30 June 2023

VCMI carbon credit claims 'cannot be used for offsetting'

Carbon credits cannot be used for offsetting emissions instead of reducing emissions within corporate value chains, or for making ‘carbon neutral’ claims, under the Voluntary Carbon Markets Integrity Initiative (VCMI)’s Claims Code.

Instead, companies can use carbon credits to go “above and beyond” the decarbonisation of activities in their own value chain to “further contribute” to cutting emissions, said Ana Carolina Szklo, technical director at VCMI.

“Carbon credits purchased and retired to make a VCMI Claim are not used for offsets,” she told Environmental Finance.

A VCMI Claim represents “beyond value chain mitigation”, a reference to terminology used by the Science Based Targets initiative (SBTi) – which defines this as mitigation action or investments that fall outside of a company’s value chain.

Activities that avoid or reduce greenhouse gas emissions can be supported through the purchase of carbon credits, including Reducing Emissions from Deforestation and Forest Degradation (REDD+) projects and programmes, according to SBTi.

Being able to make a VCMI Claim “means that the company is already on its way to meeting their near-term targets”, Szklo said.

This week, VCMI launched a Claims Code to try to distinguish companies who are using carbon credits with credibility, and clarify that the use of carbon credits will be additional to, not a substitute for, their own action.

A ‘carbon credit’ represents a tonne of carbon that has been avoided or removed through a project. These have often been used by corporates to offset instead of reduce their emissions, as ‘carbon offsets’, often to make a claim such as being ‘carbon neutral’.

But VCMI has said that under its Code a carbon credit can only be used in addition to – and not to offset – cutting emissions, in order to gain a VCMI Claim that contributes to global emissions mitigation.

A ‘claim’ is an assertion by a company about its usage of carbon credits in relation to its decarbonisation strategy.

The Claims Code cannot be used for making claims about a company being “carbon neutral”. VCMI recommended that companies “refrain from using compensation claims such as ‘carbon neutral’, given the increasing number of regulations and non-binding guidance that make it more challenging to make these green claims in various jurisdictions”.

Szklo said: “Even if a company is reducing emissions and on the right path to meet its near-term target, emissions will continue to occur annually – aiming at reaching net-zero emissions.” These are called “remaining emissions”, she said.

The Claims Code has three tiers of claims that companies can make – Platinum, Gold and Silver.

The grading indicates the proportion of the company’s ‘remaining emissions’ for that year that the purchased carbon credits represent. The credits cannot be used for offsetting these remaining emissions, instead reflecting the ambition of a company’s carbon credit strategy.

“These purchases represent a contribution to both the company’s climate goals and to the collective global mitigation effort to reach net-zero emissions,” VCMI said in its Claims Code.

The highest tier, Platinum, means a company has purchased credits equal to all or more of its remaining emissions. This means that a company has demonstrated the highest level of climate ambition by “taking responsibility for the entirety of its remaining emissions while on its decarbonisation pathway”, VCMI said.

The tiers are:

  • Silver Claim for an amount equivalent to or greater than 20% and less than 60% of a company’s remaining emissions;
  • Gold Claim for an amount equivalent to or greater than 60% and less than 100% of its remaining emissions; and
  • Platinum Claim for at least 100% of its remaining emissions.

“The fact that Platinum can go even beyond 100%, means that a company can overbuy, conservatively taking into consideration that there could always be a risk that projects invested in don’t deliver 100% of what they’re supposed to in terms of emissions reduction,” Szklo said.

A third-party other than the VCMI must substantiate a Silver, Gold or Platinum Claim. The VCMI does not yet provide a full list of third-party assurers, Szklo said.

A corporation must abide by other decarbonisation criteria to be eligible for a claim, including demonstrating it is making progress toward a near-term science-based emissions reduction target and committing to reaching net-zero by 2050.

The carbon credits must follow the quality criteria set by supply-side group Integrity Council for the Voluntary Carbon Market. 

Further guidance will follow later in the year, including provisions for specific sectors, geographies and smaller entities.