On May 28, 2024 the most important US climate change officials will announce guidelines for how companies can utilize carbon credits. Barring movement at COP on 6.2 and 6.4 regulations, this announcement will likely be the most impactful catalyst in the carbon markets this year. Here's what makes this significant:
First US Position on Carbon Credits: Historically the US has taken a very hands off approach to carbon credits. Despite being the country that started environmental markets with SOX/NOX Cap and Trade, the US left regulation up to the Federal Trade Commission (FTC) and it's "Green Guides" which sought to prevent false marketing claims. Establishing principles on carbon credit usage will act to support the market and firm up governmental support for the tool.
Backing from Cabinet Heavy Hitters: This is not some minor US agency opening up for public comment, no offense Commodity Futures Trading Commission (CFTC). We're talking about the US Treasury Secretary, Energy Secretary, Agriculture Secretary, and the White House's senior climate advisor delivering this news. These are arguably the three most important climate-related secretaries signaling strong executive level support for this action.
What are the US guidelines?
Yeah, so they won't come out until May 28. But thanks to some-- most likely designed-- leaks we have some ideas on what they will encompass. Most critically, the guidelines will establish that carbon credits are integral to any net zero strategy. It won't just be a blanket blessing for carbon markets though, the guidelines are directly addressing some of the controversies and growing pains the markets have faced:
“high-integrity carbon credits should represent real, additional and permanent emission reductions that wouldn’t have happened otherwise.”
Who wins?
Let's break this down into its components, and what each might mean for the market:
"High-integrity carbon credits", "real": Clearly the markets need to do a better job of clearly establishing trust that removal claims have taken place. We can expect the guidance to be very clear about the market needing both a higher trust chain of custody for the inputs and outputs of the removal, and for continuous monitoring to affirm those claims. Big Winners: dMRV, digitalized methodologies
"Additional", "that wouldn't have happened otherwise": Proving additionality would seem to be key here. This could be an attempted forcing function to firm up the claims being made by avoidance projects like IFM or REDD+, it could also mean showing clearer financial additionality of projects. Big Winners: dynamic baselines, satellite monitoring
"Permanent emission reductions": What is permanent? Is more than 100 years considered permanent with the assumption that by the time that carbon makes its way back into the cycle we've figured out energy and transportation emissions? Or does it need to be geologically locked? Big Winners: CDR like biochar, DAC
This focus on authenticity is a big deal. It could eliminate some of the less reliable credits from the market and ensure that investments in carbon offsets lead to real environmental benefits. For investors and companies, this might mean a more stable and trustworthy market.
As always, the devil will be in the details, especially regarding additionality and permenance. This shift could increase trust in the carbon markets, making it clear that every credit represents a true reduction in emissions. But it could also go too far and unnecessarily close the door on beneficial projects/methodologies.
What's also been made clear from the reporting is that the government is not adopting any of the existing meta-standards like the ICVCM or VCMI.
Scope 3 Summer: Too hot to handle
Imagine a giant obelisk hundreds of thousands of feet tall was floating above the ocean. Everyone can kinda see it, we all know it's big and ominous, and yet know one really knows what to do with it or whose problem it is. You now understand Scope 3 emissions.
Scope 3 emissions are the indirect emissions that occur in a company’s value chain. They are almost always the most challenging to address, and in many consumer goods companies they are the most significant.
The government seems to be taking the SBTI approach to Scope 3 emissions-- which SBTI approach I'll leave up to you to decide: “companies shouldn’t use credits to displace efforts to directly cut so-called Scope 3 pollution from their suppliers and customers.”
By pushing companies to reduce these emissions directly, the guidelines push for a more comprehensive environmental responsibility. Companies will need to engage more deeply with their supply chains and work towards actual emission reductions, rather than relying solely on offsets. This could lead to more innovation and investment in sustainable practices across industries.
It could also scare away any brand without the resources to stay on top of their tier three suppliers from taking any climate action.
Hard to abate? Hardly
The guidelines will allow for the use of carbon credits within a company’s operations, but only in “special circumstances, such as when those improvements aren’t technically feasible today.” Decarbonize first, then decarbonize some more, and finally you can use a credit. Companies will need to prove that direct reductions are not currently possible. Hopefully there will be some guidance on what exactly it means to not be "technically feasible today".
This approach sets a high bar for the use of credits, ensuring they are only used when necessary and that their use is transparent and justifiable. This could enhance the credibility of companies’ sustainability efforts and lead to more rigorous scrutiny of how credits are used.
Take a look at my carbon market. She's the only one I've got
On May 28 a contingent of important US officials will release the most impactful US position on carbon markets ever. What that will do to the market will entirely come down to the boundaries of the markets. I think the hope for those of us in the market is that it reignites corporate action in the space, and provides governmental support for their actions. The risk is that the boundaries go too far and substantially limit the types of climate action that can be taken along with dissuading companies from participating in the first place.
Writings about the carbon markets, carbon removal and startups.
On May 28, 2024 the most important US climate change officials will announce guidelines for how companies can utilize carbon credits. Barring movement at COP on 6.2 and 6.4 regulations, this announcement will likely be the most impactful catalyst in the carbon markets this year. Here's what makes this significant:
First US Position on Carbon Credits: Historically the US has taken a very hands off approach to carbon credits. Despite being the country that started environmental markets with SOX/NOX Cap and Trade, the US left regulation up to the Federal Trade Commission (FTC) and it's "Green Guides" which sought to prevent false marketing claims. Establishing principles on carbon credit usage will act to support the market and firm up governmental support for the tool.
Backing from Cabinet Heavy Hitters: This is not some minor US agency opening up for public comment, no offense Commodity Futures Trading Commission (CFTC). We're talking about the US Treasury Secretary, Energy Secretary, Agriculture Secretary, and the White House's senior climate advisor delivering this news. These are arguably the three most important climate-related secretaries signaling strong executive level support for this action.
What are the US guidelines?
Yeah, so they won't come out until May 28. But thanks to some-- most likely designed-- leaks we have some ideas on what they will encompass. Most critically, the guidelines will establish that carbon credits are integral to any net zero strategy. It won't just be a blanket blessing for carbon markets though, the guidelines are directly addressing some of the controversies and growing pains the markets have faced:
“high-integrity carbon credits should represent real, additional and permanent emission reductions that wouldn’t have happened otherwise.”
Who wins?
Let's break this down into its components, and what each might mean for the market:
"High-integrity carbon credits", "real": Clearly the markets need to do a better job of clearly establishing trust that removal claims have taken place. We can expect the guidance to be very clear about the market needing both a higher trust chain of custody for the inputs and outputs of the removal, and for continuous monitoring to affirm those claims. Big Winners: dMRV, digitalized methodologies
"Additional", "that wouldn't have happened otherwise": Proving additionality would seem to be key here. This could be an attempted forcing function to firm up the claims being made by avoidance projects like IFM or REDD+, it could also mean showing clearer financial additionality of projects. Big Winners: dynamic baselines, satellite monitoring
"Permanent emission reductions": What is permanent? Is more than 100 years considered permanent with the assumption that by the time that carbon makes its way back into the cycle we've figured out energy and transportation emissions? Or does it need to be geologically locked? Big Winners: CDR like biochar, DAC
This focus on authenticity is a big deal. It could eliminate some of the less reliable credits from the market and ensure that investments in carbon offsets lead to real environmental benefits. For investors and companies, this might mean a more stable and trustworthy market.
As always, the devil will be in the details, especially regarding additionality and permenance. This shift could increase trust in the carbon markets, making it clear that every credit represents a true reduction in emissions. But it could also go too far and unnecessarily close the door on beneficial projects/methodologies.
What's also been made clear from the reporting is that the government is not adopting any of the existing meta-standards like the ICVCM or VCMI.
Scope 3 Summer: Too hot to handle
Imagine a giant obelisk hundreds of thousands of feet tall was floating above the ocean. Everyone can kinda see it, we all know it's big and ominous, and yet know one really knows what to do with it or whose problem it is. You now understand Scope 3 emissions.
Scope 3 emissions are the indirect emissions that occur in a company’s value chain. They are almost always the most challenging to address, and in many consumer goods companies they are the most significant.
The government seems to be taking the SBTI approach to Scope 3 emissions-- which SBTI approach I'll leave up to you to decide: “companies shouldn’t use credits to displace efforts to directly cut so-called Scope 3 pollution from their suppliers and customers.”
By pushing companies to reduce these emissions directly, the guidelines push for a more comprehensive environmental responsibility. Companies will need to engage more deeply with their supply chains and work towards actual emission reductions, rather than relying solely on offsets. This could lead to more innovation and investment in sustainable practices across industries.
It could also scare away any brand without the resources to stay on top of their tier three suppliers from taking any climate action.
Hard to abate? Hardly
The guidelines will allow for the use of carbon credits within a company’s operations, but only in “special circumstances, such as when those improvements aren’t technically feasible today.” Decarbonize first, then decarbonize some more, and finally you can use a credit. Companies will need to prove that direct reductions are not currently possible. Hopefully there will be some guidance on what exactly it means to not be "technically feasible today".
This approach sets a high bar for the use of credits, ensuring they are only used when necessary and that their use is transparent and justifiable. This could enhance the credibility of companies’ sustainability efforts and lead to more rigorous scrutiny of how credits are used.
Take a look at my carbon market. She's the only one I've got
On May 28 a contingent of important US officials will release the most impactful US position on carbon markets ever. What that will do to the market will entirely come down to the boundaries of the markets. I think the hope for those of us in the market is that it reignites corporate action in the space, and provides governmental support for their actions. The risk is that the boundaries go too far and substantially limit the types of climate action that can be taken along with dissuading companies from participating in the first place.
Writings about the carbon markets, carbon removal and startups.
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