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Government rolls out carbon and nature credit principles

Author: ICAEW Insights

Published: 17 Dec 2024

As MPs prepare to seek public views on how to boost the use and integrity of voluntary carbon and nature markets, six principles set the tone for good practice among corporates.

The UK Government has issued six principles designed to support the growth of voluntary carbon and nature markets (VCNMs). Published in November, the principles pave the way for a wide-ranging consultation that the government plans to launch in early 2025 on how corporates can best enhance the use and integrity of VCNMs in the economy.

In its introduction to the principles, the government points out that worldwide investment in low-carbon sectors hit $1.8tn last year. However, it notes, that sum would have to quadruple by the early 2030s to more than $7tn per year for the world to achieve the goal of net zero by 2050. As such, the UK will need to raise its current capital investment in low-carbon sectors from £60bn last year to more than £130bn a year by the 2030s.

To meet that challenge, the government is backing action to unlock what it calls ‘high-integrity’ VCNMs. According to forecasts, the global value of those markets could reach tens of billions of dollars by 2030 – with higher volumes possible under the right conditions in later years.

“For these markets to better support the delivery of climate and environmental goals,” the government states, “it is critical that they are operated and used with integrity.”

Ambitious actions

At a minimum, the government believes that means better ensuring that credits deliver their intended outcomes. So, buyers should not just purchase and use credits – they must also carry out internal actions to meet environmental goals and mitigate damage. To avoid misleading stakeholders, any public environmental claims that companies make in connection with their use of credits must be accurate and aligned with data in their sustainability reporting.

The six principles are:

  1. Use credits only in addition to ambitious actions within value chains

Achieving climate and nature goals requires immediate, ambitious and sustained action to reduce value-chain emissions and environmental impacts. Companies should make every reasonable effort to minimise their own impacts – and those of their supply chain partners – before using credits in voluntary markets. Any such use should always complement, not displace, investment in value-chain activities required to reduce source emissions.

  1. Use high-integrity credits

Suppliers should ensure that credits meet recognised, high-integrity criteria for delivering the benefits they claim. As part of that, credits should be independently validated and verified. Examples of high-integrity credits are those that represent activity additional to what is required by law at project level, are accompanied by measures to compensate for any reversal of the activities’ outcomes, are generated through the application of conservative baselines and are not double-counted.

Global initiatives to set baseline quality thresholds for voluntary credits, such as the Integrity Council for the Voluntary Carbon Market (ICVCM), can guide credit buyers towards activities that fit those criteria.

  1. Measure and disclose the planned use of credits as part of sustainability reporting

The government encourages all credit users to voluntarily and publicly report any intentions to use credits. That should include details such as the underlying project type, the certifying standard, how any planned use of credits relates to wider environmental goals, and whether they will be used to achieve a particular target.

“Such voluntary disclosure allows for public accountability,” the government says, “and supports demonstration of compliance with credit-integrity criteria.”

  1. Plan ahead

Credit users should set and disclose both long-term and interim targets, plus the strategies they intend to use to achieve them. For carbon credit buyers, that planning should include a quantified, independently verified and science-aligned target across scopes 1, 2 and 3 – with the aim of achieving net zero no later than 2050.

  1. Make accurate green claims using appropriate terminology

False and misleading environmental claims from organisations about themselves and their goods and services have highlighted the need for more accurate underpinning terminology.

Examples of such claims include the description of organisations and their products or services as ‘carbon neutral’ or ‘biodiversity positive’. While entities should be responsible for ensuring claims are accurate, the government recognises that it could play a proportionate role in helping them form a clearer understanding of how to make their claims.

  1. Cooperate with others to support the growth of high-integrity markets

Credit buyers should work with other VCNM market actors to support standardisation, wider information sharing, more equitable market access, reduced transaction costs, transparency and interoperability.

Voluntary markets, the government notes, are a fast-evolving space – but the market architecture can be fragmented in ways that may inhibit high-integrity efficient use. Effective cooperation between stakeholders could help to overcome those hurdles.

Unlocking scale

As well as supporting ICVCM, the government backs the work of the Voluntary Carbon Markets Integrity Initiative. Those schemes, it says, “have engaged a broad range of interests over several years, consulted publicly and published outputs that have influenced actors to strengthen and disclose more of their practices”.

Last year, as the government notes, the UK collaborated with France to co-launch the independent International Advisory Panel on Biodiversity Credits (IAPB). At October’s COP 16 meeting in Columbia, the IAPB published its framework for high integrity biodiversity credit markets, consisting of high-level principles, guidance and pilots.

On the domestic side, meanwhile, Westminster and the devolved governments are supporting related efforts from the British Standards Institution (BSI). At present, the BSI is working with industry, academia, non-profits and expert bodies to deliver a suite of Nature Investment Standards. That framework will eventually cover the supply of credits that create environmental benefits for use or trade for application in the UK.

“Clear integrity standards,” the government stresses, “are crucial for strengthening voluntary markets to unlock scale.”

Members will be updated on the forthcoming government consultation when it launches in early 2025.

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