Biden pushes to tame — and expand — carbon credit markets
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Illustration: Brendan Lynch/Axios
The White House just launched efforts to clean up the Wild West of carbon credit markets — and help them grow.
Why it matters: These credits can help companies cut emissions by financing renewables projects, forest protection, and more.
- But the market has long been sketchy and stunted, with investigations and studies showing some promised cuts to carbon dioxide don't happen, or can't be verified.
The big picture: On Tuesday morning the Biden administration unveiled its principles for "responsible participation" in "high integrity" voluntary carbon markets.
- VCMs can "help unlock the power of private markets to reduce emissions," but only if "significant existing challenges" are tackled, Treasury Secretary Janet Yellen said in a statement.
Zoom in: Principles for suppliers and buyers include:
- Ensuring credit-generating projects bring CO2 cuts that wouldn't have occurred otherwise, and that results are verified by accredited third parties.
- Ensuring projects don't harm local communities and share benefits.
- Corporate buyers should prioritize credits that wring emissions from their own value chains.
By the numbers: VCMs are small today, around $2 billion annually, partly because of their dicey reputation.
- But there's potential to steer far more private capital into climate projects via VCMs. For instance, the Boston Consulting Group sees a market up $40B by 2030, while Morgan Stanley sees up to $250B in 2050 (h/t CSIS).
- The new principles join private sector efforts like the Voluntary Carbon Markets Integrity Initiative.
Catch up quick: Federal agencies are increasingly involved.
- USDA funds "climate smart" practices that create credits, and has a program to help farmers, ranchers and forest owners take part in VCMs.
- DOE funds CO2 removal projects, is working to link credit buyers and sellers, and has a $35 million competition for selling removal credits directly to the agency.
- The Commodity Futures Trading Commission is crafting standards for credit contracts on commodity exchanges.
- The State Department launched the public-private, credit-focused "Energy Transition Accelerator" in late 2022.
What they're saying: Center for Climate and Energy Solutions president Nat Keohane, whose group works to improve VCMs, says they can become a powerful tool.
- They provide project finance akin to grants instead of loans, but a "lack of confidence" is leaving them untapped, he said.
- The federal principles, Keohane tells Axios, create "alignment and convergence" around how they should operate.
The bottom line: "This can start to give us the foundation of integrity we need to scale up the voluntary carbon market in a way that makes a real contribution to climate solutions."
