See All Insights
Reaching Net Zero globally requires an increased investment in near-term climate solutions, including carbon markets and the underlying carbon credits. Carbon credits are an essential mechanism to address emissions that are hard to abate or cannot be reduced easily in the short term, and even the most conservative estimates of global corporate carbon commitments include residual emissions.
All types of carbon projects are needed, including nature-based solutions and technology solutions, but continued investment in scalable, near-term carbon markets is vital. Carbon markets also provide an opportunity to catalyze impactful social and environmental benefits.
Carbon markets can be daunting, difficult to navigate, and are quickly evolving, but fortunately, there are methods to navigate the complexity.
Defining whether projects are high-quality is complex. For example, projects must be additional which means they must include activities that are dependent on capital from the carbon markets. Project quality also requires the incorporation of considerations beyond carbon, especially community engagement and benefit-sharing, indigenous rights, and environmental resilience.
Furthermore, there is a diversity of project types, each with its own set of common challenges and considerations across environmental, social, and financial parameters.
Because quality is complex to define, numerous organizations and coalitions have launched over the past two years to define quality and increase transparency in carbon markets. For example, important resources like ICVCM’s Core Carbon Principles, the Environmental Defense Fund, and the Tropical Forest Credit Integrity Guide help buyers and developers understand what constitutes a high-quality project. New types of projects are also being created, requiring new methodologies and additional considerations. Accordingly, the High-Quality Blue Carbon Principles and Guidance was developed to address the unique needs of blue carbon projects — an emerging project type that focuses on ecosystems with mangroves and seagrasses. The voluntary carbon market’s registries (e.g., Verra, Gold Standard, Climate Action Reserve (CAR), American Carbon Registry (ACR), and PlanVivo) are also continuing to review and strengthen older methodologies. Lastly, innovation is further evolving metrics and evaluative processes, and third-party ratings agencies are entering the market as another way to assess the quality of a project.
Eligibility requirements for claiming the use of credits in climate action standards are also evolving. While the SBTi Net Zero standard has its own carbon markets policies, more recent Net Zero guidance, including from ISO and VCMI, have given more recognition to the importance of investing in the carbon markets as soon as possible, in addition to setting SBT-aligned emissions reduction targets.
Despite the many complexities discussed, there are proven ways to effectively engage with the carbon markets.
Running the selection and due diligence processes requires a knowledgeable and experienced approach. It is vital to understand the key frameworks and their respective uses:
ENGIE Impact’s approach for assessing project quality integrates these key standards and assesses each project across multiple parameters — including social impact and other environmental benefits like biodiversity. This enables us to identify projects of the highest quality and strongest strategic fit for each company.
Partnership arrangements may include a combination of prepayment, advanced commitments, and forward offtakes. Investing earlier in the project cycle can ensure that selected projects follow international best practices. In addition, investors will better understand the nuances of the project and have transparency and visibility throughout its lifetime.
Through coalitions like the Business Alliance to Scale Climate Solutions (BASCS), the LEAF coalition, and NCS Alliance, buyers can engage in public consultations with the organizations that are setting the guidelines for what defines high-quality projects and credible claims that use carbon credits in a meaningful way (e.g., VCMI’s Claims Code of Practice). Involvement in these groups will also help organizations increase internal corporate awareness about carbon markets, share project information among peers, and gain awareness of changing guidance on claims.
Carbon market standards are converging in a direction that allows companies to channel as much climate finance as possible toward impactful projects while also still ensuring credibility.
Achieving global Net Zero emissions hinges on increased investment in immediate climate solutions. Carbon markets and carbon credits help address residual emissions, are vital for staying within the 1.5°C limit and are an impactful tool for achieving carbon commitments. Although the space is always evolving, ENGIE Impact can successfully navigate and ensure that corporations benefit from such an important market.
Talk to our experts about navigating the carbon market.
