From crisis to confidence: Rethinking integrity in the voluntary carbon market - Compensate Foundation’s white paper

Wednesday, September 6, 2023

A high-integrity voluntary carbon market would allow us to unlock urgently needed climate finance and reduce and remove billions of tonnes of emissions. However, there is a long way to go to fix the current flaws and make the VCM work for the climate.

The purpose of this white paper is two-fold. Firstly, it aims to provide updated insights on project screening and evaluation, drawing from an assessment of over 170 projects, thereby building upon the foundation laid by the 2021 white paper. Secondly, it delves into the ever-evolving landscape related to quality assurance, claims, regulations, and the imminent risks of greenwashing associated with current offsetting practices. These combined factors will ultimately determine whether the ambitious growth forecasts for the VCM will come to fruition.

The systemic flaws in the voluntary carbon market

The VCM is in turmoil. It has evolved, until recently, under very little regulation and public scrutiny. Suddenly, many of its flaws are being exposed to market players, regulators, and the wider public, sending shockwaves to the whole industry. 

The market is flooded with tremendous amounts of legacy low-quality credits. Negative publicity on nature-based carbon projects has undermined the trust in the market, both in buyers and investors. 

In early 2023 when The Guardian, Source Material, and Die Zeit published a joint investigation on Verra, the world’s leading carbon standard, which revealed that more than 90% of their rainforest offset credits are likely to be “phantom credits” and do not represent genuine carbon reductions.

The revelations align closely with conclusions outlined in Compensate Foundation’s 2021 white paper, revealing that up to 90% of screened nature-based projects are unsuitable for offset use. The greatest weaknesses of nature-based projects are lack of additionality or unreliable baselines, both resulting in overcrediting. Other common problems are high permanence risks and community conflicts. In many cases, the lack of transparency makes verifying whether the carbon credits deliver the impact they promise impossible. 

VCM’s future

High reputational risks associated with using carbon credits have resulted in uncertainties about the market’s future as companies are backing away from their climate targets. Large companies are increasingly betting on carbon dioxide removal (CDR) and investing in emerging innovative technologies. The critical enabling factor for upscaling the voluntary carbon market is restoring the trust of corporate buyers, consumers, investors, and climate experts. 

The task is not easy, given the legacy of the VCM and the various interests of market players who already have ongoing projects and a massive supply of unsold carbon credits that would not meet the necessary quality thresholds. 

In an attempt to rebuild the trust in the voluntary carbon market, initiatives providing an integrity benchmark both on the quality of carbon credits and corporate claims emerged. The industry has high hopes for the ICVCM’s Core Carbon Principles and Assessment Framework, which are seen as the silver bullet to save the reputation of the VCM and regain customers’ trust. Still, in its current shape, they are not strict enough to solve the fundamental problems of the VCM.

Regulators, like the EU, demand tighter rules to weed out unsubstantiated green claims and protect consumers from misleading communication. Corporates relying on offsets in making climate claims have two options: proactively going beyond existing market requirements to ensure carbon credits’ genuine climate impact or shifting from offset claims to non-offset claims to avoid increasing scrutiny. It is too early to tell if carbon neutrality claims will disappear altogether, but the gradual shift to non-offset claims is gaining traction.

The Compensate Foundation believes that the VCM, despite its current problems and controversy, can effectively mitigate the climate crisis if its integrity and transparency improve dramatically.

The fundamental market flaws need to be confronted without delay, even if it requires rejecting many of the current prevailing practices for quality assurance. The voluntary carbon market needs an overhaul now to be fit to serve the long-term demand for high-quality carbon credits for meeting corporate net-zero targets. The market's future depends on how successful integrity initiatives and stakeholders within the VCM can tackle the current challenges. 

Download Compensate Foundation’s white paper .

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