Beyond the headlines: a look at recent carbon market news

The last month has seen a number of headlines surface related to the carbon industry, focused mainly on four key issues. We know it can be difficult to navigate and keep up with the large amount of information out there, so below we summarise these issues and what it means for companies who purchase carbon credits as part of their overall decarbonisation plans. By TEM’s Chief Customer Officer, Adrian Enright.

Science-Based Targets Initiative announcement

Earlier this month, the Science-Based Targets Initiative (SBTi) Board released a statement stating that for scope 3 emissions, environmental attribute certificates (including carbon credits) “could function as an additional tool to tackle climate change” when supported by policies, standards and procedures.

The announcement was well received by many stakeholders around the world, who saw the move as a major step forward towards decarbonization and unlocking finance for carbon projects globally. They also saw the potential change as critical as Scope 3 emissions, which typically make up the majority of most companies’ emissions impact, often account for more than 90% of emissions overall, but are also the most difficult to measure and manage as they occur in areas outside of companies’ direct control.

As you would’ve probably read, the statement was also followed by reports in the media of internal concerns at the SBTi and the surfacing of a common criticism of carbon credits: that they delay carbon action. Off the back of this, the SBTi added clarification to their earlier statement. They reiterated that no changes had yet been made following their earlier statement signalling an intent that could allow Scope 3 emissions to be part of the solutions set for organisations under SBTi.

Separate research by Trove, Sylvera and Ecosystem Marketplace also debunks this myth about offsetting, showing companies engaging in the voluntary carbon market are decarbonizing up to twice as fast as non-buyers.

SBTi has said it plans to consult and reach agreement with stakeholders to finalise the updated guidance in July 2024. We encourage our customers involved in the SBTi to participate in the upcoming consultations and look forward to seeing the outcomes of the consultations.

Australian native vegetation carbon credits article

Another issue in the headlines recently was a study scrutinizing Australian native vegetation carbon projects (‘Human Induced Regeneration (HIR)’ projects in carbon market speak)

TEM welcomed the continued focus on integrity of the Australian carbon market as part of its continual evolution as a key pillar of Australia’s decarbonisation pathway. While we saw the article as an important contribution to the scrutiny of the market, it should be balanced in the context of recent independent reviews and the need to validate these claims with on-the-ground evidence. This context included:

• As the Carbon Market Institute pointed out, it is important that critiques of the market are based on appropriate data and recognise extra assurance measures now in place. CMI said the recent study appears to be largely based on information previously released by the authors in the context of the Chubb Review, completed in late 2022. CMI also noted that since then, additional audit checks on HIR projects have happened to ensure that they align with Review recommendations.

At TEM, the carbon projects we undertake and invest in have undergone a rigorous due diligence process above and beyond standard processes, to guarantee their quality, integrity, and measurable carbon abatement impact.

You can read more about this in TEM’s statement in response to this on our website.

Clean cookstoves study and advancements

Another issue receiving some airplay has been a study claiming over crediting (awarding too many carbon offsets per cookstove) in cookstoves carbon projects following a study released last year by Berkley University.

This was balanced last week by a joint letter from 50 market participants calling out significant advancements in cookstove technology that were not accounted for in the original study, alongside several other challenges in the way the study was conducted and funded. This includes:

• The reference literature being outdated
• The study overlooks ongoing improvements to cookstove carbon methodologies
• The study reflects a misunderstanding of the process of carbon project validation and verification.

The public debate surrounding cookstoves methodologies often focuses on whether carbon credits are ‘good or bad’. This can overlook the opportunity to see scrutiny as an opportunity to continue to advance the often very conservative approaches to counting the emissions savings associated with reducing the pressures on forests associated with open wood fires.

New IETA guidelines

A recent positive initiative for the voluntary carbon market that made headlines was new Guidelines for High Integrity Use of Carbon Credits from the International Emissions Trading Association (IETA). These guidelines reaffirm the crucial role of high-quality carbon credits in helping companies achieve their climate objectives, while delivering a range of other benefits.

The guidelines cover the importance of measuring and disclosing emissions, setting near-term targets, internal abatement and using high quality carbon credits where abatement is not yet possible.

Importantly, this work aligns with the work of the VCMI and the SBTi announcement, which both encourage use of carbon credits to support internal emission reduction.

You can read the guidelines here.

New Carbon Market Report by Carbon Market Institute

This month the Carbon Market Institute (CMI) released a new report that provides an analysis of the carbon market and its contribution to net zero targets, with insights from a range of industry experts, including TEM. Some of the key insights from the report include:

• The sophistication of the Australian carbon market is growing as it continues to evolve its integrity-enhancing infrastructure and governance, paving the pathway to realise some forecasts of Australia becoming one of the world’s largest producers of carbon credits
• Demand for Australian Carbon Credit Units is predicted to peak at 31 million units by 2031, according to financial information services company, S+P Global.

TEM was honoured to have our article highlighting the new global integrity frameworks shaping carbon markets featured in the report. You can read a summary of our article on LinkedIn here.

You can also read our article in the report here: https://lnkd.in/g-5ekZig

Looking forward: reasons for optimism

These issues and announcements are just a few examples of the evolution of an important market that will continue to mature in complexity, value and integrity. While there is some debate around these headlines, there is no debate that we need to accelerate climate action now and every bit helps. I see the focus on these issues as reason for optimism and opportunities to unite behind a market that should continue to be built out as one of many important solutions to reducing carbon emissions. We look forward to continuing to work with our customers to make a real difference to people and the planet today and into the future.

 

Important information

This information has been prepared by Tasman Environmental Markets Australia Pty Ltd (TEM), a corporate authorised representative (ABN 97 659 245 011, CAR 001297708) of TEM Financial Services Pty Limited     (ABN 58 142 268 479, AFSL 430036).  This material is for general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. While we believe that the material is correct, no warranty of accuracy, reliability or completeness is given, except for liability under statute which can’t be excluded. Before making an investment decision, you should first consider if the information is appropriate for your circumstances and seek professional financial advice. Please note past performance is not a guarantee of future performance.