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Five themes for carbon and environmental markets in 2023

  • BeZero Carbon
  • Markets and Policy
  • Net Zero

Here are some key takeaways

  • 2022 saw further progress for the development of carbon and environmental markets, from the COP27 climate summit in Sharm el-Sheikh to the COP15 biodiversity summit in Montreal.

  • In order to have a material impact on reversing the effects of climate change, keeping temperature rises within Paris Agreement goals, and slowing the global decline in biodiversity, carbon and environmental markets will need to accelerate urgently.

  • To kick off the year, we have collated some of our key research insights centred around five major themes for 2023: transparency in the Voluntary Carbon Market, scaling carbon removals, the importance of corporates for net zero, emerging markets for co-benefits and biodiversity, and the development of Article 6 markets.

Contents

Transparency and disclosure standardisation in the VCM

A more professional Voluntary Carbon Market (VCM) is essential if the market is to achieve its growth potential and help address climate change. Improving levels of transparency and disclosure standardisation across the value chain is central to this agenda.

Industry initiatives such as the Integrity Council for the Voluntary Carbon Market (IC-VCM) and Core Carbon Principles (CCPs) make an important contribution. Indeed, raised standards of transparency and disclosure are the ‘lowest hanging fruit’ within the IC-VCM draft, providing a high return for minimal disruption. 

We have also launched BeZero's Carbon Accounting Template for presenting the core carbon accounting of any type of accredited VCM project. The template is open source and addresses the clear desire across stakeholders to see project information reported in a standardised way. Our consultation runs to 27th January 2023 and we are keen to hear feedback from all market participants.

Carbon Removals: scaling the role of CDR technology in the VCM

The challenge to scale carbon removal technologies from thousands of tonnes to billions of tonnes is vast. There is an imperative for investors to understand why they need to start investing in carbon removal, as outlined in our First movers report. 

There is also an urgent need for developers, investors and policymakers to understand how scalable different carbon removal technologies are and what areas need to be focused on if we are to hit our climate targets. BeZero Carbon is undertaking a first of its kind Scalability Assessment (Introduction and Methodology) to unpick these issues. Stay tuned for the findings of our framework…

Net Zero: the importance of corporates and frameworks in the VCM

Corporate involvement in achieving the Paris Agreement goal of limiting temperature increase to 1.5°C cannot be underestimated. With private listed companies accounting for up to 40% of global emissions, decarbonising the corporate sector would have a significant impact on the target. Beyond this however, corporates have a role to play in further bridging the gap between current emissions and the net zero goal, which could be done through the VCM.

Corporates rely on frameworks for guidance on setting net zero targets and roadmaps. The Science Based Targets initiative (SBTi) is the most trusted and influential framework for corporate decarbonisation, but it needs more guidance on how corporates can use the VCM effectively. With more frameworks coming in 2023, such as the VCMI and the SBTi's Beyond Value Chain Mitigation guidance, does this signal a step towards corporate trust in the VCM?

Natural Capital: assessing co-benefits and the potential emergence of biodiversity markets

Co-benefits from voluntary carbon projects are often highly valued and can even be the primary driver for the project’s existence. The debate on whether such benefits can themselves be tokenised, for example as biodiversity credits, is still alive and unresolved. 

Co-benefits don’t usually share carbon’s fungibility but they still need to be described and quantified. The UN’s Sustainable Development Goals framework is increasingly being used and even mandated by some credit issuance bodies, even though it was designed for use at national and not project levels. 

Claims around SDGs therefore need to be treated with caution by investors, particularly when there is potential for misinterpretation of what the SDG is actually a measure of. The two “biodiversity SDGs” are a case in point. 

Markets & Policy: the development of Article 6 markets

Policymakers continue to work on the details of Article 6 of the Paris Agreement. In VCM: the road to Paris we discussed the opportunity but also the added complexities this creates for carbon markets. Notably, the interaction between project level and country level accounting will make the carbon market increasingly challenging to navigate. 

Ratings remain a key tool to understand risk but they need to be dynamic to capture the evolution of the market. In the wake of COP27 we outlined our Five takeaways on Article 6, examining the key decisions that were taken and deferred, but also how countries are cooperating outside of formal negotiations.

Have we missed something? Drop us a line if there are any specific themes within carbon and environmental markets you would like to hear more about atcontact@bezerocarbon.com