The Voluntary Carbon Market Integrity Initiative (VCMI) published its finalised Claims Code of Practice yesterday to great fanfare. This document follows from the Provisional Code published in June 2022. The purpose of the Code is to help companies credibly make voluntary use of carbon credits within their emission reduction targets.
As in the Provisional Code, there will be four steps to making a VCMI claim, but there is some language variation in the finalised version. The four steps are now as follows:
- Meet the foundational criteria – including transparent reporting, set near-term science based targets, demonstrate the company is “on-track” and supportive policies towards the Paris Agreement.
- Identify claim(s) to make when using carbon credits:
- Silver – coverage of 20-60% of emissions residual emissions with high quality carbon credits.
- Gold – coverage of 60-100% of emissions residual emissions with high quality carbon credits.
- Platinum – coverage of more than 100% of emissions residual emissions with high quality carbon credits.
- Purchase the highest possible quality credits aligned with the Core Carbon Principles (CCPs) of the Integrity Council on the Voluntary Carbon Market (ICVCM).
- Report transparently and conduct independent validation on the use of credits aligned with the VCMI Monitoring Reporting and Assurance (MRA) Framework.
What does this mean for corporate climate commitments and the Voluntary Carbon Market?
Whilst this guidance has taken a year to produce since the initial draft and it clarifies some aspects of how much of a firm’s emissions need to be covered for different claims, it still does not address some important issues – specifically how companies that cannot comply with foundation criteria (i.e. committing to SBTI net zero targets by 2050) should use carbon credits. This is critical, as the vast majority of carbon credits used by corporates today are by firms that do not meet this criteria.
Trove analysis of over 470 companies using carbon credits shows that:
- 3.8% of firms would meet VCMI silver or above
- 2.7% of firms would meet VCMI gold or above
- 2.3% of firms would meet VCMI platinum
Firms using carbon credits would fail to meet the current VCMI criteria on several fronts:
- Only 25% of firms using carbon credits have made a net zero commitment that meets VCMI’s requirements (interestingly, an additional 15% have a net zero target where the net zero definition and/or framework used is not currently sufficient for VCMI)
- Only 38% of firms are on track to meet near-term emission reduction targets
- Only 53% of firms cover more than 20% of their (scope 1 and 2) emissions with their carbon credits
- Only 66% of firms using carbon credits disclose the exact credits they are using
In VCMI lexicon this is the “on ramp” to encourage firms to start to engage in the voluntary carbon market, even if they are unable to commit to and achieve science-based targets. The VCMI has committed to add more details on these additional claim tiers in November 2023 along with the VCMI MRA framework.
Yesterday’s Claims Code also punts another important issue into the future – decisions on the emissions scope companies should claim to “offset”. This is a crucial issue as the SBTI requires scope 3 emissions to be included in net zero commitments. The provisional code allowed companies making ‘bronze’ claims to meet 50% of their Scope 3 interim emission reductions targets using carbon credits. The new lowest ‘silver’ tier requires the purchase and retirement of high-quality credits in an amount equal to or greater than 20%, and less than 60%, of a company’s residual emissions once it has demonstrated progress towards its near-term targets. But the scope of emissions coverage to be included in a VCMI claim is left for future consideration.
These deliberations will be the most controversial. It will pit the purists against the pragmatists. The purists will still want to see high levels of ambition, which may be unachievable for many firms, while the pragmatists will want to give confidence to companies that are starting their decarbonisation journey in hard to abate sectors.
We expect the VCMI will also settle on a language that is simple and intuitive. The finalised Claims Code now uses ‘silver’, ‘gold’, and ‘platinum’ respectively. This change may be confusing for market stakeholders who are not familiar with the tiered system of claims. It is possible that some stakeholders might assume ‘gold’ is the highest tier, without realising that ‘platinum’ is part of the scale.
In summary, yesterday’s VCMI Claims Code of Practice helps move the debate forward, but the difficult and more controversial work still lies ahead.