024, but major infrastructure developments are laying the foundations for a resurgence. Genevieve Redgrave reports

Credibility concerns continue to plague the voluntary carbon market (VCM), denting corporate demand.

But despite the challenges this has presented to market participants – from project developers to brokers – winners of Environmental Finance's Voluntary Carbon Market Rankings were optimistic that the necessary infrastructure and signals are being put in place to boost growth.

The Rankings are an annual poll of the market, in which market participants vote for the leading companies and initiatives that exhibit best practice or innovation.

This year saw the highest interest in the awards so far, with around 7,081 votes across 23 categories.

Following a similar trend from last year, respondents to this year's survey said demand in the VCM remains muted as many buyers 'wait and see' – either for more clarity on how carbon credits can be used or until they have more confidence in the integrity of projects.

Shelley Estcourt, CEO of Africa for TASC, winner of best project developer for energy efficiency, suggested that the size of requests for credits has "certainly decreased, sometimes by an order of magnitude."

But some long-standing buyers continue to support the market despite the controversies. "The market has volatility, which means the only ones which have the willingness to live with that volatility are those who believe in it [and are] here for the long run," said Pablo Fernandez, CEO of Ecosecurities.

Ecosecurities is winner of three categories: best overall project developer as well as project developer for the renewable energy and blue carbon categories.

"A lot of the cowboys and people looking for quick returns are leaving the market, as well as impatient investors not fully committed and those waiting at the sidelines for a better market," Fernandez added.

Many winners suggested that demand is being driven by large technology firms with deep pockets. Some of the largest transactions in the market over the past year have come from tech giants, including Microsoft which agreed to purchase eight million nature-based carbon removal credits from BTG Pactual Timberland Investment Group. It is believed to be the largest carbon removal transaction to date.

Charlie Pool, head of carbon insurance at Howden, winner of best initiative, explained that over much of the past year there has been a sentiment that "big companies [purchasing credits as part of net zero commitments] seriously understood the value of using credits and were prepared to pay a price for high-quality credits that reflected the real cost of carbon."

Verra – winner of best registry provider – said it can be easy to "underestimate the degree of demand".

Michael Berends, CEO of ClearBlue Markets, winner of best advisory/consultancy, pointed towards its market sentiment study which found that, from April to September, 75% of social media conversations about the VCM were positive.

While it had not studied this before, he said it is likely it would have been much more tilted towards negative perceptions in previous months.

High-interest projects

Throughout the year, prices remained low, but Marcelo Labre, CEO of Viridios AI – winner of best market innovation – said any decline was not as significant as 2023.

Data provided by ACX (AirCarbon Exchange) – winner of best carbon exchange – demonstrates that, following a steep drop in prices in November 2023, the market has since remained relatively flat. All of the credit types included in the data have been trading below $2 (See figure).

Some project types are benefiting from higher prices than others, particularly what Labre calls "the sexy methodologies" such as agri-tech or blue carbon: "These two still fetch high values in the market today, along with regenerative agriculture".

While there is often significant variation between credit prices, of any project type, data by BeZero Carbon and Abatable found that blue carbon credits can trade between $13 to $35. US-based project developer Indigo Ag previously said American farmers could sell credits for around $30 each.

However, the limited supply of credits from these types of projects means they do not make up a significant portion of the market, Labre said.

Carbon dioxide removal (CDR) credits – rather than avoidance credits – have also been a particular area of growth in the market.

ClearBlue Markets' Berends pointed towards some "flashy big purchases" of CDR and Direct Air Capture (DAC) credits over the past year, but labelled these as a "distraction". Instead of supporting projects that remove carbon after emissions, the market should look to support emissions happening in the first place, he argued.

Gold Standard similarly believes that, "while the expansion of CDR is crucial, especially as the voluntary carbon market provides funding for the development of what is often costly technology, it is essential that this does not overshadow the urgent need to reduce emissions".

"CDR should be seen as a complementary measure, rather than a substitute for emission reduction," it argued.

Another winner suggested that the only reason CDR may have taken off in the past year is because of the "huge growth" in technology companies' emissions from artificial intelligence energy usage.

Role of co-benefits

Co-benefits are becoming increasingly attractive, as buyers look to help fund social and nature improvements. This is driving interest in nature-based solutions.

Carbonwave, winner of best individual offsetting project, collects sargassum (a type of algae which usually goes to landfill) in the Caribbean, cleans it and uses it for agriculture and cosmetic products.

Allen McGonagill, chief strategy officer of Carbonwave, said that while this delivers methane emissions avoidance, buyers have been "most excited" about the co-benefits within its algae-focused carbon projects. This might include restoring sea turtle habitats, avoiding arsenic leaching into the groundwater and reducing localised respiratory illness.

Co-benefits can often increase the price of credits, Archit Srivastava, vice president for strategy and growth of Earthood Services – winner of best verification company – explained. "With such a delta, more project developers are also getting invested into it. That could be the driver of a lot of nature-based projects coming up."

ClearBlue Markets' Berends, however, argued that focusing on co-benefits misses the point of the VCM. Whilst these are nice to deliver, he said they are a "distraction" from emissions reduction – the aim of the market, which is often "getting lost" in current discussions.

It is important to remember that they are carbon markets and not 'sustainability markets', he said. A sharper focus on what is a 'good' carbon credit project, instead of what other benefits can be brought in, will make markets more efficient in future, he argued.

Avoidance versus removals

A major debate throughout the year centred on avoidance versus removals, with many corporates opting for removal credits – largely because it is seen as easier to measure emissions removals and therefore less of a reputational risk.

Bain & Company, a global management consultancy firm, which scooped the award for best corporate offsetting programme, shifted entirely to removal credits. Sam Israelit, partner, said this was because it is "the right thing to do", as removing carbon from the atmosphere will help slow the global warming process. He added that "it also avoids some of the risk relating to the purchasing of carbon avoidance offsets".

Howden's Pool also predicted that engineered removals will see long term growth. "Because the carbon can actually be recorded and measured accurately, there is less controversy surrounding their utility. The issue is cost of production, but that will come down.

"I see these credits playing a significant role in the future, particularly in compliance schemes."

However, Sheri Hickock, CEO of Climate Impact Partners, winner of best offset retailer, argued that it's "frustrating that avoidance credits are really being pushed to the side". Cookstove projects, for example, can have an impact on millions of people globally, and often have no other source of funding – "it meets the climate goals, has all these benefits – why shouldn't we be doing it?"

SBTi

This debate is being fuelled by policy changes from the Science-Based Targets initiative (SBTi). Earlier this year, it sparked a furore when it suggested that it would permit company transition plans to use environmental attribute certificates – which includes voluntary carbon credits – to abate Scope 3 emissions "beyond the current limits".

Yet internal backlash and a public consultation meant that, for the following months, it was not clear whether this change would go ahead. This still hangs in the balance, with the initiative saying it will need another year or so to come to a conclusion, after research into the environmental benefits of credits led to "mixed conclusions".

Many in the market believe that, if the policy does go ahead, avoidance credits will not be allowed, further driving demand for removals.

Winners were positive about the impact this policy change would have on project demand. TASC's Estcourt predicted this development is "one to watch" in the VCM, as "the impact that its outcome could have on the market has the potential to be incredible".

Corporates are currently stuck in the middle of criticism, Climate Impact Partners' Hickock said. We have to start to "speak corporate speak" and move the VCM from a niche activity – which is where organisations such as the SBTi have a role to play in translating them for the mainstream, she said.

However, concerns were raised that this lengthy deliberation and confusing communication has heavily impacted the market over the last year – in part leading to the 'wait and see' mentality of many potential corporate buyers.

Howden's Pool said this "seemed like another nail in the coffin for the voluntary carbon market, ironically." He added that "it's a confusing message and in an already depressed market, it did not help. We have seen deals put on hold or fall through."

"Most people in the market are not bullish. A lot of people are getting out", Pool added.

Anna Hickey, partner at Philip Lee, winner of best law firm, said "corporates are confused and frustrated with the SBTi's actions being slightly out of touch with the immediacy of the problem".

Her colleague Lev Gantly, also a partner, suggested that, in the interim before a decision is made, it is likely the market will move on without it: "If you are the science-based body focused on achieving the goals of the Paris Agreement, you cannot wholesale disregard the only market mechanism in the Paris Agreement and expect to still be relevant if corporates outright fail to meet the standards you've set."

Bain & Co's Israelit was positive that the SBTi will "come to a good solution", arguing that its proposed steps "are very good for beyond value chain mitigation".

He suggested the SBTi's development, along with the introduction of the Core Carbon Principles (CCP), will be instrumental in driving integrity within the market.

Core Carbon Principles

Launched in March 2023 by the Integrity Council for the Voluntary Carbon Market, the CCPs are a set of ten science-based principles that aim to identify if a carbon credit creates real, additional and verifiable climate impact.

To be able to use the 'CCP' label, both the methodologies and carbon crediting programmes must be approved by the Integrity Council. Over the past few months, it has begun approving both, including major crediting programmes such as Gold Standard and Climate Action Reserve.

Some of the programmes had to make changes to achieve eligibility.

Last month, it announced that around one-third of all credits in the market will not be eligible for the label. Eight methodologies used for renewable energy projects were deemed as "insufficiently rigorous in assessing whether the project would have gone ahead without the incentive of carbon credit revenues".

Many anticipate these projects will see higher demand, due to buyers seeing them as more trustworthy. Winner of best registry provider, Verra, said getting a CCP label "is going to open the floodgates".

Bain & Co's Israelit explained that "my colleagues in different companies are all striving to know what good looks like. The [CCP] is a really good next step in adding trust to the market. It helps people who really want to invest in offsets, understand what good looks like."

Some winners have already begun to support buyers or project developers looking to get ahead of this label. Philip Lee's Hickey said "a lot of developers are still moving forward with projects they anticipate will be receiving CCP tags. We are working with clients to put the building blocks in place".

Viridios AI has begun to flag projects that have been given the CCP label.

Article 6

Many are also looking to Article 6 of the Paris Climate Agreement to provide clarity on what makes a good carbon credit, essentially setting an international benchmark for best practice.

Article 6 refers to the use of carbon markets to meet Nationally Determined Contributions – country-level commitments to reduce emissions. Within this, two market mechanisms would be created.

Article 6.2 is the mechanism for trading carbon credits – known as Internationally Transferred Mitigation Outcomes (ITMO) through bilateral agreements, largely between countries. Article 6.4 refers to the creation of a UN-supervised voluntary carbon market.

"The degree to which Article 6 can interface with the voluntary carbon market as a path for global action is a big deal," standard setter Verra said.

It has aligned the jurisdictional baseline used for calculating emissions avoided within its REDD (Reducing Emissions from Deforestation and Forest Degradation) methodology with Article 6 baselines.

Earthood has already begun auditing some Article 6 credits.

TASC's Estcourt argued that "the number of bilateral and multilateral agreements being forged under Article 6.2 is also extremely encouraging. We are eagerly monitoring progress as countries develop the necessary governance structures to formalise the transfer of mitigation outcomes".

Much remains to be thrashed out at COP29 in Baku. BioCarbon Partners said many in the market are "waiting with baited breath". Nic Mudaly, CEO, said: "As the key negotiators discuss approved methodologies and project types under Article 6.4, this will heavily impact projects in the VCM."

The lead-times of creating many projects in the VCM can often take around five years, which means many project developers will look to create projects they think will be able to play a role in the market's next phase.

ClearBlue Markets' Berends argued that Article 6 should be seen as the "stepping stone" to compliance markets.

Compliance markets

Many winners pointed towards the trend of new compliance markets coming to fruition or existing emissions trading schemes being expanded. There is an expectation that this will at some point lead to the voluntary market being subsumed by the compliance markets, and in the short term it will likely mean many VCM participants look to further align their projects for eligibility within mandatory markets.

Alongside national schemes, this includes industry-specific policies such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).

Howden's Pool said "the only positive news is coming from compliance schemes. The big one being CORSIA. This is leading to a significant increase in demand for eligible credits."

Simon Puleston Jones, consultant to Philip Lee, observed that "we're seeing compliance and voluntary markets come closer together, so projects in the VCM are increasingly becoming eligible for compliance schemes. If they can't do that today, it's possible, at least for certain methodologies, that they'll be able to do it tomorrow."

The use of voluntary credits is currently being consulted on within both the EU and UK emissions trading scheme.

Ecosecurities' Fernandez said the firm is focusing on ensuring its projects will be eligible for compliance markets, where the demand is much more certain. This typically includes energy access, waste management and transportation projects.

Winners hope that further expansion of the compliance markets will help provide clarity on what a 'good' credit is, and help alleviate some of the confusion that dogs the voluntary market.

William Pazos, co-founder and managing director of ACX (AirCarbon Exchange), argued that "one of the bright lights we're seeing is a lot of jurisdictions and government initiatives take on the role of determining what a qualified credit is". While this has often been slow, this will be "a catalyst for activity".

He pointed towards CORSIA and Singapore's carbon tax as a good example of clarifying what a 'good credit' is.

ClearBlue Markets' Berends argued this is another reason why co-benefits should not be prioritised. Given these are not taken into consideration in any compliance systems around the world, VCM participants will not be well placed to meet the growing convergence between voluntary and compliance, or follow the synergised version of a 'good' credit.

Governments have been sending positive signals backing the voluntary carbon market. Climate Impact Partners pointed towards the move earlier this year by the Biden-Harris administration to launch high-integrity principles for the VCM, as an example of how governments could support the market.

Technology in standard setters

Technology and innovation also provides an opportunity to improve trust in the market.

In the short term, Verra expects much of the technological improvements to be found in "the nuts and bolts", improving areas like accounting and monitoring, with remote monitoring becoming the "big enchilada" of the industry.

Gold Standard, winner of best GHG crediting programme/standards setter, added that "we anticipate monitoring, reporting and verification (MRV) [technologies] will play an increasingly important role", with emerging technologies helping to measure reductions and removals "more efficiently and accurately".

MRV technologies might include satellite or AI technology.

Dr Madhukara, director of Kanaka Management Services – winner of best project developer, forestry and land use – said that standardising MRV, alongside methodologies, will be necessary to bring "small and effective projects to come to the market."

Verra has begun to further integrate satellite technology into its decision making. Recently, it rejected 37 carbon credit projects and sanctioned four validation bodies for the first time after finding that they had "serious issues", including overstating project areas.

It came to this conclusion after looking at rice fields from space. "We already have an ability, on an ad hoc basis, to [use that technology] when we suspect there's a challenge. This is already having a real impact on the integrity and credibility of the market."

Other winners, however, were less optimistic about the speed at which standard setters will integrate new technology into their operations and methodologies. Earthood's Srivastava argued that standard setters are often very slow, largely because of how much work they have to do, and they are concerned about the efficacy of new technologies.

Puleston Jones, consultant to Philip Lee, anticipates that over the next few years there will be growing confidence in "standards other than Verra and Gold Standard, driven by the strength of their science". He pointed towards companies such as Isometrics and Puro.earth as being set to benefit.

"Only having [Verra and Gold Standard] does not make a properly functioning market, particularly with methodologies taking two years to be developed. Other standard setters have come about because of market frustration at how long it takes to create standards – it is inhibiting innovation," he said.

Technology on the ground

Project developers are also using more technology on the ground. BioCarbon Partners' Mudaly argued that, while it still debates on-the-ground experience versus desk-based technological advances, remote sensing technologies "are revolutionising carbon markets" and will continue to improve accuracy.

Within REDD projects, for example, satellite improvements, AI and machine learning has helped improve the reliability of forest biomass monitoring and its subsequent accounting. "These technologies efficiently analyse vast datasets, identify patterns and provide predictive insights into carbon stock changes based on historical and current data," Mudaly added.

Other technologies, such as block chain integration, will help improve the transparency and traceability of credits, particularly in emerging markets.

He said "these technological advancements will significantly boost the effectiveness and credibility of carbon markets, ensuring accurate and reliable carbon accounting and trading."

However, Ecosecurities' Fernandez argued that the market needs to ensure that any innovations actually get to the heart of the issue. While some technologies can support accounting or monitoring, sometimes the problem is on-the-ground management or design. It needs to be ensured that "we're not finding a solution to a problem that wasn't there".

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