One of the things that was hard to miss at COP was the strong push from a voluntary carbon market that has been tainted by negative headlines for years. Many new announcements regarding how to increase the quality of carbon credits were made, and what felt like hundreds of panels discussed the topic during COP. Some of these developments will likely lead to improvements and help ensure the integrity and quality of credits.

The Integrity Council for Voluntary Carbon Markets (ICVCM) has launched their “Core Carbon Principles” which will be an add-on certification in addition to the regular carbon credit certification to ensure a higher quality of the credits sold.

Article 6, simply explained as the UN's carbon market, is still being negotiated, and it seems like no agreement will be reached at this COP. A UN-led and certified carbon market would likely provide a boost to credibility, and there were many events discussing what Article 6 would mean in practice. However, there are concerns that the integrity of the initiative might be low, as suggested by some of the disagreements between countries. No deal is better than a bad deal. 

One interesting development is the initiative to finance coal power plant retirement with carbon credits. Verra has a new methodology out for consultation on how to do this while ensuring a just transition. For example, Indonesia has a young fleet of coal plants with many decades left of operation. Retiring them early could be a highly cost-effective way of using money. However, it is easier said than done. To do it right with high integrity, all plans for new plants would need to be stopped before paying to shut down old ones to ensure actual emissions reduction. 

Carbon credits' greatest problems have been their inability to live up to the offset claims made on the back of them. Even if some of the credits were creating an impact, it is very hard to prove that a tonne was truly avoided or removed thanks to the purchase of a credit. Now, the Voluntary Carbon Markets Integrity Initiative (VCMI), which guides credible claims, is recommending against companies using carbon credits to claim carbon neutrality. Instead, companies should use credits to claim they contribute to climate action. This is a positive development and something we have been arguing for years. (There are some other issues with their guidance on Scope 3 claims though).

Carbon markets have a role to fill, and Milkywire welcome initiatives that increase their integrity. But we should also remind ourselves that carbon credits is only one of many tools for climate action, and represent a small fraction of impact achieved. For instance, less than 1% of reforestation is due to carbon credits. Many initiatives fall outside the scope of markets. For example, one of the most effective ways to spend funds for climate on the margin is supporting effective advocacy and policy organizations. NGOs and grassroots organizations doing restoration and preservation work, as well as early support for nascent, CDR solutions also fall outside the traditional market logic. 

Being restricted to only using carbon credits to finance climate action would be like being able to invest only in corporate bonds—your upside is capped, while you still run the risk of failure. Doing impact-focused climate contributions is more akin to being an investor who can put money into bonds, index funds, as well as promising startups.

In the Climate Transformation Fund (CTF), we support a wide variety of projects in carbon removal, decarbonization, and nature restoration, using grants and prepurchases of removal tonnes. We don’t just look for high quality but also consider the marginal impact of our funding. A market actor I spoke to was surprised when I mentioned we refrained from re-supporting a carbon credit project, since thanks to its high quality it was easily finding buyers for all the credits it could produce. We try to use our donors funds to make things happen that otherwise would not. 

At COP, we met with many of the organizations we support through the Climate Transformation Fund and could see proof of their action, like Plant with Purpose, Takachar, Mash Makes, New Energy Nexus, Octavia Carbon, Clean Air Task Force, and more. We are constantly on the lookout for more organizations and will open our 2024 call for proposals next week. If you are a project developer or organization, please register your interest.

There is also rising interest from donors. Soon Milkywire will also publish guidance on the topic of beyond value chain mitigation together with Gold Standard. The SBTi is also expected to publish on the topic. Much is happening and it’s a very exciting time to be in the business of funding climate action!