US government releases new voluntary carbon credit market policy guidelines

The Biden administration announced the publication of the “Joint Statement and Principles on Voluntary Carbon Markets,” which aims to strengthen and advance the carbon credit market by establishing U.S. government guidance aimed at ensuring the high integrity of voluntary carbon markets (VCMs).

This policy statement comes as demand for carbon offsetting projects and related credits increases. This is largely due to companies pursuing net zero targets and using offsets to complement emissions reduction efforts or offset unavoidable emissions. It is worth noting that the Science Based Targets Initiative (SBTi) recently indicated that carbon credits could be allowed for net zero targets to address Scope 3 emissions.

Despite growth, the market faces significant integrity challenges. Participants have difficulty distinguishing high- and low-quality projects due to insufficient or inconsistent data on project performance.

Announcing the new guidance on carbon credits, US Treasury Secretary Janet Yellen stated:

“Voluntary carbon markets can help unleash the power of private markets to reduce emissions, but this will only be possible if we address the significant challenges that exist. The principles published today are an important step towards building high-integrity voluntary carbon markets. This is part of the Biden administration’s ambitious effort to address the climate crisis and accelerate the clean energy transition for the benefit of all Americans.”

Here are the highlights of the policy guidelines:

1. Certified carbon credits

Carbon credits and the activities that generate them must meet credible atmospheric integrity standards that reflect real decarbonization. They should be certified to sound design standards and MMRV (Measurement, Monitoring, Reporting and Verification).

The basic principles include additionality (actions would not be possible without the credit mechanism), uniqueness (one credit corresponds to one tonne of CO2 reduced or removed without double emissions) and real, measurable emissions reductions. Activities must prevent leaks and be validated and verified by an independent third party.

Persistence is essential, ensuring that emissions remain out of the atmosphere for a specified period of time. More importantly, solid baselines should avoid over-borrowing and reflect progress in climate policy and technology.

2. Climate and environmental justice

Credit-generating activities should avoid harm to the environment and society by supporting co-benefits and transparent, inclusive benefit-sharing. Understanding impacts on climate and environmental justice is crucial, and developers should avoid negative externalities on local communities.

Safeguards must prevent adverse impacts on people and the environment, including land use, property rights, food security and biodiversity. There is a need for continuous monitoring and mitigation of negative impacts, as well as efforts to enhance positive impacts where possible.

We encourage verified co-benefits such as sustainable economic development and increased biodiversity. Projects should be designed and implemented in consultation with relevant stakeholders, respecting, where appropriate, free, prior and informed consent.

3. Reducing emissions in value chains

Corporate credit buyers should prioritize measurable emissions reductions within their own value chains. Using credits involves purchasing, canceling or withdrawing them, as well as making public statements based on their climate impact. To achieve long-term climate goals, companies must transform their models across economies.

Credit users should use VCM to complement measurable emissions reductions across the value chain as part of their net zero strategies. This includes inventorying Scope 1, 2 and 3 emissions, reporting on them regularly, setting short-term emissions reduction targets and adopting transition plans. Where possible, companies should work with their stakeholders to achieve these goals.

4. Disclosure of credits purchased and withdrawn

Credit users should disclose credits purchased, canceled or withdrawn annually, providing details that enable assessment of their integrity and environmental and social impact. Disclosure may go beyond legal requirements and should be in a standardized, easily accessible format to ensure comparability.

Users should consider reporting to aggregate resources that disseminate this information publicly, providing stakeholders with an opportunity to evaluate the credibility and impact of the scores.

5. Accurate public claims

Public statements by credit users must reflect the true climate impact of retired credits, using only high integrity carbon credits. Statements should support continued incentives to reduce emissions across the value chain and be consistent with the evolving framework.

Credits should meet high standards of integrity, avoiding claims based on credits that have been revoked or failed unless they are remedied. Corporate climate strategies should prioritize reductions across the value chain, using creditworthiness to complement efforts.

6. Improving market integrity

Market participants should enhance market integrity by creating incentives for high fairness carbon credits, improving transparency and ensuring fair treatment of suppliers. Measures include preventing fraud, promoting interoperability of global standards and supporting fair market participation.

Improving market functionality requires collaboration between the private, public and civil sectors, focusing on solid data, fair revenue distribution and clear accounting practices to support VCM health.

7. Facilitating effective market participation

Policymakers and market participants should reduce transaction costs and support lenders, especially those from developing countries. Removing supplier barriers can increase VCM’s ability to create high-fidelity credit scores.

Efforts should include the use of robust models to reduce MMRV costs and provide market certainty for long-term decarbonization investments. Supporting credible credit providers is key to advancing decarbonization and creating economic opportunities as part of a climate strategy.

The new U.S. voluntary carbon credit guidelines were co-signed by senior administration officials including Treasury Secretary Janet Yellen, Agriculture Secretary Tom Vilsack, Energy Secretary Jennifer Granholm, senior adviser on international climate policy John Podesta, national economic adviser Lael Brainard and National Climate Advisor Ali Zaidi.