Climate change: how a new global quality assessment framework can strengthen the integrity and transparency of carbon markets

• The Carbon Core Principles and Quality Assessment Framework were launched by the Integrity Council for the Voluntary Carbon Market in March.
• The council expects to announce the first round of eligible loan programs and a list of approved projects in the third quarter.

Global efforts such as the quality assessment framework launched last month to strengthen the integrity of voluntary carbon markets will improve transparency and boost credit buyer confidence, analysts say. However, since market integrity is complicated and multifaceted, and the international quality assessment framework is new, the road to transforming carbon markets into a mature green financial system is difficult and long, they added. As a key stakeholder, the development is key for Hong Kong, which launched an international carbon market in October. "The basic principles of carbon are a big step forward, but many challenges remain [as] integrity can mean different things to different people," Tristan Loffler, head of carbon credit integrity at London-based consultancy Trove Research, said in a webinar on Tuesday. The core principles define high-integrity carbon credits and the assessment framework was launched in March by the Integrity Council for the Voluntary Carbon Market (ICVCM) following stakeholder consultation and input from a group of scientists and technical experts. Established in 2021, the Council is an independent governing body and standard-setter that aims to ensure the creation and use of credits with high integrity to effectively value the climate benefits of emission reduction and removal projects to mobilize green finance. There are two broad types of carbon credits – mandatory and voluntary. The mandatory ones are created by government regimes that set limits on emissions. Voluntary ones are usually sourced and traded through non-profit credit and standards bodies. Earlier this year, European media reports cast doubt on the accuracy of the carbon reduction benefits claimed by a key type of recognized voluntary project – deforestation prevention – highlighting the need for integrity in the voluntary carbon market. In order to comply with the guidelines, credit authorities must operate or use a register to identify and track climate change mitigation activities and carbon credits issued, the Council said. Such information should be publicly available and subject to third-party verification and should not be double-counted, he added. The principles also state that emissions reduction or removal activities for which credits are awarded should deliver "additional" climate benefits compared to a no-change "baseline scenario." This means that the activities would not take place if there was no financial support from the proceeds from the sale of loans. In addition, the activities should not "lock in" emissions for many years, which would make them incompatible with the global ambition to achieve net zero emissions by 2050. This means that the activities would not take place if there was no financial support from the proceeds of the sale of credits. In addition, activities should not "lock in" emissions for many years, which would make them incompatible with the global ambition to achieve net zero emissions by 2050. The benefits of reducing emissions should also be scientifically quantified. Ideally, they should be permanent, failing which project proponents should put measures in place to compensate for any reversal, according to the Council. It is also necessary to disclose the factors influencing the level of permanence, she added. Whenever the credit period is renewed, the “baseline scenario” should be reassessed, including whether barriers to mitigation activities still exist when the credits were first made. If they have changed, the calculation of climate benefits and thus the approved credits should reflect this. The council expects to announce the first batch of loan programs eligible to require compliance with the core principles and a list of approved project categories in the third quarter of this year. The assessment framework will be reviewed in 2025. "The criteria at the CCP and program level will clarify what a high-quality carbon credit looks like and help programs [and] projects strive for high integrity," said Pablo Fernandez, CEO of Swiss project developer Ecosecurities to mitigate carbon emissions. As an international market for carbon trading, Hong Kong should consider regulating the mislabeling of credits with core principles and promoting price transparency of such credits, said Grace Hui, assistant professor of environment and sustainability at the Hong Kong University of Science and Technology and former head of green finance at Hong Kong Exchanges. and Clearing. "Buyers should know how much of the price they paid actually goes to project owners to finance climate action," she said. Adequate transparency can increase market liquidity and improve price discovery, said a spokesman for the Securities and Futures Commission, Hong Kong's market regulator. The SFC is a member of the International Organization of Securities Commissions' carbon markets task force, which is evaluating feedback from a consultation on the role of financial regulators in carbon markets, he added. (Eric Ng, News Editor, Climate)