Corporates and governments would benefit significantly from joining forces in voluntary carbon markets

In the effort to halt global heating, large global corporates and developing country governments should join forces to stop deforestation and build resilient economies. Actually, this is advantageous for both, proposes the ongoing VCM Global Dialogue.

There is quite some finger-pointing in the discussion on how to deal with the climate crisis, where many participants and observers tend to be most worried if others are doing enough. Large corporates are accused of being unwilling to decarbonize their businesses and of using offsetting as an excuse to continue business as usual. Governments are blamed for unambitious climate goals – known as nationally determined contributions or NDCs in climate policy lingo – and of even weaker plans to actually implement them. Industrialized countries are told off for not supporting developing nations sufficiently in building flourishing, resilient, and low-carbon economies and in protecting and restoring forests. All of this is hardly helpful in getting us close to solving our problems. And there are ample opportunities for supporting each other’s efforts instead.

A closer look shows that the interest in combating a climate catastrophe of globally operating corporates and developing country governments is quite aligned. While decarbonizing their processes and supply chains, many corporates are choosing to accelerate emission reductions elsewhere in parallel, as compensation for ongoing residual emissions at home. Admittedly, compensation often comes with bold climate neutrality claims that should be taken with more than one grain of salt, but taken at face value, corporates’ engagement in voluntary carbon markets results in large flows of investment in forest protection, landscape restoration and building sustainable economies. In their determination to offset emissions at home, corporates are looking for large volumes of high-quality and cost-efficient carbon credits, from trustworthy project developers and of the highest credibility, spot Sandra Garavito and Pedro Moura Costa in their paper on corporates for the VCM Global Dialogue. After all, offsetting is about communicating to consumers and stakeholders that the company engages in real climate action.

This should be music to the ears of governments in Asia, Africa, and South America. Many are struggling to implement their NDCs and have been looking for international cooperation, including finance, technology transfer, and organizational empowerment when it comes to developing their economies sustainably and resiliently since the start of climate change negotiations. Such cooperation turned out slow, tedious, and below expectations.

Voluntary carbon markets do have the potential to offer the scale of cooperation governments are looking for, and that scale of emission reductions corporates like to be engaged in. They have proven to be fast and efficient, supported by standards that have built experience with implementing robust mitigation projects and programmes over the last decades. For scaling up and for bringing corporate investment to national priorities, parties have to get together and work in a coordinated way.

Garavito and Moura Costa suggest a number of actions to make this happen. First and foremost, parties need to get around the same table. They have avoided each other for too long: governments preferring the familiarity of international governmental negotiations and corporates preferring to stay away as far as possible from regulations, red tape, and bureaucracy. Project developers are left in between the needs and requirements of both these actors. To make voluntary carbon markets work at scale for corporates and governments alike, public-private dialogue is a prerequisite.

Second, governments can engage more actively with carbon markets. For example, they can establish VCM Investment Promotion Agencies to create the necessary investment frameworks to attract carbon finance to their priority areas, while also catering to the needs and expectations of corporate investors. These IPAs can either be integrated into existing agencies or be newly established, to attract private investment, point the investment to the national priorities and guide the investor through the local red tape. Additionally, the IPAs could facilitate the carbon credit certification process, for instance in harmonizing emission factors, developing standardized baselines and reference levels and cooperating with the carbon standards organizations. The establishment of IPAs is clearly in the interest of both governments and corporates. For governments, it helps to attract investment and importantly, attract investment to priority areas. For corporates, an IPA can help reduce transaction costs, expedite the process and timeframe needed for investment and increase the credibility of their actions.

Third, governments may consider integrating voluntary carbon markets into national policies. This is already happening in for instance Colombia and South Africa and could boost local emission reduction activity and investment in their countries. Such integration creates a stable and long-term demand for emission reduction credits, in turn providing certainty to project developers that are looking to implement large-scale, transformational programmes.