US government to embrace carbon credits despite controversies
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The market for offsets is currently worth about US$2 billion, but a signal of support from the US government could help unlock greater demand.
PHOTO: REUTERS
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WASHINGTON – Top Biden administration officials, including Treasury Secretary Janet Yellen, are set to lay out the first broad US government guidelines for carbon markets on May 28, a major win for advocates of emissions offsets as a weapon against global warming.
The move is a bid by the US to encourage a new era of what it calls “high-integrity carbon markets” and help rehabilitate a climate solution that has been dogged by controversy.
Although there is increasing interest in using offsets to unlock billions of dollars for decarbonisation
The market for offsets
Dr Yellen will unveil the US framework at an event on May 28 in Washington, along with Agriculture Secretary Tom Vilsack, White House senior climate adviser John Podesta and Energy Secretary Jennifer Granholm.
They will say that high-integrity carbon credits should represent real, additional and permanent emissions reductions that would not have happened otherwise, according to people familiar with the matter who asked not to be named describing the effort before it is announced publicly.
The framework will also assert that companies should not use credits to displace efforts to directly cut so-called Scope 3 pollution from their suppliers and customers, the people said.
These are the trickiest emissions for businesses to reduce because companies do not have direct control over them. Whether offsets should be used to effectively cancel them out has deeply divided climate experts.
The principles are set to overlap with emerging standards on the generation of credits and the kind of claims their buyers can make. But they will not explicitly endorse any of the regimes, the people said, including the core carbon principles developed by the Integrity Council for the Voluntary Carbon Market (ICVCM) and Voluntary Carbon Markets Integrity Initiative, the most prominent industry-led governance bodies.
The US officials will underscore the government’s stance that voluntary carbon markets have a role in reaching net zero, as long as they promote high-integrity emissions reductions and channel meaningful amounts of capital into nature-based projects today as well as carbon-removal technologies in the future, one of the people said.
Carbon market supporters celebrated the move as a welcome US embrace of an approach they say can drive much-needed dollars towards sustainable projects, particularly in developing countries.
“This announcement is bringing the weight of the US government,” said Mr Pedro Barata, an associate vice-president at the Environmental Defence Fund and co-chair of the ICVCM’s panel of experts, adding that it gives “an imprimatur of confidence from a very important stakeholder”.
Still, critics argue that offsets can do more harm than good, especially if the credits do not represent actual emissions reductions and divert funding away from real carbon-cutting work.
Sceptics say credits have too often been a tool for greenwashing instead of actual climate progress, allowing businesses to claim emissions reductions that never materialised.
Dr Danny Cullenward, senior fellow at the Kleinman Centre for Energy Policy at the University of Pennsylvania, said he was “saddened” that the Biden administration “has thrown its weight behind a policy model that has failed for 30 years”.
There is little reason to believe this time will be different, he added, given a lack of strong enforcement to back up what now amounts to “industry self-regulation”.
Some US officials, including former special presidential envoy for climate John Kerry, have argued that carbon credits are perhaps the fastest way to unleash hundreds of billions of dollars in climate finance. Mr Kerry has maintained that no government can deliver the huge sums needed to arrest global warming, a potential point of friction at United Nations climate talks this November, which is why mobilising corporate money is so important.
A series of laws, including the 2022 Inflation Reduction Act, have brought climate finance to the fore in the US. They have created new federal incentives for carbon capture projects and compelled the Agriculture Department to make it easier for farmers, ranchers and forest owners to get involved.
A host of agencies have been working on the new US framework since last autumn, with the Treasury Department advancing language around the importance of price and market transparency, and the Agriculture Department elevating an interest in fair revenue distribution, the people said.
The guidelines will not rule out companies using credits to offset emissions in their own supply chains but will signal they should be reserved for special circumstances, such as when those improvements are not technically feasible today. There will be parameters indicating what might be considered credible uses of carbon credits in those instances, a person familiar with the matter said.
The US guidelines could help mobilise “billions and billions of dollars that are currently sitting on the sidelines”, said Ms Alexia Kelly, who heads carbon market development at High Tide Foundation, which funds the ICVCM.
“I see it as a really important kind of signal for CEOs and other companies,” she added. BLOOMBERG
