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| The role of the US voluntary carbon market | | Nov 20 2009 | |
Point Carbon News: Vol 4 • Issue 46 • 4 December 2009
Guest Commentary by Helen Robinson, managing director of Markit Environmental Registry.
These are dynamic times for the global carbon market. With the Kerry-Boxer bill to be debated by the US Senate, the upcoming talks in Copenhagen, and challenging market conditions faced by all, it is a pertinent time to address the question: "What relevance do voluntary carbon market standards and project types have to the evolving US market?"
In the US, it is the voluntary market that is leading the way, working alongside existing state and regional initiatives, and ahead of federal regulation. This stands in stark contrast with other territories, where the voluntary markets complement more established compliance markets by providing innovation in methodologies and project types not currently included in compliance regimes.
After a slow start, the US is driving innovation in a number of areas in climate policy. One such area is forestry projects and their role in the carbon market. Over the last few years we have seen the rise and fall of forestry as a tool for offsetting, due to issues of permanence and related concerns among corporates about reputational risk. However, today an evolution of new standards and methodologies to accommodate Reduced Emissions from Deforestation and Degradation (Redd) has reignited interest in forestry. Where other markets evolved to exclude forestry, the US has maintained an interest in the role of forestry in the carbon market. With a US federal cap-and-trade programme under consideration, and land-use based mechanisms set to play a key role within it, forestry will likely continue its revival.
While the Kyoto market was founded on the principle that a reduction is a reduction wherever it originates, the US has maintained a singularly domestic focus. An article in Point Carbon on 3 November 2009, noted that the whole Clean Development Mechanism worldwide has only delivered 340 million credits in the past four years. With that in mind, the 1.5 billion US domestic offset credits mentioned in the Kerry- Boxer bill will be a tough mountain to climb. Therefore, the US faces an enormous challenge, and but also an enormous opportunity.
One contributing factor to the slow building of capacity has been the time consuming, subjective, project-specific testing for additionality. The US market is championing the use of performance-based additionality tests, where a performance benchmark for CO2 intensity is set, and projects are measured against it. This simplifies the process, makes it far less time consuming and, importantly, reduces the element of subjectivity in the test.
Additionally, carbon credit standards have evolved from a time when projects were assessed by buyers themselves to a market where Verified Emission Reductions (VERs) without a standard cannot be sold. Accepted standards in the US legislation are expected to include Voluntary Carbon Standard (VCS), American Carbon Registry, Climate Action Reserve, ISO, Gold Standard and potentially endorse additional certifications (such as Social Carbon and CCB). Numerous NGOs have played a vital role in the development of these standards such as The Climate Group and Ieta in the VCS and Winrock in the American Carbon Registry standard. The evolution of standards ushered in the need for independent financial markets based registries, which dramatically improved transparency and confidence in the market. In a market where "caveat emptor" once prevailed, buyers now have critical insights into what they are purchasing and access to tools to transfer and manage units in their own accounts. The US has had the good fortune to leverage lessons learned from the Kyoto and the voluntary markets to formulate a cap-and-trade programme to achieve the best possible outcome.
So, what does the future have in store for the voluntary market? We believe that the many standards we see today will likely consolidate. As registries mature and evolve, we see an opportunity for a global meta registry system, with universal serialization of units, to facilitate a truly global, actively traded carbon market. We anticipate that a US cap-and-trade programme will come into force, and over time American businesses will be subject to carbon compliance requirements. This programme will continue to endorse quality voluntary standards as acceptable compliance credits. We believe the policy will also have wide-reaching influence, generating ever greater awareness of the need to reduce emissions. Corporates looking to improve their sustainability profile, outside of compliance, will look to implement best practice in offsetting emissions. As they do so, increased efficiency and productivity gains will drive momentum and uptake, and the voluntary carbon market should grow substantially. |
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