31 May 2022
Dispatches from Barcelona: BeZero Carbon at the European Climate Summit
Elena Aguirre Martín
Co-Head of Net Zero Research
Head of BeZero Carbon Markets (BCM) Platform Partnerships
Sirine Hanaf, Head of BeZero Carbon Markets (BCM) Platform Partnerships, and Elena Aguirre Martín, co-Head of Net Zero Research, attended the European Climate Summit (ECS) held in Barcelona on the 24th and 25th of May.
Read their takeaways on the event’s major themes.
From project developers to corporates, the case for greater transparency in the Voluntary Carbon Market (VCM) was resounding.
Panels focused on the need for greater credit integrity, e.g. baseline and additionality assessments, and how best to assess project quality.
There is a strong need for information infrastructure that allows all VCM participants to compare credits and assess risks in a systematic way.
The ECS brought together people from all walks of professional life and all corners of the globe to take part in deep dives into the state of global carbon markets.
From Article 6 and its implications for the VCM all the way to blockchain and tokenizing carbon, speakers and attendees discussed potential solutions to scale the market.
Discussions centred on the need for greater transparency, integrity and quality.
TransparencyThis market needs information and data to scale. For upstream market participants including project developers, standards, verification and accreditation bodies, concerns were raised about the availability and utility of information available in the market.
There were a number of calls for greater transparency on pricing. With the market still largely Over-The-Counter (OTC), access to standardised products that enable greater liquidity will aid price discovery and help the market scale. There was excitement about the new instruments being developed by marketplaces for this.
With downstream participants, the companies buying and retiring credits, clarity is needed on a raft of Net Zero claims: from carbon reduction achievements to offsetting activities and pricing. Investors are a growing driver of targets and standard setting for portfolio companies.
Greater transparency in the market will emerge through tokenisation and ratings agencies, the digital assets panel noted. Their focus on quality of carbon projects rather than attributes will increase fungibility for all market participants. Tokenisation carries potential to power transparency further, although broader governance and legal questions remain open.
IntegrityThe financial sector is increasingly aware of the need to align their portfolios with their Net Zero goals and several participants called for standardisation when calculating portfolio emissions to allow for better comparison between portfolios.
However, the proliferation of standards (PCAF, EU Taxonomy, TCFD, TNFD, SBTi, PCTA, NGFS, etc.) has made it hard for companies to follow and keep track, which can render disclosures less valuable than intended.
The Integrity Council for the Voluntary Carbon Market (ICVCM) and its Core Carbon Principles (CCP) are expected to “set new threshold standards for high-quality carbon credits, provide guidance on how to apply the CCPs”. A higher threshold for credit quality should help the market’s development.
QualityIn order to assess a credit’s quality, greater transparency is required, both in terms of project disclosure and accreditor methodologies. The absence of this creates uncertainty and knowledge gaps about credit quality. This highlights the need for tools that enable comparison of project quality. Capital must be able to understand and assess risk if it is to be put to work in this market.
Article 6 of the Paris Agreement was a common theme of discussion. Questions about additionality and permanence were raised as the interaction between new country-level policies and perceptions of carbon credit quality were considered.
Thomas Forth, Senior Advisor at the Federal Ministry for Economic Affairs and Climate Action in Germany, highlighted the need to integrate the ambition of the host countries into baseline standardisation to mitigate additionality and over-crediting risk.
Adding to this point, Perumal Arumugam, Team Lead at the Article 6 & Mitigation Division of the UNFCCC, suggested all emission reductions should have the same quality if they are appropriately baselined to the Paris targets.
Clearly, the market is at an important stage of its evolution. There are many demands on the market, with many questions still to be answered. At BeZero Carbon, as we continue to focus on delivering ratings as a tool to understand carbon quality, we will remain obsessively focused on transparency, public disclosure and integrity of the process. The summit showed that it is a very exciting time to be a part of this market.