On May 28, 2024, the White House released a Joint Statement of Policy and new Principles for Responsible Participation in Voluntary Carbon Markets (the Principles). The Principles outline the voluntary principles that US market participants should adhere to when engaging in the voluntary carbon market (VCM) and provide guidance on US government agencies' engagement with VCMs. It also affirms the value of carbon credits and the important role high-quality VCMs play in addressing climate change.  The administration recognized the potential of VCMs to attract significant private investments to support energy transition and set out the foundational principles to ensure their proper development and growth to reach their full potential.

The Principles

Principle 1: Carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarbonization.

Credit-generating activities and projects should be certified to a credible standard and should incorporate core integrity principles, including being (i) the activity is additional; (ii) each credit is unique; (iii) the claimed emissions reductions are real and quantifiable; (iv) the activity is validated and verified by appropriate third party; (v) the activity results in permanent removals or reductions; and (v) baselines for projects are based on rigorous methodologies.

Similarly, credit certification standards bodies (such as Verra or ACR) that register activities and issue credits should focus on protecting credit integrity. The specifics listed in the Principles are very similar to those of the Integrity Council for the Voluntary Carbon Market (ICVCM), providing some comfort to those already meeting ICVCM's benchmarks. 

Principle 2: Credit-generating activities should avoid environmental and social harm and should, where applicable, support co-benefits and transparent and inclusive benefits-sharing.

Project and program developers should seek to avoid potential adverse impact on people and the environment in the course of their activities, including impacts on local communities, land use and tenure rights, food security, nature and biodiversity. The Principle also suggests implementing measures to proactively monitor and mitigate any adverse impacts and where appropriate, to enhance the positive impacts of the activities. Examples of positive impacts include sustainable economic development and increased biodiversity. Where projects or programs have benefit-sharing agreements, the agreement should be structured in consultation/partnership with any relevant stakeholders and respect the doctrine of Free, Prior and Informed Consent where applicable.

Principle 3: Corporate buyers that use credits (credit users) should prioritize measurable emissions reductions within their own value chains.

When developing their net-zero strategies, credit users may use VCMs to complement  their within-value-chain emissions reductions efforts. These efforts should include inventorying Scope 1, 2 and 3 emissions and reporting them on a periodic basis, setting near-term and long-term emissions reduction targets and adopting and executing transition plans. With respect to Scope 3 emissions, efforts should include working collaboratively with suppliers to undertake mutually beneficial decarbonization activities. The Principle also encouraged credit users to refer to the Treasury’s Principles for Net-Zero Financing and Investment for those credit users looking for further guidance on approaches to reduce Scope 3 emissions.

Principle 4: Credit users should publicly disclose the nature of purchased and retired credits.

Credit users should disclose purchased, cancelled or retired credits on an annual basis. The disclosure should include details that allows an outside observer or a relevant stakeholder to assess whether the purchased or retired credits are of high-integrity and whether such credits avoid negative environmental and social impacts. The format of the disclosure can be determined by the credit user, but it should enable comparability and should be made accessible to stakeholders through regular publication.

Principle 5: Public claims by credit users should accurately reflect the climate impact of retired credits and should only rely on credits that meet high integrity standards.

Public claims about the climate impact of retired carbon credits should rely only on the impacts of credits that meet the high integrity standards at the time the claim is made and that avoid adverse impacts. Claims should be made in the context of a strategy that prioritizes within-value-chain emissions reductions (rather than reliance on credits for Scope 3 reductions) and any credited emissions reductions or removals that have been reversed, inflated or exposed as failing environmental or social safeguards should not be used as the basis for any claim unless remediation of the flaw, such as replacement credits, has been completed.

Similarly, credit standards, codes of conduct and other frameworks should also incentivize credit users to purchase high-integrity credits in a manner that does not reduce the incentives for companies to pursue within-value-chain emissions reductions.

Principle 6: Market participants should contribute to efforts that improve market integrity.

Stakeholders are encouraged to improve market functionality by: creating incentives to develop and purchase high-integrity credits; improving transparency of credit-generating projects and program by making data, such as transaction volume and price, publicly available; promoting fair and equitable treatment of suppliers; controlling for potential conflicts of interest among VCM service providers; preventing fraud and other actions that undermine credit integrity; providing appropriate accounting and legal treatment of credits; enabling global interoperability of relevant standards and reporting; and supporting equitable participation in the market.

Principle 7: Policymakers and market participants should facilitate efficient market participation and seek to lower transaction costs.

Policymakers and credit users should consider ways to enhance market certainty for credit providers and reduce barriers to entry for credit-generating suppliers. This includes farmers, ranchers, forest owners, small businesses, developing country jurisdictions and others.

Commentary

The publication of the Principles is an important advancement in the development of VCMs and signals the US government’s support of high-integrity VCMs, as well as the basis for additional guidelines to provide clarity for market participants.

The Principles also set the groundwork for the development of further legislative actions in this space. The Fact Sheet published by the White House listed several existing and ongoing efforts by other departments to encourage the development of high-integrity VCMs, including, the publication of a Request for Information by the Department of Agriculture relating to protocols used in VCMs; the announcement by the Department of Energy (DOE) regarding the semifinalist for its US$35 million Carbon Dioxide Removal Purchase Pilot Prize; the DOE’s Carbon Negative Shot pilot program, which provides US$100 million in grants for small projects such as biomass carbon removal and storage; among others.

A link to the Joint Policy Statement and Principles can be found here.

A link to the White House Fact Sheet can be found here.

Follow Dentons’ Energy to stay up to date on the latest developments on voluntary carbon market and carbon markets in general. For any questions or if you require any guidance on navigating the voluntary carbon market, please contact the authors, Hazel Saffery or Jeffrey Fort.