Trust in voluntary carbon markets has been consistently low: What needs to change?

New guidelines and advanced technology are enhancing transparency and trust in voluntary carbon markets to support global climate action and forest conservation.

In May 2024, the administration of US President Joe Biden announced its Voluntary Carbon Markets Joint Policy Statement and Principles, providing non-mandatory guidelines to market participants to encourage greater market transparency, regulation and participation through the enhanced integrity of carbon credits.

The news was well-received, reflecting the general consensus that when approached in the right way, carbon markets are an integral piece in the global climate change puzzle. The right approach is fundamental, however, following a backlash, most recently from the Science Based Targets initiative, that they facilitate corporate greenwashing.

Voluntary carbon markets allow polluters to offset their carbon emissions by buying carbon credits from projects designed to remove or reduce greenhouse gases from the atmosphere. Forest conservation and endowment projects, such as UN-backed REDD+ projects born out of the Paris Agreement, comprise the biggest carbon offsetting use case.

Voluntary carbon markets perform two critical functions. First, they help domestic businesses remain viable throughout their transition to cleaner energy and transport, ensuring employees stay in their jobs and consumers can access their products or services. Secondly, they provide less-resourced countries in the Global South money to protect and rebuild their rainforests, the Earth’s natural decarbonization mechanism.

With only 18% of corporations on track to meet their net-zero targets and the climate gap standing at $2.61 trillion annually, voluntary carbon markets are essential tools in the race to save our planet. According to a recent Bloomberg report, carbon credits could be worth $238 per unit by 2050, generating a market worth $1.1 trillion annually.

The combination of direct value-chain decarbonization efforts and voluntary carbon markets allows global climate targets to be met and redirect financial resources from wealthy nations to less-affluent countries responsible for safeguarding the Earth’s lungs.

Trust in voluntary carbon markets has been consistently low due to a lack of accountability on both the supply and demand sides. Over-emitters can purchase carbon credits – each worth 1 tonne of carbon dioxide removal or reduction from the atmosphere – with little due diligence to assess their integrity.

Is the credit issuer trustworthy and endorsed by regulatory bodies? Is their carbon credit unique, or is it being double-issued? How do the recipients of carbon credits in the Global South prove the success of their forest conservation or endowment projects? How accurate is the data about carbon reduction or removal? These are all questions with uncomfortably opaque answers to date.

Enhanced regulation, accountability, and transparency, as stipulated by guidelines issued by the Biden administration, are integral to confronting this pressing challenge. That requires Earth observation technology, which alone can provide the rigour necessary to restore trust in the voluntary carbon markets.

According to the White House’s policy statement, for a carbon credit to be of high integrity, “stakeholders must be certain that one credit truly represents one tonne of carbon dioxide (or its equivalent) reduced or removed from the atmosphere, beyond what would have otherwise occurred.”

To this end, credit certification standards bodies must track carbon credit issuance, ownership and retirement to avoid double issuance and ensure accountability on the side of the buyer (carbon emitter) and the “supplier” i.e. the carbon offset projects.

However, beyond this, carbon offset programmes must prove that they’re working to improve market trust, transparency and accountability. That can only be achieved through proper measurement, monitoring, reporting and verification, as the White House’s new guidelines alluded to.

Until recently, measurement, monitoring, reporting and verification in this area have been very limited, comprising infrequent and incomprehensive physical inspections, which leave room for bad actors and corruption.

However, with the advent of Earth observation platforms, which process raw satellite imagery using advanced machine learning and artificial intelligence, we now have the means of acquiring real-time, unprecedentedly accurate data on carbon emissions reduction and removal, even down to the number of acres of forest successfully preserved or endowed.

Various environmental key performance indicators, such as canopy coverage, biomass density, and carbon emission levels, can be measured, monitored, reported, and verified using Earth Observation standards.

Concerning forest conservation and endowment projects, independent third parties can assess the performance of each project, and the data can be shared in the public domain to ensure full accountability. Data taken from satellites can also report on “leakage” rates – the extent to which neighbouring forests are destroyed due to specific conservation efforts – in given areas, providing governments and legislators with the information they need to address them.

To ensure high-integrity carbon credits, the United States must build on its voluntary carbon markets policy, promoting better measurement, monitoring, reporting, and verification through Earth observation platforms. This will foster greater market trust and encourage participation.

The outcome of more transparent and larger voluntary carbon markets means more money flowing to credible organizations in the Global South. It creates greater incentives for the guardians of our Earth’s natural defence against carbon emissions.

It helps us actualize the potential of carbon offsetting as part of the dual-pronged approach to saving our planet before it’s too late.