Governments can exploit the untapped potential of the VCM to scale-up emission reductions

Governments can exploit the untapped potential of the VCM to scale-up emission reductions

Last week the message from the world-leading scientists was sound: climate change is "widespread, rapid and intensifying". To scale-up action to contain the climate emergency and limit global heating to 1.5°C, we need sustained and large-scale emissions reductions rapidly. Coupled with the COVID-19 health crisis, there is a double challenge to achieving a green recovery, especially for developing countries suffering an economic crisis that is deepening social inequality.

This has put the spotlight on our governments and their ability to foster climate ambition while ensuring social justice. In this context, the Voluntary Carbon Market (VCM) represents a great opportunity to mobilize significant investments in climate action in developing countries. While addressing the climate crisis, these projects contribute to the Sustainable Development Goals and address other global challenges such as inequality, environmental degradation, and social development, which are truly needed.

So far, a distinctive feature of the VCM is that the development of projects has been mainly led by private actors, such as project developers, investors and – in some cases – civil society groups and communities. National governments have had little interaction with the market and thus have limited records on VCM project activities and their contributions to the country.

Meanwhile, national governments have focused on carbon markets under the UNFCCC, such as the Clean Development Mechanism, back in the days of the Kyoto Protocol when only developed countries had emission reduction obligations that they partly fulfilled by buying emissions reductions from the Global South. Recently, many governments started preparing to attract climate finance through the international cooperation mechanisms under Article 6 of the Paris Agreement.

In doing so, they might be overlooking the potential of voluntary carbon markets. These markets can be a formidable tool in helping governments speed up or even enhance the implementation of their climate policies formulated in the nationally determined contributions (NDCs). Standing in the way of governments wholeheartedly embracing voluntary carbon markets is the concern that private credit transactions might somehow undermine NDC implementation of the host country. A polarized debate on whether voluntary market transactions need to be complemented by corresponding adjustments has unfolded, monopolizing the attention and blocking the view for a broader appreciation of the potential of the VCM to attract investments into climate and development priorities. The exclusive focus on accounting is unhelpful and arguably not the first step in promoting climate action.

As the potential way forward, governments can start creating an enabling environment for voluntary carbon projects in their countries, as is being identified in the VCM Global Dialogue. Participants in the dialogue have suggested governments can prepare for voluntary carbon projects by:

Setting a strategic engagement with different carbon market mechanisms. The architecture of the Paris Agreement blurs the lines between the regulated and voluntary carbon markets. Governments may work with all carbon market mechanisms holistically to leverage finance, technology transfer, and investments and in their capacity to support national goals.

Improving information on voluntary carbon markets for strategic engagement. It is crucial that governments access information about VCM project activities within their jurisdiction, including the credits that have been generated, traded, and used. A registry with the project activities and their impacts can be a handy starting point.

Enhancing stakeholder relations and dialogue. To help harness the VCM's full potential, governments can promote consultations with stakeholders. At the same time, stakeholders can support governments in understanding the VCM benefits to increase capacity and willingness to engage.

A more proactive role in the VCM from governments promises a strategy in steering investments towards those sectors that require more financing for climate ambition. At the same time, it supports the development needs of a country. With this clarity in mind, governments can drive climate finance to where it is needed and contribute to solutions that potentially bring us closer to a more sustainable and fairer environment.