State of integrity in the global carbon credit market.

A new report released by MSCI, The State of the Carbon Credit Market, discusses key challenges and recent improvements in the global carbon credit market, highlighting the importance of integrity for the credibility of carbon credits.?

The report outlines the rating system employed by MSCI Carbon Markets, which evaluates the integrity of over 4,000 projects based on a range of factors, including emissions impact, additionality, and permanence, and builds on key industry initiatives, such as the Integrity Council for Voluntary Carbon Markets’ (ICVCM’s) Core Carbon Principles (CCPs).

MSCI’s ratings are based on data from over 10,000 documents and one million data points and assigns ratings that are weighted by importance, with additionality being the most heavily weighted (35%), followed by quantification (20%), permanence (15%), co-benefits (20%), and legal and ethical risks (10%). A project's overall score reflects how well it performs across these dimensions, with no project receiving an AAA rating, indicating room for improvement in the sector.

Key insights from the report include:

1. There’s a price premium for high-integrity credits. Higher-integrity projects are associated with a price premium, reflecting market demand for higher-quality credits. On average, a 1-point improvement in a project’s overall integrity score correlates with an 8% increase in the price of its credits.
2. There’s an important role for project co-benefits. Co-benefits, such as biodiversity conservation or local community support, are becoming more important in project evaluation. Projects with strong co-benefits tend to command a price premium in the carbon-credit market.
3. Integrity is improving. With an increase in the development of higher-integrity projects, particularly in carbon dioxide removal (CDR) technologies and nature-based solutions, the market is seeing growth in the number of high-integrity projects on offer to buyers.

As the industry and buyers mature, the global carbon credit market is evolving towards higher integrity offerings. Initiatives like MSCI’s Carbon Project Ratings and the ICVCM’s CCPs are helping to raise the bar for project quality and eliminate low-integrity credits. Buyers and investors are increasingly demanding higher-quality credits and the market is responding by developing new projects with stronger integrity measures. Although the gap between high-integrity and low-integrity projects remains wide, concerted efforts to improve transparency and accountability are contributing to the long-term success of the carbon-credit market.

Read the full report here.

Invert Insights.

??Several initiatives have been introduced in recent years to improve the integrity of the carbon-credit market. The Integrity Council for Voluntary Carbon Markets (ICVCM) has developed a set of Core Carbon Principles (CCPs) to establish minimum standards for carbon credits, focusing on governance, emissions impact, and sustainable development. Other initiatives include the Carbon Credit Quality Initiative (CCQI), which provides transparency around the quality of carbon credits, and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which sets eligibility criteria for credits used by the aviation industry.

??The report identifies quantification of emissions reductions as a persistent challenge, particularly for nature-based projects like reforestation or avoided deforestation. These projects often rely on estimates and assumptions, which can lead to over-crediting if the methodologies are not rigorous. This highlights the importance of finding a carbon credit provider who can clearly demonstrate their methodologies and provide ample evidence of emissions impact, additionality, permanence, and co-benefits within their projects.?

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