Carbon Credits Crisis: Standards Fall Short

A significant portion of carbon credits has failed to meet new standards set by the Integrity Council for the Voluntary Carbon Market (ICVCM). This new benchmark aims to ensure the credibility of the carbon offset market. Renewable energy projects, in particular, were found lacking in additionality, impacting market dynamics.

A significant portion of existing carbon credits have failed to meet the criteria for a new standard that aims to set a global benchmark for the voluntary carbon market, according to the board's announcement on Tuesday.

Within the voluntary market, companies buy credits from various projects like wind farms or reforestation schemes worldwide to fulfill their internal carbon-cutting targets. However, all assessed credits linked to renewable energy did not reach the recent benchmark. Demand for offsets had stagnated the previous year due to growing concerns that credits were ineffective at reducing emissions.

The Integrity Council for the Voluntary Carbon Market (ICVCM), an independent governance body, has initiated Core Carbon Principle (CCP) standards to tackle these integrity issues and assess project validity. The ICVCM reported that eight renewable power methodologies, covering around 236 million unretired carbon credits—or 32% of the market—failed to meet its additionality requirements.

Additionality refers to whether a project needed revenue from selling carbon credits to proceed. If the project would have occurred regardless, its claim to have avoided emissions is weakened. Amy Merrill, the ICVCM's CEO, mentioned that renewable projects could still participate in the voluntary carbon market and that new methodologies could be submitted for evaluation.

"There are still places in the world where deployment barriers exist, making projects potentially additional," she told Reuters. The price of renewable energy offsets dropped by 69% last year to an average of $3.88 per metric ton, according to a report by the non-profit Ecosystems Marketplace in May.

Analysts indicate that failing to meet the CCP standard might push renewable offset prices even lower this year. Merrill emphasized, "We're setting an integrity threshold for the market, and we have consistently stated that not all projects will pass." (Reporting By Susanna Twidale; editing by Barbara Lewis)

(With inputs from agencies.)