Audit, Compliance and Risk Blog

US Government issues policy and principles for voluntary carbon markets

Posted by Jon Elliott on Thu, Jun 27, 2024

Greenhouse gasOn Mrbonbonay 28, the Biden administration issued a “Joint Statement of Policy and new Principles for Responsible Participation in Voluntary Carbon Markets, presenting the U.S. government’s approach to advancing Voluntary Carbon Markets (VCMs). The new document was signed by the Treasury Secretary, Agriculture Secretary, Energy Secretary, Senior Advisor for International Climate Policy, National Economic Advisor, and National Climate Advisor, whose responsibilities are most relevant. 

Regulatory and market-based programs are steadily increasing opportunities for entities to contract with projects that reduce emissions of carbon dioxide and other greenhouse gases (GHGs), and to claim credit for those “carbon offsets” or “carbon credits.” Some such claims are used to satisfy formal air quality and GHG reduction requirements, while others are touted to enhance entities’ “green” credentials. Programs around the globe compile such claims, and some provide third party validations – but possible “greenwashing” of unjustified claims remains a significant concern. The new VCM Policy and Principles provide federal guidance and expectations. The remainder of this note summarizes the policy perinciples presented in the new Policy.

What are carbon offsets, and how are claims about them made and evaluated? 

“Carbon offsets” are generated when an entity conducts a project that reduces GHG emissions—upgrading equipment, changing fuels or process inputs, planting trees, etc. VCMs are markets in which carbon credits—each typically representing one metric tonne of carbon reduced or removed from the atmosphere—are bought and sold by companies, NGOs, governments, and others on a voluntary basis. The purchaser can take legal and/or market credit for the calculated reduction.  All such reductions raise critical methodological questions, as entities attempt to quantify emission reductions in present and future periods. They also often raise but-for questions about whether the claimed reductions result from the project being assessed or might/would have occurred anyway. 

A variety of organizations provide assessments of carbon offsets and offer third party validation of claims (e.g., the Climate Action Reserve (initially California Climate Action Reserve)). Some also sell offsets (e.g., the United Nations Carbon Offset Platform provides certified emission reductions (CERs)). Regulators such as the California Air Resources Board (ARB) evaluate methodologies and direct and third-party claimants, and count qualifying offsets in regulatory compliance measurements. Potentially qualified offsets include those that are produced as voluntary offsets by third parties. 

Governmental agencies are developing requirements for validation of such claims, and of the claimants who make them. For example, in California the Air Resources Board (ARB) provides for the accreditation of individuals and organizations that make such verifications, as part of the agency’s administration of the state’s extensive “AB 32” GHG reduction programs including cap-and-trade mechanisms covering reductions and offsets. California enacted a related law (AB 1305) effective January 1, 2024 specifying information that any “business entity” (undefined term) that markets or sells voluntary carbon offsets within California to provide specified information on its website (I wrote about this law HERE). As another example, the US Federal Trade Commission (FTC) has proposed to include “carbon offsets” under its pending revisions to its longstanding Green Guides governing environmental advertising claims (I wrote about this proposal HERE). 

What does the new federal policy provide? 

The new federal Policy starts from the premise that VCMs are beneficial to GHG-reduction efforts, and that “Widespread confidence in the integrity of credited emissions reductions and removals is critical for VCMs to reach their potential.” Accordingly, the new Policy focuses on procedures and mechanisms to produce justifiable confidence. It enumerates seven “Principles for Responsible Participation in Voluntary Carbon Markets (VCMs):” 

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

All seven rely on “core integrity principles” intended to ensure the validity of the carbon credits: 

  • Additional. The activity would not have occurred in the absence of the incentives of the crediting mechanism and is not required by law or regulation. 
  • Unique. One credit corresponds to only one tonne of carbon dioxide (or its equivalent) reduced or removed from the atmosphere and is not double-issued. 
  • Real and Quantifiable. Claimed emissions reductions or removals represent genuine atmospheric impact that is determined in a transparent and replicable manner using robust, credible methodologies. Relevant activities are designed to prevent emissions from occurring, being shifted, or intensifying beyond their boundaries as a result of the activity (“leakage”). 
  • Validation and verification. Activity design is validated, and results are verified, by a qualified, accredited, independent third party. 
  • Permanence of greenhouse gas benefits. The emissions removed or reduced will be kept out of the atmosphere for a specified period of time during which any credited results that are released back into the atmosphere are fully remediated. 
  • Robust baselines. Baselines for emissions reduction and removal activities are based on rigorous methodologies that avoid over-crediting, prioritizing the use of performance benchmarks where applicable, and that evolve over time to reflect advancements in national climate policy, emissions pathways and decarbonization practices, and technology. 

The Policy document provides discussions of all these principles, but emphasizes they are voluntary. 

What happens next? 

The Policy (and its signatory agency heads) “… encourage the U.S. private sector and other stakeholders in the carbon credit value chain to responsibly participate in VCMs, consistent with the principles below.” These exhortations are consistent with the international, national, and sub-national (state and market) efforts already underway and growing. As such, they will reflect those efforts, and will likely be cited as support for them. 

Self-evaluation checklist 

Does the organization undertake projects that produce reductions in emissions of carbon dioxide and other GHGs? 

  • Does the organization calculate such reductions, using a formal methodology(ies)? 
  • Does the organization use a third party to verify and validate the calculated reductions? 
  • Does the organization publicize these calculated reductions? 
  • Does the organization use these calculated reductions to provide compliance with regulatory requirements? 

Does the organization provide verification and/or validation services, coving projects that produce reductions in emissions of carbon dioxide and other GHGs? 

  • Does the organization calculate such reductions, using a formal methodology(ies)? 
  • Does the organization or its clients publicize these calculated reductions? 
  • Does the organization or its clients use these calculated reductions to provide compliance with regulatory requirements? 

Does the organization buy or sell “carbon offsets” or other tradable indicators of GHG emission reductions? 

  • Are any such offsets calculated using formal methodologies, approved by competent authorities and/or regulators? 
  • Are any such offsets structured and verified/validated in ways consistent with the new US Policy? 

Where can I go for more information? 

  • US Government:

About the Author

jon_f_elliottJon Elliott is President of Touchstone Environmental and has been a major contributor to STP’s product range for over 30 years. 

Mr. Elliott has a diverse educational background. In addition to his Juris Doctor (University of California, Boalt Hall School of Law, 1981), he holds a Master of Public Policy (Goldman School of Public Policy [GSPP], UC Berkeley, 1980), and a Bachelor of Science in Mechanical Engineering (Princeton University, 1977).

Mr. Elliott is active in professional and community organizations. In addition, he is a past chairman of the Board of Directors of the GSPP Alumni Association, and past member of the Executive Committee of the State Bar of California's Environmental Law Section (including past chair of its Legislative Committee).

You may contact Mr. Elliott directly at: tei@ix.netcom.com

Tags: Environmental risks, Environmental, ghg, Environment, Environmental Policy, Joe Biden, VCMs, Carbon markets