renewable energy

In a shake-up for the voluntary carbon market (VCM), today the Integrity Council for the Voluntary Carbon Market (ICVCM) announced that carbon credits issued under existing renewable energy methodologies will not receive its high-integrity Core Carbon Principles (CCP) label, citing additionality concerns.

According to the oversight body, the Core Carbon Principles, launched last year, were designed to “build trust” for “high-quality credits” that create “real, verifiable climate impact, based on the latest science and best practice.”

Indeed, many of the criticisms levelled at the VCM are centred around low integrity, with numerous investigations over the years finding credits to be “worthless” and damaging. 

Against this backdrop, last year, the VCM contracted for the second year in a row, with value down 61 per cent, after peaking at nearly US$2 billion in 2021.

This was driven, in part, by a drop-off in transactions for renewable energy, non-profit EcoSystem Market said.

“We are taking the tough decisions necessary to build a high-integrity voluntary carbon market that can be scaled to meaningfully fund climate solutions and channel material amounts of finance to the Global South,” said Annette Nazareth, the organisation’s Chair, in a statement today. 

Methodologies “Insufficiently Rigorous”

The decision, announced today, applies to eight methodologies used to design and implement renewable energy projects.

These methodologies cover around 236 million unretired credits—nearly one-third (32 per cent) of the voluntary carbon market.

According to the Governing Board, these eight methodologies fail on additionality due to being insufficiently rigorous in assessing whether the projects would have gone ahead without the incentive of carbon credit revenues. 

The following methodologies covered in this decision include:

• Grid-connected electricity generation from renewable sources — Version 21.0 and below,
• Electricity and heat generation from biomass — Version 16.0 and below,
• Electricity generation from biomass in power-only plants — Version 6.0 and below,
• Use of biomass in heat generation equipment — Version 7.0 and below,
• Fossil Fuel Displacement by Geothermal Resources for Space Heating — Version 3.0 and below,
• Grid connected renewable electricity generation — Version 18.0 and below,
• Electrification of rural communities using renewable energy — Version 4.0 and below,
• Electricity generation by the user — Version 19.0 and below.

According to a recent report from Carbon Market Watch (CMW), of the CDM methodologies adopted by the likes of Verra and Gold Standard, the most utilised is ACM0002 for “Grid-Connected Electricity Generation from Renewable Sources,” which constitutes more than half of renewable energy projects across both standards.

RE Projects Have Evaded Scrutiny

The CMW report, published in June, outlined that while REDD+ projects—Reducing Emissions from Deforestation and Forest Degradation in Developing Countries—have received high-profile scrutiny, renewable energy (RE) projects have not been subject to the same public inspection —this is despite risks of non-additionality and potential over-crediting.

The report also shared that there has been a trend of corporate buyers retiring renewable energy credits anonymously. 

For example, data from 2023 reveals that 89.9 per cent of renewable energy credits were retired anonymously versus 25.8 per cent for forestry and land use credits. 

This reluctance, it said, suggests that companies are “well aware” of their shortcomings yet still opt to rely on them to support “unjust climate claims.”

With regard to additionality, over the years, a number of investigations have found that renewable energy projects would have, in fact, gone ahead without carbon credits.

Indeed, the CMW report highlights findings from The Guardian, which found that 15 of the 16 renewable energy projects it assessed were deemed “likely junk.”

A Place for RE Credits in Decarbonisation? 

Against this backdrop, the organisation’s Nazareth said that renewable energy projects financed by carbon credits “still have a role to play in the decarbonisation of energy grids.” 

Here, Nazareth cited challenges faced by many of the least developed countries to secure the investment they need to transition away from fossil fuels. 

Indeed, earlier this year, the International Energy Agency said that clean energy investment in emerging and developing economies outside China must rise more than sixfold in the next ten years. Likewise, the International Renewable Energy Agency has underlined the geographical disparity of renewable energy projects, with uneven growth across the world.

In 2023, for example, Asia accounted for a 69 per cent share of renewables capacity, driven by China, which saw capacity increase by 63 per cent. Africa, in comparison, saw an increase of just 4.6 per cent. 

However, while Nazareth outlined the position that these projects still have a place in decarbonisation, she also emphasised the need to modernise the design of these carbon projects, which, she said, carbon-crediting programs “can and should do.” 

“More robust methodologies would unlock finance for a new wave of renewable energy projects in places where they are most needed,” said Nazareth.

Indeed, Pedro Martins Barata, Integrity Council Expert Panel Co-Chair, added that the organisation encourages programs to develop methodologies that “take a much more sophisticated approach to assessing whether renewable energy projects are additional.”

In its response to the methodology decisions, Verra said it is “currently revising” the CDM additionality tools to address the deficiencies noted by the ICVCM, adding that it will be consulting on these revisions in the coming month. 

“Verra’s new electricity tool will address the deficiencies noted in the CDM electricity tools. Once finalized Verra will submit the updated tools and methodologies to ICVCM for re-assessment,” the company added. 

According to Verra, it also recently launched a consultation on an optional methodology update and requantification procedure, which would enable proponents of existing projects to “adopt the updated tools, meet the higher information standards promoted by the ICVCM, and thereby qualify for CCP labels.”

Alongside today’s published ICVCM assessment rejections, which included the replacement of SF6 with alternative cover gas in the magnesium industry, the organisation also outlined its approvals.

This included one methodology used by Verra for projects to detect and repair leaks in natural gas pipelines and methodologies for projects that capture methane from landfill sites.

The latest set of assessment decisions brings the total number of unretired credits approved to use the CCP label to an estimated 27 million—3.6 per cent of the market.

Integrity Council CEO Amy Merrill explained that the Integrity Council’s assessments are “well underway” and said that its decisions will “shape the development of the market.”

In a statement, Nazareth shared a similar sentiment to that of ​​SBTi’s Chief Technical Officer last week on the priorities for corporate climate action. Outlining that companies’ “first priority” must always be to decarbonise their own value chains, Nazareth added that carbon credits “can be an important supplement, allowing them to go further and take responsibility for emissions they cannot yet cut.”

By Madaline Dunn, Editor, ESG Mena.