Unveiling Challenges in the Voluntary Carbon Market - "VCM Monitor" Launches During NYC Climate Week
Navigating the Voluntary Carbon Market's Uncharted Waters
As we step into the heart of Climate Week NYC 2023, we are thrilled to announce the launch of our newest initiative, "VCM Monitor," on the Substack platform. This marks a significant milestone in the world of environmental reporting. Join us as we extend a hearty embrace to our inaugural edition, ushering you into the heart of our newsletter.
"VCM Monitor" - Navigating the Challenges of the Voluntary Carbon Market
In a rapidly evolving landscape of environmental journalism, we embark on a journey to redefine how we perceive and engage with environmental challenges. Our mission is clear: to shed light on the multifaceted challenges faced by various stakeholders in the Voluntary Carbon Market (VCM).
Climate Week NYC: A Global Confluence for Climate Action
Climate Week NYC, hosted by Climate Group, is the world's largest annual climate event. It brings together influential figures from business, government, civil society, and the climate sector to drive climate action at an unprecedented pace. With 400 events and activities spread across New York City, Climate Week NYC is the epicenter of global efforts to transition, accelerate progress, and champion change on an international scale.
Challenges in the Voluntary Carbon Market
According to Morgan Stanley, the renowned Wall Street firm founded in 1935, the voluntary carbon-offset market is on track to surge from $2 billion in 2020 to a staggering $250 billion by 2050. Yet, this burgeoning market faces substantial hurdles, particularly concerning climate finance, project development, and carbon standards. The UBS Group AG, a renowned multinational investment bank headquartered in Switzerland, highlights some major challenges: the lack of standardization, integrity, and transparency. Without clear standards for carbon credits, it becomes challenging for companies to verify genuine emissions reductions.
Notably, the International Emissions Trading Association (IETA) is making commendable efforts to support the VCM's growth and the realization of Paris Agreement goals. The North America Climate Summit (NACS), an official event of New York Climate Week 2023 and the UN General Assembly 2023, is organized by IETA in collaboration with the International Carbon Action Partnership (ICAP). NACS 2023, featuring high-level plenaries, workshops, leadership round-tables, and a "Carbon Market Lounge," serves as an ideal platform for global leaders to discuss carbon pricing, markets, and the path to net-zero emissions.
"VCM Monitor" has acquired insights indicating that IETA is actively engaged in driving the expansion of carbon markets within the burgeoning Indian economy. We learned that IETA's initiative underscores India's position as one of the world's largest and most rapidly growing economies, replete with extensive prospects for low-carbon development. Significantly, the finalized framework for India's Carbon Credit Trading Scheme (CCTS) within the Indian Carbon Market (ICM) has been recently unveiled.
Challenges in Nature-based Carbon Projects
Project developers embarking on the implementation of nature-based solutions carbon projects encounter a spectrum of challenges. These encompass intricacies in securing land and biodiversity assessments, navigating the complexities of ecosystems, and ensuring the long-term sustainability of these projects. Additionally, the need for robust monitoring and verification processes, as well as addressing potential stakeholder conflicts and the ever-present threat of climate change impacts, adds further layers of complexity to their endeavors. These challenges underscore the vital importance of meticulous planning, collaboration with local communities, and the integration of science-based methodologies to ensure the success and environmental integrity of nature-based carbon initiatives.
The development of nature-based solutions carbon projects can face a unique challenge in certain regions due to the presence of drug cartels and illegal groups. These criminal organizations often operate in ecologically valuable and remote areas, engaging in activities such as illegal logging and land encroachment that directly jeopardize the success of carbon projects. Their control over extensive territories makes it difficult for developers to secure project sites safely and hampers community engagement crucial for project viability. Revenue generated from these illicit activities can also disrupt local economies, adding complexity to conservation efforts. Addressing these threats requires a comprehensive strategy that combines environmental protection, community involvement, and security measures, ensuring the resilience of nature-based carbon projects.
In March 2021, Allcot, in partnership with APEAM, unfurled an audacious project, a vision meant to uplift Mexican avocado producers and the entire regional ecosystem, all with the explicit goal of securing a coveted spot on the Verra registry. But here we stand, more than two and a half years later, and this grand project remains conspicuously absent from Verra's prestigious platform—a stark departure from the promise made by Allcot and APEAM.
Delving into the depths of this enigma, we've unearthed a revelation that sends shockwaves through the narrative: gaining access to the APEAM project territory necessitated permission from local drug cartels. This revelation leaves us grappling with pivotal questions to know whether obtaining permission from these cartels to operate within the project area was a primary impediment, or if there were other significant obstacles that arose?
In an email exchange with Allcot's Communication Advisor, the company's representative conveyed that for a carbon project to thrive, community cohesion and empowerment are essential. The community should champion its project, possess the capacity for effective governance, and have the autonomy to shape its desired path towards sustainable development.
“In the case of the APEAM project, we had not seen until now the will and active participation of the communities, for that reason the project was suspended for a while.”, said the Communication Advisor of Allcot.
“However, a few days ago the government of Michoacán sought us to reactivate the project, because they recognize that carbon projects with triple impacts (environmental, social and economic) are a way to fight against dissent, violence and illegal activities.”, added the company's representative.
“ALLCOT is governed by quality criteria and a strict ethic and conduct code that has zero tolerance for corruption. We do not negotiate in any case with corrupt officials or illegal groups. Projects only work if the community is united and if there is no corruption. What we have seen in Mexico is that it is difficult to break these barriers, but it is not impossible, we have achieved it by investing time and training communities.”, remarked Allcot's Communication Advisor.
Breaking headlines from earlier this month, as reported by Reuters, have cast a shadow on the once-booming carbon credit market. In a concise yet impactful report penned by Susanna Twidale and Sarah Mcfarlane, it was revealed that the Voluntary Carbon Markets, which had seen steady growth for seven consecutive years, have finally contracted. This contraction comes in the wake of major players like the global food behemoth Nestle and the renowned fashion icon Gucci scaling back their carbon credit purchases. Further compounding this shift, studies have surfaced exposing forest protection projects that failed to deliver on their promised emissions reductions.
Decline in Carbon Credits Market
In the backdrop of global macroeconomic shifts, the quest for "quality" carbon credits, regulatory uncertainties, and concerns over greenwashing have all had a profound impact. Consequently, the VCM has experienced a slowdown in activity, and prices have dipped.
As demand decreased, the prices of carbon offsets traded on the Xpansiv market CBL, recognized as the world's largest spot carbon exchange, experienced a substantial decline of more than 80% in the past 18-20 months. For example, the Global Emission Offset (GEO) contract, which encompasses projects eligible for the airlines' CORSIA offsetting program, saw its price dip to approximately $1.60 per tonne in July, a significant drop from its peak of $8.85 per tonne in November 2021. Similarly, the Nature-based-GEO, valued at $2.60 per tonne, witnessed a notable decrease from its earlier high of $11.75 per tonne in January 2022. These price fluctuations underscore the market's considerable volatility in recent times.
Also, project developers and owners confront a formidable task: the need to transition their current CDM projects to the SDM by the close of 2023, with approvals mandated before the end of 2025. These endeavors are met with considerable challenges.
In 2021, Allcot made a significant stride by securing a 6% share in the Voluntary Carbon Market, predominantly relying on credits derived from CDM projects. Nevertheless, given the phased-out status of the CDM and the UNFCCC's discontinuation of new project registrations within this mechanism, a notable consequence emerges: the absence of newly generated CDM carbon credits. This shift poses a critical challenge for companies like Allcot, navigating the evolving landscape of carbon markets.
According to Allcot, “Market decline is not a CDM or CDM supply issue. The fall of the market is because there is distrust of buyers in some types of projects that can generate reputational risk; and as it is a voluntary market, many actors prefer to refrain from buying credits while that risk is maintained. Today there are fewer buyers in the voluntary carbon market, and those who are buying carbon credits are investing in projects where they can ensure the quality and inventory of the credits in the long-term.”
“To date ALLCOT has 163 projects, of which some are under development and others require funding to carry them out.”, said the Communication Advisor of Allcot.
Allcot, a seasoned player in the carbon market boasting over 14 years of experience, felt the repercussions of the current state of the Voluntary Carbon Market. The company is adapting to these changes by shifting its focus towards consulting and project development. Amid falling carbon credit revenue, Allcot recently made the difficult decision to reduce staff. This happened after the company shuttered its firm in France last year. In response, Allcot shared with "VCM Monitor" that they are diligently working towards increased efficiency, with the closure of Allcot France being a strategic move to cut unnecessary costs.
Closing Thoughts
As Climate Week NYC unfolds amidst the vibrant streets of the Big Apple, we invite you to stay engaged for more captivating stories in the days to come. We extend our heartfelt thanks to our early subscribers for joining us on this journey. Together, we will navigate the intricate terrain of the voluntary carbon market and illuminate the challenges and opportunities that lie ahead.
Warm regards,
VCM Monitor