Building Trust in a Voluntary Carbon Market: Key Takeaways from NACW ’23

    The commitment to drive action on climate change was clear at the 20th anniversary of the North American Carbon World (NACW) in Anaheim, California, hosted by the  Climate Action Reserve, from March 21-23.

    Over the past two decades, NACW has played a critical role in advancing discussions around the role of carbon markets, and the policies and actions needed to drive down greenhouse gas (GHG) emissions. This year was no different. The event surpassed prior attendance figures and brought together more than 900 participants, including policymakers, industry leaders, academics, and experts from around the world to share knowledge, build networks, and develop strategies for addressing the challenges of climate change. The latest Synthesis Report of the UN’s Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment, which was published March 20, underscores the urgent need to take action.

    IPCC Report Drives Greater Urgency to Mitigate Climate Change

    The IPCC report gave a blunt assessment of the current state of adaptation and mitigation policies, highlighting how current policies are failing to reach targets, and that, without renewed action and investment, the world will surpass the 1.5°C threshold within a decade.

    The report states that more than 67% of all assessed modeled pathways that limit warming to 2°C or lower by 2100 include land-based mitigation and land use change. Consistent with this thrust, discussions at this year’s NACW explored major carbon removal strategies and the need to scale various carbon removal and abatement technologies, such as storage, direct air capture, soil carbon sequestration in agriculture, and more. These technologies are at varying degrees of maturity, price point, and come with their own set of challenges and limitations, including concerns about quality and permanence. However, the IPCC report recognizes that “AFOLU [Agriculture, Forestry, and Other Land Use] mitigation options, when sustainably implemented, can deliver large-scale GHG emission reductions and enhanced CO2 removal.” For instance, it is estimated that croplands worldwide can sequester between 0.90 to 1.85 petagram of carbon (Pg C)/yr and present an important mitigation pathway to achieve the target of restricting warming to 2°C or below1.

    Although carbon sequestered in soils is at risk of future loss through reversal, technological advances can offer meaningful and practical solutions to ensure quality and permanence. One such advancement is the approach deployed by Carbon by Indigo, which has successfully generated over 133,000 tCO2e verified credits from croplands over two consecutive verifications, covering over 400,000 acres and engaging over 400 farmers. This and other programs at Indigo Ag are driving real change by abating GHG emissions from agricultural operations and removing CO2, while providing additional co-benefits to local ecologies, such as improved soil health and more efficient water usage. Scaling such tested solutions via the voluntary carbon market (VCM) will not only mitigate climate change impact but also promote adaptation by making the heart of our agricultural system more resilient in the face of changing weather patterns.

    stablishing Global Standards for Carbon Credit Quality

    Beyond the urgency of the IPCC report, other key topics that drove conversations at NACW included, the implications of new legislations and regulations for the VCM, strategies for improving the quality standards of credits, and addressing accounting within supply chains.

    There has been a marked increase in the adoption of policies and laws at the subnational and national levels to regulate carbon markets as a means of climate change mitigation, which could infuse much-needed funds into collective action and further establish minimum quality and transparency standards to boost confidence in the voluntary carbon markets. This commitment can be seen in the suite of programs and laws adopted by California, the European Commission’s Carbon Removal Certification Framework proposal, the Inflation Reduction Act (IRA) and the Growing Climate Solutions Act (GCSA) in the US, and emerging regulations by US federal agencies such as the Commodities and Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). While progress is being made, challenges remain: much of the legislation is jurisdictional, while the voluntary carbon market operates globally. There is an urgency within the field to standardize protocols and measurement metrics across government sponsored programs and voluntary actions.

    One of the biggest roadblocks to a robust and trusted voluntary carbon market is ensuring that the carbon credits are real, additional, verifiable, permanent, and unique, and the transactions are free from fraud and manipulation. Recent press reports have questioned the integrity of carbon credits and the voluntary carbon market more broadly. Participants at the NACW tackled this issue head on by exploring ways to build confidence in the market. One approach would be if governments adopted the most rigorous standards that are already applied in the VCM for their own programs, which would enable credits to be generated and transacted more freely between markets while creating a clear endorsement of only the highest standards for rigor and quality. This approach can be modeled on technical requirements, already present in other fields, that bring together regulatory authorities and the industry to achieve greater harmonization worldwide, ensuring safety and quality of products that are sourced or sold in their jurisdiction2.

    The Accounting Challenges of Carbon Insets vs Offsets

    The wide array of laws, regulations, and guidance are also dictating how corporations are approaching their GHG reduction targets and Net Zero commitments and actions. While corporations can purchase carbon credits from projects they do not own or operate to offset some of their residual emissions, they must also demonstrate progressive reductions in emissions across their operations and supply chains to achieve their formal targets. To achieve these reductions, corporations can also fund emissions reductions and or removals within their operations and supply chains without transacting the credits in a carbon market. The latter approach, sometimes termed insetting, is seen by some as a key to voluntary corporate action. Carbon credits purchased from the VCM use an intervention accounting, while emission reductions within corporate operations and their supply chains are accounted for on an inventory basis. Untangling the interface between intervention and inventory accounting within supply chains can be complicated and is compounded by the lack of understanding of the various terminologies used to describe them.

    “‘Insetting’ is a confusing term because it means different things to different people. It's important to go deeper and understand exactly what actions are being taken and what claims are being made and how they align to specific standards, which typically don't use the term 'insetting'” says Max DuBuisson, Indigo’s VP of Sustainability Policy & Engagement, during a discussion on the topic of insetting. He helped attendees understand the steps Indigo Ag is taking to ensure that supply chain emission reduction programs can bring value to farmers through offerings such as Market+ Source and FieldFlex.
    carbonworld-1Photo caption: The Indigo Ag team (left to right): Meredith Reisfield, Max DuBuisson, Charlotte Blumenthal, Pallaoor (PV) Sundareshwar (the author), and Mar Londoño.

    Now is the Time to Take Action

    The time to act is now if such actions are to deliver the desired benefits. The IPCC report warns us that the window of opportunity for a sustainable and livable future is closing rapidly, and the choices and actions taken in this decade are going to impact the current generation and those to come for thousands of years. Climate experts agree that the effectiveness of adaptation to reduce climate risk will decrease if we maintain our current path. Even common adaptation responses in agriculture, such as adopting improved cultivars and agronomic practices, will become less effective from 2°C to higher levels of warming. It is a clarion call for all stakeholders to come together to take collective, coordinated action. The voluntary carbon markets provide a viable pathway, but the world does not have the luxury of time to wait until perfect and precise solutions are fully developed to tackle the challenges. In the words of Lisa DeMarco, a participant at the conference, “Let perfect not be the enemy of good.” In this case, good is good enough. Let’s get to work.

    If you missed this exciting event, you can access the recordings from the NACW here. You can learn more about Indigo Ag and how we are tackling the challenges of climate change while helping farmers sustainably feed, fuel, and clothe the world here.

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    2 An example being the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (ICH)