by: Clara Merlino | December 10, 2024
‘Tis the season of Hallmark movies, giving back, visiting loved ones, and, of course, reflecting on the past year. It was quite the year for the Voluntary Carbon Market (VCM), and ClimeCo has combed through the noise to summarize what we think were some of the most influential developments for the VCM.
1. Article 6 at COP 29
Background: In November, the 29th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) occurred in Baku, Azerbaijan. The hot topic for the VCM was, without a doubt, Article 6, first introduced in the Paris Agreement in 2015. Article 6.2 allows for direct bilateral or multilateral cooperation between countries, where countries can trade carbon credits called Internationally Transferrable Mitigation Outcomes (ITMOs). It is currently operational. Article 6.4 establishes a global carbon market overseen by the United Nations.
What Happened: Article 6.2 Negotiators at COP29 established rules for country-to-country trading and clarified authorizations. A draft version of the 6.2 trading structure was successfully moved to an approved text.
Key guidance around Article 6.4 was agreed upon, establishing a framework for a global carbon market under the United Nations (UN). The new framework will be called the Paris Agreement Crediting Mechanism (PACM – not to be confused with the 1980 maze video game).
We would be remiss not to mention ClimeCo’s own presence at COP, where President and CEO, William Flederbach, spoke on working with chemical companies in China to drastically reduce emissions.
Why It Matters: Article 6 represents an exciting opportunity for the carbon market, allowing countries to conduct trades across borders to mitigate climate change cooperatively. However, the UN has noted that additional work needs to be done to improve standards of integrity.
- Under 6.2, countries can set their own standards for carbon credit quality within their bilateral agreements. The UN will not oversee the quality of environmental outcomes, but the new agreement includes provisions for transparency. Work to provide standards for high-integrity carbon credits for use under Article 6.2 will be important, and Integrity initiatives like the Carbon Credit Quality Initiative (CCQI) and the Integrity Council for the Voluntary Carbon Market (ICVCM) will be central to this effort.
- Under article 6.4, PACM will receive large volumes of old credits from the Clean Development Mechanism. Despite the large body of evidence on CDM shortcomings, re-assessment of previous CDM projects for additionality was rejected. The Supervisory Body of the 6.4 mechanism will resume work early next year to establish the eligible registry mechanisms and methodologies. Besides CDM projects, much remains to be clarified regarding project types that will be permitted to be hosted on PACM.
ClimeCo hopes that defined standards for 6.2 and 6.4 and proper scrutiny of such will yield permanent, real, and additional emissions reductions globally. That said, it may take years until the planned implementation produces credit transactions at scale.
2. CORSIA
Background: The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), developed by the International Civil Aviation Organization (ICAO), was established in 2016. CORSIA provides airline companies and operators compliance flexibility to meet emission reduction targets by purchasing carbon credits. Participation is currently voluntary, with the compulsory phase beginning in 2027.
What Happened: In 2024, four standards received full approval by ICAO for use in the CORSIA program: Gold Standard, Verra, Global Carbon Council, and Climate Action Reserve (CAR) – American Carbon Registry (ACR) and Architecture for REDD+ Transactions were fully approved previously. This means that carbon credits developed using these standards are eligible for use by airlines for compliance, provided that the host country where the credit was generated provides a Letter of Authorization (LOA) and agrees to make Corresponding Adjustments (CA). The letter of authorization prevents double-counting – a scenario where both the host country and the airline claim the same emission reduction.
Why It Matters: CORSIA could create significant demand for credits from airlines – some groups predict that demand could outweigh supply. The decision to provide full approval for these standards into CORSIA is exciting because it has the potential to help the supply side “take off” (so to speak).
CORSIA itself is groundbreaking as it is the first system offsetting scheme that spans an entire industry globally. It is anticipated that CORSIA will mitigate 164 million tonnes of CO2 per year between 2021 and 2035, equivalent to the annual emissions from the Netherlands across all sectors. ClimeCo is excited to continue to monitor this program as it progresses.
3. ICVCM
Background: Integrity is critical in the VCM. Standards and integrity ensure genuine climate impact.
The Integrity Council for the Voluntary Carbon Market (ICVCM), a nonprofit, was founded in 2021 to increase trust in carbon credits and scale the market. The council reviews carbon registries and their methodologies and, if appropriate, administers a Core Carbon Principles (CCP) label or stamp of approval. The full market impact of the CCP-labelled credits is still developing, however, it is anticipated that they will be highly regarded.
What Happened: In 2024, the ICVCM approved five registries: ACR, Architecture for REDD+ Transactions, CAR, Gold Standard, and Verra. We are still awaiting the approval of many methodologies within those registries, although select methodologies have received the CCP label to date.
Why It Matters: Integrity and quality of verified offset credits are essential to build trust in the VCM and these projects. ICVCM approval provides buyers with an extra layer of comfort and certainty. That said, it is still early days, and the full market impact may not be seen until well into 2025
4. SBTi
Background: Another standards program that influences the market is the Science Based Target Initiative (SBTi). SBTi is a non-profit organization that helps companies set emission reduction targets grounded in climate science and aligned with the 1.5° C Paris Agreement goal.
What Happened: Until this year, SBTi had not permitted the use of carbon credits towards company targets for Scope 1, 2, or 3, with the exception of removal credits – for residual emissions only. In July 2024, SBTi ran a public consultation process on whether the use of carbon credits and other environmental attribute certificates (EACs) towards the abatement of Scope 3 emission reduction targets should be permitted. No final decision has been made and SBTi will continue to develop definitions, guardrails, and thresholds and conduct further consultations with a broad set of stakeholders in the coming years.
Why It Matters: The SBTi developments in 2024 have been met with both concern and support. The vast majority of those concerned want to ensure that companies’ motivation to decarbonize within their supply chain is maintained if they can buy carbon credits to offset their emissions. Supporters, including ClimeCo, have argued that credits can contribute to a balanced approach emphasizing direct emissions reductions to the greatest extent possible.
5. U.S. Election Results
Many are wondering how President Trump’s election in November will affect the VCM. While we cannot speculate about the future, we can look to the past for an indication.
Between 2017 and 2020, carbon credit demand increased under the Trump administration, with transaction volumes and values rising. (Source: Ecosystem Marketplace – 2024 State of the VCM Report)
Also, looking at Trump’s previous term, his administration withdrew the United States from the Paris Agreement in 2017, and the Biden administration reinstated it. President Trump has stated that he plans to pull the country out of the Paris Agreement a second time. This would mean that the U.S. would not contribute to the $300 billion commitment of aid from developed countries to developing countries to help with climate resilience – the number for which was finalized in an overtime deal at COP29 this year, and that many argue falls short of the need.
Closing
As we turn the corner into 2025, ClimeCo will be paying close attention to these developments and more. We will especially be monitoring the UN’s progress against the 2025 goals that were set in Baku and potential SBTi updates regarding the use of credits for Scope 3 reductions. As an experienced project developer of over 15 years, we are committed to generating credits with high standards of quality. We hope the new changes in this ever-evolving market will uphold all parties and countries to the same standard and allow the VCM to live up to its full potential.
Sources & Works Cited
IETA – COP29 Summary Report
S&P Global – COP29: Watershed moment for carbon markets
Environmental Defense Fund – Historic Article 6 Decision at COP29
Carbon Market Watch – Complex Article 6 rules pave way to unruly carbon markets
Carbon Pulse – International carbon markets now “open for business
Carbon Herald – ICAO Approves Four Programs For CORSIA Eligibility
Aviation Benefits – CORSIA Explained
Sustainable Brands – SBTi Drama Underscores the Urgent Need
Ecosystem Marketplace – 2024 State of the Voluntary Carbon Market
Inside Climate News – Trump’s Win Casts Shadow over US Climate Progress
Inside Climate News – Overtime Deal at COP29 Falls Short
About the Author
Clara Merlino is as a key member of our Asset Innovations team focused on hard-to-abate sectors, working to assess and develop greenhouse gas (GHG) reduction projects. Clara works primarily with our industrial gas and cement clients to help them decarbonize their operations and leverage the voluntary carbon market.
Clara holds a Bachelor’s degree in Economics from Whitman College and a Master’s degree in Strategic Design and Management from The New School.
