Biden Administration Issues ‘Principles’ on Improving Veracity of Carbon Credit Market

May 29, 2024

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The White House released the Voluntary Carbon Markets Joint Policy Statement and Principles this week, defining the Biden Administration’s support of carbon credits as a way for companies to offset their Scope 3 emissions.

For some, the term “Scope 3 emissions” means little to nothing. But, with impending regulations coming down the pipeline at the federal — and sometimes state — level, fleets are finding it more and more necessary to educate themselves on the how their emissions not only effect their immediate environment, but the entirety of the supply chain as well. Scope 3 emissions are the lessen know cousin to Scope 1 and 2, resulting from activities other than those immediately performed by a company. For example, if a manufacturer is contracting a freight company to move products from a factory to a distribution center, the emissions are considered Scope 3 since they are not from assets owned directly by the company but assist the production and/or distribution of the company’s products.

As a result, some companies must find ways to offset these emissions since they are not directly in control of the assets that create them. One option is purchasing carbon credits, which, put simply, is a way for companies to reduce their emissions by investing in projects that either reduce, avoid, or remove emissions. For example, a company could invest in a renewable energy project, such as building a wind farm, to offset the emissions they are contributing to the atmosphere.

The joint statement — co-signed by Treasury Secretary Janet Yellen, Agriculture Secretary Tom Vilsack, Energy Secretary Jennifer Granholm, Senior Advisor for International Climate Policy John Podesta, National Economic Advisor Lael Brainard, and National Climate Advisor Ali Zaidi — on what the administration calls voluntary carbon credit markets (VCMs), offers an overview of the current situation and “voluntary principles that U.S. market participants should embrace as they engage in these markets.” There has been some criticism of the use of VCMs, as they do not always reduce the stated amount of emissions, thereby leaving an “balance” on a company’s emissions reduction “budget.”

“Put simply, stakeholders must be certain that one credit truly represents one tonne of carbon dioxide (or its equivalent) reduced or removed from the atmosphere, beyond what would have otherwise occurred,” reads the statement.

The document lists seven guidelines for “responsible participation” in VCMs:

  1. Carbon credits and the activities that generate them should meet credible atmospheric integrity standards and represent real decarbonization.
  2. Credit-generating activities should avoid environmental and social harm and should, where applicable, support co-benefits and transparent and inclusive benefits-sharing.
  3. Corporate buyers that use credits should prioritize measurable emissions reductions within their own value chains.
  4. Credit users should publicly disclose the nature of purchased and retired credits.
  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.
  6. Market participants should contribute to efforts that improve market integrity.
  7. Policymakers and market participants should facilitate efficient market participation and seek to lower transaction costs.

There have more than a few critics of this system, with many calling for greater oversight of the creation, dissemination, and review of carbon credits. Like many arguments, there has been support both for and against the system, with each side holding up studies either showing value or inadequacy. Some debate the ability to measure the carbon cutting effects of certain projects, such as planting trees — it can be extremely difficult to measure the offset value of planting a tree, and since they can be cut down, uprooted or destroyed, it is hard to call them a permanent offset.

The White House echoed this concern: “In too many instances, credits do not live up to the high standards necessary for market participants to transact transparently and with certainty that credit purchases will deliver verifiable decarbonization. As a result, additional action is needed to rectify challenges that have emerged, restore confidence to the market, and ensure that VCMs live up to their potential to drive climate ambition and deliver on their decarbonization promise.”

The new guidelines are being promoted as an effort to curtail these criticisms and regulate the creation, sale, and expenditure of carbon credits. If done properly, these credits not only reduce overall carbon emissions, they create a steady funding stream for decarbonization projects and result in economic benefits for the communities they serve.