Where the VCM stands today

This week I’ve had the pleasure of debating the?wherewithal?of the voluntary carbon market with some of the industry’s most important commentators, actors and critics: The Integrity Council for the Voluntary Carbon Market (ICVCM) , Climate Impact X , MSCI Carbon Markets , The Guardian , Verra , 英国帝国理工学院 , IETA .

Special thank you to Pernille Holtedahl and Teresa Hartmann for their outstanding moderating filled with charm and wit. So too the other panellists: William McDonnell , Patrick Greenfield , Guy Turner , Mikkel Larsen , Andrew Howard .

To be asked to contribute on the industry’s main stage is an honour for me personally and serves as tribute to the tireless work of my fellow co-founder, Seb Cross, and all 130 amazing colleagues.

There’s never enough time on these panels though. So here’s my less official version of the VCM as it stands today, and some reflections on what I’ve learnt from this week’s conversations. Obviously some of it is for comic effect…I’ll leave you to decide which bits.

1. The VCM cacophony is really about two structural debates: how to deliver "high integrity" credits & how to make "credible claims”. Many are pinning their hopes on the nascent industry initiatives, namely IC-VCM & VCMI, to forge a path forward. We see carbon ratings, or risk-based analysis, as complementing both. Quality isn’t binary, and assessing it involves trying to mesh the observable and unobservable, social sciences and environmental sciences. Likewise buying a credit is really about paying for pollution, whether you make a hard, soft or squidgy claim is secondary. Neither is a panacea: that would be a global carbon tax, or global cap and trade scheme (neither of which are likely). Rather these initiatives serve to deliver essential building blocks for a market-based approach and are crucial for ensuring carbon credits help tackle residual carbon emissions.?
2. 2023 has been the VCM’s Dorian Gray year…the new year was greeted by a slew of heavy hitting investigations. Global media outlets are wising up on carbon fundamentals and challenging the sector’s self-image by leveraging (whisper it...selectively) academic papers and datasets. They have driven a bus through the VCM’s credibility. The implication is this is just desserts for the VCM's main protagonists after "partying" between 2020 - 2022 and carbon neutral claims "getting out of control". Forced to look at its reflection, prices are down, corporates are more risk averse, and activity has slowed. This is part of the story, retirements are actually up and primary activity is still rising (but facts and good story etc). The industry wants to strike back. Calls for a rebrand, for a new narrative, for new alliances are ringing out. Flat whites in disposable cups, and white boards with messaging grids. Will this help? Probably. But only if it comes alongside meaningful solutions to the structural challenges these articles rightly point out…in some instances.?
3. That brings me on to acting in good or bad faith, and the difference between destructive and constructive criticism. A truly worrying version of the market narrative goes something like: "the VCM is filled with carbon pirates acting in bad faith, exploiting communities and loose methodologies to enrich themselves. Everyone in the industry is really just ‘a lobbyist for fossil fuel producers’ (because that’s where the money really comes from) hell bent on doing nothing but subterfuge and skullduggery so they can continue to burn the world in pursuit of raising their dividends for profit-hungry investors". Right. OK. Fun. No wonder it’s all greenwashing. I see a different picture. I see an industry full of passionate activists and professionals that have left their traditional jobs, are starting their careers, or creating new desks at old economy institutions in pursuit of trying to actually contribute to tackling climate change. So many involved in the VCM are acting in good faith to try and develop a new market to channel billions into the climate transition and make a new economy out of it. It’s even in the self interest of listed polluters to foster the VCM as a solution to help them reach Net Zero. It offers a path forward given their balance sheets are riddled with assets whose long term value is zero if we ever actually price carbon emissions. A stitch in time and all that. Yes, this will inevitably involve mistakes and constant iteration and needs strict rules and regulations. But tackling climate change isn’t easy. This is experimental science, capitalism and policy all at once amidst a worsening crisis. We need to keep the faith and never stop trying. Let’s remember that old problem, solution adage…every time we encounter a problem, come up with potential solutions. That’s how progress is delivered.?
4. The market buzz word is transparency. Can we ever have enough? What I think people mean is disclosure (which is how transparency happens). We need enforced disclosure across every stage of a project’s lifecycle - from development to accreditation to trading to retirement. That would actually improve things, structurally,?for everyone. Alongside this, we need proper education. Today, too few participants speak are anything but comfortable trying to navigate its fusion lexicon of policy, science and financial concepts. If we want the market to achieve integrity and credibility it needs to be able to understand itself better and have real debates with quality information. That will allow everyone to actually tell the difference between a basic or deep technical analysis, a fair or misplaced trade, or a truly additional or otherwise intervention. You might even see a proper price - quality relationship emerge (and the much needed allocative efficiencies that would herald).
5. But, gosh, hasn’t it all just got so confusing. Carbon ratings agencies, new accreditors, everything’s a carbon credit, alphabet soup market initiatives, to blockchain and not to chain, carbon neutral everything, how dynamic is your baseline, LiDAR this and fNRB that, 5,000 year permanence and tonne year accounting, AI (well really ML, but whatever, AI is sexier)…the VCM used to be such a simple place: one credit, one tonne, one contract. A few players and some friendly NGOs. Take me back to the good ‘ol days. Except everyone seems to forget that money (or capital), which is what everyone wants to attract to pay for climate transition, much of which from private sources, only really does one thing. It asks questions (or tries to assess the risks) associated with however it’s being used. So if 15x-20x more money is piling into the VCM today than four years ago it should be unsurprising that everyone is being asked 20x more questions, there's 20x more actors trying to solve them, and 20x more information to process. Imagine how noisy it will be if McKinsey are right (as every pitch ever by a VCM-geared start-up quotes) and the market grows to be $100bn by 2030. The VCM has never been under more scrutiny precisely because it is scaling and that’s a sign that the market is working. Embrace the noise and read point 4. If you don’t believe me, turn on Bloomberg TV. That’s what a $200 trillion market looks like, but maybe bring some ear plugs.?