May 28, 2024 - Energy & Environment

Biden pushes to tame — and expand — carbon credit markets

Animated illustration of a hand holding a towel and wiping a credit card marked CO2, which then sparkles.

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."

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