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The carbon casino: can the integrity council rein in the $100 billion Wild West?

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By Bashir Dan

· 4 min read

The boom and bust of carbon trading

Another bust cycle is ending in the volatile carbon offset market. In this speculative territory, confidence has long waxed and waned in boom-and-bust cycles. But the busts have grown deeper, and integrity concerns now threaten an existential crisis.

The vision behind carbon trading was simple in theory - let markets allocate emissions cuts most efficiently worldwide. But in practice, gnarly complexities emerged. Concepts like "additionality" that sound neat in technical papers melted into the air when exposed to real-world pressures. 

Take the Clean Development Mechanism (CDM), a UN emissions trading scheme launched in 2005. Critics soon alleged up to 75% of CDM projects would have happened anyway, meaning credits rewarded useless climate action. With weak oversight, carbon cowboys gamed the system.

Or take forest offsets which carry inherent reversal risks from wildfires. Investigations reveal systemic over-crediting - The Guardian exposed how over 90% of rainforest offsets by the world's leading certifier failed to achieve claimed reductions. Such failed offsets vaporize buyers' sunk costs while enabling continued emissions - undermining confidence that markets spur real climate progress, such failures seed caution.

How market-based strategies may finance climate solutions

But for all their flaws, market-based climate solutions won't disappear without a fight. However elusive in reality, the logic of carbon trading endures. Overseen properly, markets could optimally allocate the $100 billion annual investment needed globally in natural climate solutions.

That logic animates the Integrity Council for the Voluntary Carbon Market (ICVCM). Emerging from efforts like the Taskforce for Scaling Voluntary Carbon Markets, this private regulator aims to restore confidence using carrot and stick.

The ICVCM's Carbon Principles and Assessment Framework, launched recently, resembles a marshal laying down the law. First, the Principles establish rigorous criteria for offset quality spanning areas like permanence, social safeguards, and community rights. Think of these like 10 commandments etching high expectations into stone. 

The Assessment Framework then outlines how programs and projects get approved once they comply with provisions. First, programs like Verra and Gold Standard must prove they meet oversight and transparency criteria through detailed audits. Those compliant become "CCP-eligible" to issue credits branded with the ICVCM badge of approval - think a carbon credit sheriff's star.

Approved programs can then put projects through ICVCM's verification gauntlet. Experts intensively assess major project categories like forestry or renewables against issues like quantifying emission reductions. Projects that pass earn the coveted “CCP-approved” label, identifiable to buyers seeking credits verified as socially and environmentally sound.

This aims to use market leverage to motivate programs to tighten standards so their projects qualify for the growing demand for ICVCM-approved credits. Think of it like a voluntary code imposed on a lawless town, with those deputized gaining privileged access.

Compelling authority

But therein lies the catch. Such voluntary initiatives inherently lack the authority of democratically enacted law. The ICVCM must compel programs’ cooperation through reputation and markets, not regulations with teeth. 

Can such voluntary rules succeed where regulatory efforts have stalled? Success hinges on air-tight oversight and enforcement provisions. But here critics spy familiar weaknesses:

  • Auditing projects, ICVCM outsources to expert groups. But how their work is governed and reconciled seems opaque. This diffuse structure risks inconsistencies. 
  • Programs must voluntarily agree to be monitored. If audits uncover egregious issues, can the ICVCM rescind approvals? If not, inaction sets concerning precedents.
  • Broad principles leave wiggle room without binding criteria on issues like what project types qualify. This risks approvals being too discretionary. 
  • Weak enforcement remains voluntary without formal sanctions. It depends on the ICVCM “nudging” programs' ambition, not rigorously policing integrity.

To deliver, the ICVCM must compel accountability through access to markets and reputation. But voluntary systems inherently enable the choice of easier paths. Avoiding integrity loopholes will require aggressive governance and crystal-clear requirements strictly enforced.

The stakes are monumental. Voluntary markets could swell into a $100 billion annual enterprise if the ICVCM ushers a new era of trust. But failure would crater hopes of market-based climate action as urgency mounts. 

Success rests on a commitment to principles, not profits. The ICVCM must be unafraid to deny approval to major programs if audits reveal negligence. Only sacrificing revenues to integrity will attract the investment carbon markets desperately need.

This alchemy is possible but requires political will and public pressure. Carbon markets offer no panacea but could help bend the curve alongside robust regulations. The ICVCM’s principles carve a path forward. But transforming the Wild West requires law and justice to prevail.

Future Thought Leaders is a democratic space presenting the thoughts and opinions of rising Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

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About the author

Bashir Dan is the CEO of Stack Carbon, a carbon asset developer and management company.

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