Voluntary Carbon Market Rankings 2023

Increased scrutiny and criticism have rocked the voluntary carbon market, but optimism about its future prevails, reports Genevieve Redgrave.

Over the past year, the voluntary carbon market (VCM) faced a backlash over the credibility and quality of its methodologies and credits. This caused prices to drop and difficulties in finding demand for some types of credit.

Despite this, winners of Environmental Finance's Voluntary Carbon Market Rankings were optimistic that this pause will give the market an opportunity to recalibrate, rebuild and deliver the robust growth needed to meet sustainability goals.

The Rankings are an annual poll of the market, in which market participants vote for the leading companies and initiatives that exhibit best practice and innovation.

It is reflective of the remaining interest in the market, that this year's rankings saw the highest amount of both entries and votes so far. In total, there were 4,300 votes across 22 categories, with two new categories included this year: Best Crediting Innovation (non-carbon) and Best Project Developer, Biodiversity.

Best trading company Numerco SCB Group/Viridios Capital
Best advisory/consultancy ClearBlue Markets Virdios Capital
Best Law firm Philip Lee Holman Fenwick Willan
Best verification company Earthood services Verra
Best wholesaler Numerco SCB Group
Best broker Numerco Emstream
Best project developer, renewable energy Combio Energia Ecosecurities
Best project developer, energy efficiency BURN Manufacturing Ecosecurities
Best project developer, forestry and land-use Ecosecurities Biofílica Ambipar
Best project developer, blue carbon Ecosecurities Indus Delta Capital Limited
Best project developer, biodiversity BioCarbon Partners Terrasos
Best project developer, overall Ecosecurities BioCarbon Partners
Best offset retailer Climate Impact Partners EcoAct
Best GHG Crediting Programme/Standards Setter Verra’s Voluntary Carbon Standard Puro.earth
Best registry provider Verra Ecoregistry
Best monitoring report BioCarbon Partners Moss.Earth
Best carbon exchange ACX Climate Impact X
Best market innovation Viridios AI Trove’s Carbon Credit Integrity
Best crediting innovation (non-carbon) Terrasos Verra’s Plastic Waste Reduction Standard
Best individual offsetting project BioCarbon Partners’ Luangwa Community Forests Project Manoa REDD+ Project
Best corporate offsetting programme Microsoft N/A
Best initiative The VCMI and IC-VCM collaboration N/A

How the poll was conducted: Companies were emailed and asked to nominate the leading service providers active in the voluntary carbon markets, via an online survey. Voters were asked to make their judgements on the basis of: efficiency and speed of transaction; reliability; innovation; quality of service provided and influence on the market, not just the volume of transactions handled.

A year of scrutiny

Following a media exposé of credit certification forestry methodologies used by Verra, the VCM was thrust into the international media spotlight and facedheightened scrutiny and criticism. Winners of the Rankings told Environmental Finance it has been a "very difficult year" for participants in the market, with lower prices and a limited demand for some credits.

Reports vary over the scale of the demand drop. Mark Kenber, executive director of the Voluntary Carbon Markets Initiative (VCMI), said while there has been "muted volumes in the market", it has not actually impacted firms' use of credits, as "retirements are more or less at the same levels they were in 2022".

Other winners, however, felt the drop in demand was much more significant. "Many companies have hit the pause button and are holding off on their decisions in the short and medium term, versus making a decision today", said Fiona Oliver-Glasford, chief operating officer at ClearBlue Markets.

William PazosPut simply, companies are "doubtful about making public commitments on carbon credits", said Mariana Sarmiento, CEO of biodiversity credit registry developer Terrasos.

Lev Gantly and Anna Hickey, partners at law firm Philip Lee, said "the industry faces continued media attacks from journalists who do not fully understand the breadth and scale of the negative impact on investment flows from their reporting".

"Many project developers have fantastic projects in the Global South that could cut emissions, help stimulate economic growth and improve livelihoods" but it warned that "this year's [media] reporting has shut-off investment flows causing what is effectively a perverse outcome".

This drop in demand has been significant for project developers. Roberto Veras, director of sustainability at Combio Energia, a Brazilian biofuel developer, said "this crisis of trust" means it is "now very hard to make a sale", especially given that when prices dropped there was still a surplus of credits in the market.

William Pazos, co-founder of ACX (AirCarbon Exchange), a carbon credit trading platform, added that "this has been a challenging year for carbon, and that's been reflected in the prices. We're trading at significantly lower [prices] than we were at the beginning of the year".

While he recognised that there has been a slight uptick recently, "in general the market has been very soft" over the past year (see below for prices of carbon credits traded on ACX:

Source: ACX

Other market participants were more positive about the year. BURN Manufacturing, which develops more efficient and sustainable cookstoves (see box below), said despite the "market being thinner as a whole", it has still been a "relatively good year" for the business, as it is still able to sell its credits at a high cost.

It was suggested by some winners that, while there has been lower demand, this was largely from companies which were not committed to the market in the first place.

Verra on the market scrutiny

"We welcome scrutiny in the field and believe in the ethos of continuous improvement", Verra told Environmental Finance.
However, it warned that "everybody in the market would argue that a lot of the coverage has been unfair. It's not constructive criticism, it's actually more destructive".

Many do not realise Verra, along with many other bodies in the market, are non-profits and so not looking to benefit financially from the market, it said. Communication therefore needs to get better, not just at Verra, to emphasise the work that it's doing to adapt and improve, but also more broadly in the market.

"We need to all get better at communicating the successes of the market", it said, but added that it can often be difficult to get these positive stories spoken about. Work being done by bodies such as the VCMI or ICVCM however are doing great work to help "change the narrative", it said.

Sheri Hickok, CEO of Climate Impact Partners, said while there "may have been a pause for some, those organisations committed to the market have leaned in further."

She added these companies are not just looking at how the VCM could benefit their short term plans, but "are also interested in project development opportunities to secure high-quality carbon removal credits over the longer term."

Others also argued that the lower demand may not be caused by participants leaving the market entirely, but instead just taking more time to carry out due diligence and collect all the information they can.

Marcelo Labre, chief executive officer at data provider Viridios AI, has seen increased interest over the past year, as investors are now "hungry for data" on the carbon market.

However, whilst companies are looking for more information, ClearBlue Markets said many do not have the experience of how to find this or use it. It means "they want help at some point in their journey - holding their hands and giving them insight".

Philip Lee's Gantly and Hickey agreed that buyers are being cautious, waiting "to see the implications of all of the recent market developments".

Building integrity

Alongside intensified scrutiny there has been a growing movement to build integrity and develop the infrastructure of the market. This has included the Integrity Council for the Voluntary Carbon Market's (ICVCM) Core Carbon Principles (CCP) which sets out the criteria for a high-quality carbon credit.

In its next phase, carbon crediting programmes and individual project categories will be assessed and verified as 'CCP-labelled' – in a bid to improve the integrity of the credits bought.

It said feedback has suggested the labelling project will "go some way to unlock pent-up demand for high integrity carbon credits", but recognised that "we're not expecting to see change overnight".

Both the range and volume of CCP-approved labels will "build up gradually over time and we expect there to be a transition period for the VCM".

There is also work being done by Verra to update its REDD+ methodology – which was the subject of the initial criticism.

The ICVCM added that work being done by the VCMI will also play an important role in giving companies confidence in the market. This includes its 'claims code', which guides purchasers on how to incorporate investment in carbon credits within their broader net zero strategies.

The Science Based Targets Initiative (SBTi) will also be providing more guidance on how companies can use carbon credits as part of transition plans.

The VCMI said guidance so far "has been lacking and we expect that, with these in place, there will be a very different market going forward".

The VCMI's Kenber said the market is still "relatively nascent in terms of its ability to operate at scale with transparency and efficiency, both of which are needed if it is to fulfil its potential".

He argued this will only happen with collaboration, as "we need to be sharing knowledge and technical assistance, as well as technologies thar drive improvement in measurement, quantification, verification and reporting, as well as alignment with the goals of the Paris Agreement".

This is already happening, he said, not only with the ICVCM and the VCMI, but also a growing number of formal or informal alliances to create aligned guidance and joint communications.

Oliver Glasford at ClearBlue Markets said the "work done by the VCMI and ICVCM over the past year has done a lot to address what the market needs". She argued that "building out the rules and the guidelines of the market is going to be critical. But it's got to be done in a consistent, standardised way so that we ensure there is integrity of the market, but we don't create so much complexity that companies lose interest". The VCMI and ICVCM were voted as 'best initiative'.

Other winners were also concerned that there is too much focus on "creating a perfect, investible environment". Philip Lee warned that much of the current guidance is being catered to the "bluechip corporates", but the reality is that these are not the high-emitters such as heavy industry, manufacturing or transport. Instead, many of the initiatives are "effectively shutting the door to [high emitters]. This is a problem".

It added "we continue to let the perfect be the enemy of the good – there is no time left".

ACX's Pazos also warned that the initiatives "aren't enough to counteract or mitigate the reputational risk that comes to corporates when they buy carbon credits". It said the only way to do this is through regulation, as it "brings a stability to the market and a clear demand signal so prices should recover".

Pazos said: "The question is how quickly these regulatory frameworks will take hold, because I don't think the market will react any other way".

Despite being a voluntary market, it is regulation that many of the winners expect to be one of the driving forces over the next year.

This is in part because many governments "are realising they have an asset that needs to be protected", said Climate Impact Partners' Hickock.

Carbon as an asset

The recent inaugural Africa Climate Summit saw many African leaders reinforce their commitment to the carbon market and emphasise the benefit it could bring to their economies. Kenyan President William Ruto called its large carbon sinks "untapped goldmines" of the region.

Zimbabwe also recently suggested that it would look to keep back some of the revenues from its national voluntary carbon market.

Winners expect this is likely to become a trend, especially in African countries, which are looking at ways of making sure the transition is equitable and they are not taken advantage of by richer nations. One winner suggested it could make "people feel better" about investing in these projects, if the revenues go back to the people that need it the most.

Carbon project developer BioCarbon Partners (BCP) argued that localism needs to be a key driving force in policy. Nic Mudaly, CEO and executive director, said: "One of the parts that policymakers need to be mindful of, is the importance of keeping communities as part of the solution".

Other countries are looking to intervene in the carbon markets. Many pointed to Brazil, which is developing a cap-and-trade market for its highest-emitting sectors. With this legislation still going through its parliament, it is unclear how this will affect its voluntary market.

One project developer, Combio Energia, was optimistic, however, that it will lead to greater demand in sectors which are not yet part of the regulated market, but because they anticipate this happening at some point will look to get ahead of the curve.

The patchwork approach to carbon markets can be difficult to manage, however. BCP's Mudaly said "different things happening all at once is a concern for us."
Another winner warned this uncertainty will lead investors to "sit on their hands".

Article 6 – another year of waiting?

Policy is set to play a more prominent role, as Article 6 of the Paris Agreement continues to be developed. This is a mechanism whereby governments can create carbon credits, known as Internationally Transferred Mitigation Outcomes, to help a country meet their nationally determined contributions.

These can be traded through bilateral agreements (Article 6.2) or through a global carbon market that will be overseen by a supervisory body set up by the UN (Article 6.4).

The past year has seen movement on Article 6.2, with countries such as Singapore developing bilateral agreements with Ghana. Climate Impact Partners said some countries are clearly trying to take a lead on this, especially within Africa.

It is expected that this trend will grow rapidly over the next year, with more countries entering into partnerships and developers also looking to have their projects authorised within the Article 6.4 market. However, it is currently unclear how the Article 6.4 market will operate, as well as how it will interact with the existing VCM. While many winners were optimistic that COP28 in Dubai later this year will offer some form of clarity, operationalisation is not expected anytime soon.

Some expected that trading under Article 6.4 could not begin until 2025 at the earliest.

Unstoppable momentum

Despite this uncertainty, winners were optimistic that the market will rebound, regardless of whether it is mandated. Pressure to decarbonise in industries where there is no viable alternative means many will likely return to the VCM.

"Our view is that most countries, corporates and industry sectors will struggle to meet their 2030 targets", Philip Lee's Gantly and Hickey said as "nowhere near enough progress is being made to decarbonise inside value chains".

The VCM will therefore play a crucial role to help meet targets – although more clarity is needed from bodies such as the SBTi on what will be allowed as mitigation for companies in the VCM.

Viridios AI's Marcelo Labre similarly expects lack of progress to drive the market forward. In particular, the recent Global Stocktake, which assessed how much progress has been made towards the goals of the Paris Agreement, is likely to "trigger corporates to come back to the table".

He said this is "a wake-up moment for corporates and governments, and could create more incentives and drive for corporates to offset or resume their [carbon] programme".

It was also suggested that this downturn is actually healthy for the market in the long run, in order to build up the infrastructure needed to meet the expected incoming demand. Many said this was part of the "natural cycle" of a growing market.

Verra argued that "we had a massive period of growth and now we have an opportunity to pause, catch our breath, do some re-evaluation, figure out the areas we can improve and make things better and then start the next era".

"It's just a cycle, but it will come back, inevitably, and innovation will be back soon", Viridios AI argued.

Innovation driving the market

Incoming innovation was a key theme among the winners. Areas such as satellite technology were pinpointed as having the potential to transform the market, as it could help quantify the impact of carbon projects.

As part of its next phase, the ICVCM told Environmental Finance earlier this year that it will study how technology will impact the market for carbon credits and where standardisation is needed. It said digital and remote sensing technology is likely to play a particularly important role.

Innovative projects are expected to become more important for attracting investors. Burn Manufacturing said investors are drilling down into the details of projects to find opportunities that are more forward-thinking and use the best technology and methodologies available.

The project developer has seen a lot of interest from investors in its emerging electric cookstove projects. Investors have also expressed interest in Combio Energia's move into biochar projects, because of the fact it has longer lasting carbon removal properties – it expects this to trade at a higher price than its existing biofuel projects.

Biodiversity is another area on the rise, either in the form of carbon credits with biodiversity co-benefits or biodiversity credits themselves. These are emerging mechanisms which quantify a variety of biodiversity conservation outcomes in tradeable units.

The UK has seemingly been leading the way on this. From November, some new building developments will be required to achieve '10% biodiversity net gain' – which will be in the form of a tradeable unit. As part of a newly created metric, a unit can be achieved by creating or enhancing natural habitat.

Earlier this year, the UK also launched a joint roadmap with France to scale private financing of biodiversity credits.

Terrasos, which is developing a biodiversity credit registry in collaboration with the Colombian government, said a number of other governments are also looking to take a lead, including Brazil, Australia and New Zealand.

It has yet to see "large scale movement on the demand side" for credits, but companies are definitely "more aware" of the opportunity. A significant amount of market-building is still needed Sarmiento warned, especially in the form of methodologies.

These should not just be "methodologies for the sake of it", however, and instead should be "clear, simple and pragmatic, that really get to resolve the issue of biodiversity conservation and bring resources to the right people".

Climate Impact Partners added that "biodiversity credits have been a talking point over this year, with a Voluntary Biodiversity Market emerging as a mechanism to finance biodiversity projects". Hickok said, "a consensus on measurement is still being developed. Biodiversity is complex and there isn't just one metric to measure." 

ACX said these are "a different animal" to carbon credits, because of these difficulties in quantification. "It's not a certificate that I think could be traded," he said, arguing that instead it is much more likely that carbon credits will just look to enhance biodiversity within existing projects.

Terrasos' Sarmiento, however, suggested that "backing from government" could help incentivise usage of biodiversity credits and help give the market credibility – although if it receives similar pushback to carbon it could be "tricky" to scale.

Clear Blue's Oliver Glasford similarly argued that as a new credit, the "challenge will be getting enough critical mass and transparency so that companies feel good about buying them".

Winner of three project development awards: Ecosecurities

"There have been a lot of newcomers in the space over the last few years, claiming that carbon projects are easy to develop. They are not" said Pablo Fernandez, CEO of Ecosecurities, winner of three project development awards in this year's market rankings – including best overall project developer. It was also the runner up of two other categories, making it the most awarded company of the 2023 Voluntary Carbon Market rankings.

It has been working in the market for over 25 years, developing nature-based solutions, community projects and renewable energy projects. This has included the roll-out of renewable biomass cookstoves in Timor-Leste, better agricultural land management to sequester more carbon in Colombia and improved grassland management in Paraguay to capture more carbon and reduce greenhouse emissions.

It is also leading on an emerging area of carbon projects: blue carbon. Its Mangrove Conservation and Restoration programme in Mexico includes the rehabilitation of tidal canals, community-based surveillance for threats to mangroves and biodiversity as well as sustainable activities such as ecotourism and beekeeping. It aims for this to not only improve biodiversity conservation but also enhance local community livelihoods over the next forty years.

This project won the best blue carbon project development award.

Moving forward, Fernandez said that Ecosecurities is also looking at new areas of project development, particularly technology-based solutions for hard-to-abate sectors such as energy. With growing scrutiny of the voluntary carbon market, he said it is also looking to protect its reputation by not taking shortcuts and further leaning into innovation to help drive the carbon markets forward.

Read Ecosecurities full corporate statement here.

Best project developer, energy efficiency: BURN Manufacturing

Chris McKinneyCookstoves, which are often used in Africa and southeast Asia, are not just an environmental problem – cooking over open flames is one of the Africa's biggest killers, as well as an economic problem, as charcoal makes up a large part of many families' disposable income.

BURN Manufacturing creates more environmentally-friendly and more efficient cookstoves. Its move into the VCM has "completely transformed" its business, by allowing it to subsidise the cost of the cookstove by as much as 95% in some cases – this means some families pay as little as $3 for their stove.

This is not limited to BURN Manufacturing. Chris McKinney, chief commercial officer, said "the vast majority of funding into clean cooking today is from the VCM. This funding has been critical in plugging the gap [of traditional funding]."

Investors have also been very keen for new opportunities in this area, especially into electric cookstoves. There is also a huge market opportunity ahead, he said, and is why it is looking to expand geographically. Next month it will open a factory in Nigeria which will produce another 100-200,000 stoves per month, to help serve West Africa.

 Supported by