Patch Insights: March 2024

Patch Insights offers trends and takeaways from the voluntary carbon market, curated by the Patch team. From policy news to demand trends to project developer updates, each month we’re sharing what stood out as we work together to scale global climate solutions.

This month we’re looking at the raft of policy, standards, and framework updates that have hit the carbon market over the last few weeks. Each represents distinct actions market participants may be mandated or incentivized to take. But taken together, they could signal the start of a tide shift for the voluntary carbon market’s role in corporate climate action.

SBTi affirms carbon credits are an important part of the net-zero transition ??

Contributing to carbon removal and avoidance is now officially a best practice according to SBTi, who recently released new guidance on beyond value chain mitigation (BVCM), detailing how these actions should be included within net-zero target setting.

This is a major unlock for corporates who are SBTi-aligned and have previously hesitated to support carbon credits for lack of guidance from SBTi. The new framework makes a strong case for BVCM, including new research detailing the business case for supporting these efforts.

Many were surprised, however, to see the new guidance does not provide specific projects, quality standards, or reporting mechanisms for participating companies to follow. This may feel daunting at first, but this emphasis on flexibility and customizability should mean more engagement and better outcomes for the climate. You can read our full analysis here.

Oxford Offsetting Principles calls for course correction, RE-emphasizing the CDR Gap ???

Oxford University shared a revised version of their “offsetting principles” calling out the challenges the carbon market has faced over the last several years. It urges a major course correction to ensure the market truly supports net-zero outcomes and catalyzes investment in carbon removal.

The adjustments to the principles included recognizing the importance of investing in decarbonization and emissions reductions, as CDR alone will not get us to net-zero; focus on a project’s risk of reversal, rather than permanence; and, given we haven't kept pace with the previous framework, an emphasis on scaling towards a greater proportion of removals more quickly, with less focus on avoidance and reductions.

But is the era of offsetting over?

The Oxford Principles portfolio was even updated to illustrate room for “contribution” efforts. This is a major acknowledgment: there are many other reasons to buy credits and support mitigation projects other than to offset emissions.

It’s monumental that institutes like Oxford are recognizing that the use of carbon credits is no longer boxed into a “zero-sum” game with “net” being the only goal, but rather a dual effort to support emissions reductions and removal at scale as quickly as possible.

We’d like to see their next iteration remove the term “offsetting” altogether.

EU’s Green Claim Directive raises major questions for carbon credits ??

Last month, the European Parliament voted overwhelmingly in favor of defining how and when a company can make an environmental claim through the Green Claims Directive. The directive is not yet law and could go through many iterations before finalization, but overall could result in one of the strongest “sticks” any government body has implemented on corporate climate action.

This policy delves into how companies can use carbon credits to achieve their climate targets but some major questions remain:

1. How to define residual emissions? The current guidance states companies may only make climate-related claims for residual emissions, but so far, there is no official definition of “residual” within the directive. However, there is a reference to the European Sustainability Reporting Standards definition, stating 90-95% of emissions reductions are required to justify residual use — which is causing alarm. Prohibiting corporates from engaging until they’ve reached over 90% of reductions targets leaves very little room for carbon credit use and would stifle the ability of companies to leverage credits in the near-term.
2. What is the status of land-based removals? The current directive position calls for use of carbon credits to follow the "like-for-like" principle, meaning only removals classed as “permanent” can be used to compensate for industrial and fossil fuel emissions, and essentially land-based removal efforts such as soil or forest-based sequestration would only be eligible for land-use emissions (like agriculture and deforestation). We expect major pushback here to ensure there's still a viable way to invest in nature-based removals.
3. Which frameworks will be compliant? Credits using frameworks outside of the EU’s Carbon Removal Certification Framework must be?recognized by the Commission as part of the list of compliant schemes, meaning high-integrity frameworks like ICVCM could be eligible. Currently, all projects must also be EU-based. Maintaining a clear and seamless process for bringing in other credible frameworks will be critical here.

You can read our latest analysis on carbon markets and EU climate policy here.

SEC dilutes climate disclosures rules, but maintains carbon credits ??

Yesterday the US Securities and Exchange Commission (SEC) adopted final rules to require companies to disclose certain climate-related information. These rules come nearly two years after the initial SEC proposal, which received thousands of public comments.

The final rules are less stringent than many climate champions initially hoped, without any requirements for Scope 3 disclosures. However, the rules do require disclosure of carbon credits, which Patch believes is a major win for driving transparency and ultimately increasing demand for high-integrity credits in the market.

As mentioned in the top of this edition, we believe that, taken together, these updates represent a broader tide shift of the voluntary carbon market’s place in corporate climate action. Scientific experts are expanding and adjusting corporate guidance to persuade immediate action on both reductions and removals. And as government bodies better define and regulate corporate action on climate, they’re including the use of carbon credits as a component of that action.