With the global rise of the green economy, topics previously little discussed are gaining more and more space in economic and market analyses. This is certainly the case with the carbon credit market, driven by the significant impacts of climate change on our daily lives and created as yet another tool in the fight to reduce greenhouse gas emissions.
A carbon credit is understood to be a title corresponding to one ton of carbon dioxide (CO2) or equivalent gas, reduced or removed from the atmosphere, which can be traded in regulated or voluntary markets.
In this context, voluntary markets have gained prominence. Responding to compliance and ESG demands, national companies, even without legal imposition of goals in this regard, have acquired carbon credits to offset their own emissions and demonstrate their commitment to sustainability.
However, transactions in the voluntary market must be conducted with great caution to ensure that acquired carbon credits not only fulfill their environmental and social roles but also do not pose economic and reputational risks to companies. For this reason, the integrity of carbon credits has been a recurring topic among buyers and developers.
Although there are not yet clearly defined established parameters for defining what constitutes a high-quality carbon credit, different initiatives have addressed the issue and listed minimum principles to be observed for the carbon market to achieve its goals without risks to the involved parties.
This is the case, for example, of “The Core Carbon Principles” (CCP), a listing prepared in the first quarter of 2023 by the “Integrity Council for the Voluntary Carbon Market” (ICVCM), with 10 essential principles for any carbon credit that intends to be of high quality. The indicated principles were: (i) effective governance, (ii) tracking (or traceability) of credits, (iii) transparency, (iv) robust validation and verification by independent third parties, (v) additionality, (vi) permanence, (vii) robust quantification of removals and emission reductions, (viii) prevention of double counting, (ix) benefits and safeguards for sustainable development, and (x) contribution to net-zero transition.
However, these principles are not the only ones defined in this area. Similarly, in January 2023, the “Tropical Forest Credit Integrity Guide” (TFCI) was published, prepared by eight renowned civil society organizations: IPAM (Amazon Environmental Research Institute), Conservation International, EDF (Environmental Defense Fund), Flora & Fauna International, National Wildlife Federation, Nature4Climate, We Mean Business Coalition, and Wildlife Conservation Society.
The TFCI works with five major criteria for defining the integrity of carbon credits: (a) Indigenous peoples and local communities as active partners and not passive beneficiaries (through respect for rights, full and effective participation, and respect for local systems, knowledge, and traditions), (b) equitable and transparent benefit sharing, (c) appropriately conservative and reliable baselines, (d) permanence, and (e) additional environmental integrity criteria, such as prevention of double counting, biodiversity enhancement, alignment with jurisdictional programs, among others.
As seen, there is no uniformity in defining parameters for understanding the integrity of carbon credits. However, from just the two systematizations presented, despite their typical peculiarities, essential concepts for high-quality carbon credits can be noted, many of them deep concepts that would require other bulletins like this, such as double counting, permanence, benefit sharing, and baselines.
For now, one fact is certain: when intending to develop or acquire carbon credits, it is crucial to hire specialized auditing. No transaction with carbon credits should be considered before a rigorous due diligence process, accompanied by a professional who evaluates legal and economic aspects, such as environmental, social, real estate, tax, and other issues.