Top takeaways from NY Climate Week

With the benefit of a week’s recovery and reflection, I wanted to share a few personal reflections from Climate Week in New York on the Voluntary Carbon Market (VCM).

We are still struggling to establish the right balance between perfection and pragmatism across the VCM. There was collective concern that the IC-VCM’s draft core carbon principles set an implausibly high bar and would exclude every project to date, under any accreditation standard. Verra published a forthright rejection of the CCPs, with many sympathising with the issues raised. Consensus seems to be that would make far more sense to build on top of existing protocols and methodologies and concentrate, collaboratively, on specific areas to address (like additionality), working with rather than against the standards bodies.

It was also dispiriting to see GFANZ suffering pushback from its financial signatories, in part on its ambition of requiring Scope 3 disclosures at investee level. Perhaps we need to first broaden the tent, and then ratchet the criteria upwards, otherwise there is a risk these initiatives die in their infancy, and we don’t get the important results they set out to deliver.

Additionality seems to be a point of increasing contention in the market. To carbon old timers, it’s a pre-requisite sine qua non. However, it is clear that there is no onesize-fits-all approach to determining additionality and that this needs to be considered in a project or jurisdiction specific context. Additionality analysis is critical to technological carbon reduction projects such as renewable energy, where the technology costs have fallen so dramatically for this to be BAU. It is often self-evident in conservation projects which do not have any alternative revenues and are being moved away from uncertain donor support. However, additionality may be much more nuanced for nature-based carbon removal projects such as Afforestation and Reforestation or regenerative agriculture, where investors and landowners face significant risk and yield unpredictability in shifting their business to more sustainable models, which a diversity of revenues (and potentially lower financial additionality) can help to mitigate.

Living in post Brexit UK, thinking about the challenges and (potential carbon finance) opportunities for the UK farming sector as it moves away from European subsidies, it was an eye opener to see the scale and intent of the US Inflation Reduction Act. Inevitably there was plenty of enthusiasm at the predicted >$25 billion that will flow into agriculture and help finance soil carbon sequestration. It will be interesting to see how the myriad protocols and approaches to measuring soil organic carbon levels harmonise, developing into a solution that can scale.

One of the challenges of soil carbon is permanence assurance, given the risk of loss of sequestered carbon due a reversion of farming practices which disturb the soil. The durability of a particular type of carbon credit is increasingly forming part of corporate buyer’s selection criteria and various tools are becoming available to distinguish the benefits of the different methods and interventions. Expect to see more debate about ton year accounting.

A final observation is that the biodiversity aspects of VCM projects are gaining much more recognition, certainly among investors. With TNFD and the UN Biodiversity COP 15 on the horizon, the negative externality risks associated with supply chain biodiversity loss are becoming front of centre – perhaps similar to carbon 5 years ago. Whilst we would certainly not advocate any rush into a separate crediting market for biodiversity, it is positive to see more recognition of the value of existing natural capital assets, such as tropical rainforests, and the push towards innovative technologies for measuring biodiversity (e.g., eDNA or sound mapping). All too often these aspects are overlooked in buyers’ assessments, and yet can add real and measurable impacts to carbon credits that can support the pathway to nature positive as well as net zero.