The role of voluntary carbon markets in mobilising finance to accelerate climate action
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The role of voluntary carbon markets in mobilising finance to accelerate climate action
The science is clear. The 2023 synthesis report of the Intergovernmental Panel on Climate Change (IPCC) provided a critical pulse check indicating that current country nationally determined contributions (NDCs) remain highly insufficient to meet the Paris Agreement goals to limit global warming to 1.5 °C. In order to meet the collective goal of net zero emissions by 2050, greater action is needed globally to advance on the path set before us.
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The historic COP28 “UAE Consensus” sent an important signal of intent to the international community to increase the pace and scale of efforts to keep the Paris Agreement goals within reach. With a necessary shift to implement effective policies that provide a credible response to the climate crisis, carbon markets are increasingly considered as an essential tool to achieve climate goals.
When considered as part of the emissions mitigation hierarchy, voluntary carbon markets (VCMs) are a key component within a portfolio of solutions for facilitating global emissions reductions and removals, by allowing companies, governments and individuals to purchase voluntary carbon credits in order to mitigate their own greenhouse gas (GHG) emissions, in accordance with individual targets. These markets not only help in achieving global emissions reductions, but, more importantly, also mobilise substantial financial resources towards sustainability projects, including for communities, sectors, countries and economies where climate adaptation, resilience building and finance needs are greatest.
Recently, VCMs have been subject to critical review. The integrity of generation, verification and overall quality of voluntary carbon credits as well as the credibility of mitigation claims by users of voluntary carbon credits in meeting their net emission reduction targets has been under the spotlight. While scrutiny can be a helpful force in driving necessary improvements in the market, an increase in negative perception and the lack of clarity for corporate users of voluntary carbon credits has hampered business engagement in VCMs and led to a dramatic decline in demand for voluntary carbon credits.
The Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI) play a key role in tackling the integrity gap. The ICVCM established standards of ethics, sustainability and transparency for VCMs globally (Core Carbon Principles), and the VCMI provided guidance for mitigation claims by companies and other non-state actors in terms of credible use of voluntary carbon credits in setting and meeting climate commitments, and how to communicate their use of those credits.
In this paper, the International Chamber of Commerce (ICC), as the institutional representative of more than 45 million companies in over 170 countries, highlights the importance of engaging in and scaling VCMs as a useful complement to achieve global net-zero emissions and mobilise critical financial resources to support climate action.
The paper discusses the opportunity for VCMs in
- emissions reduction and removal and
- mobilising finance and resources, with a call for robust governance and trust-building measures to enhance their effectiveness and use in global efforts to achieve global net-zero emissions.
The following sections will elaborate on how to mobilise finance and enhance governance and trust in VCMs, with a focus on key areas of relevance to the global business community.
