Climate Minister says government wants to realise more of the potential offered by carbon and nature markets
The government has confirmed it intends to consult on reforms designed to strengthen the voluntary carbon market (VCM) and emerging nature markets, potentially paving the way for a major shake up of the sector.
Details of the consultation are yet to be confirmed, but Climate Minister Kerry McCarthy this week indicated the government wants to put in place rules that can address concerns around low integrity carbon credit projects and help boost investment in the sector.
"Carbon and nature markets hold the potential to play an essential role in achieving our climate and environmental targets faster, raising climate finance, and supporting enhanced ambition," McCarthy said. "The UK will soon consult on steps we could take to raise integrity in these markets so they realise more of their potential."
The proposals are likely to be warmly welcomed by operators in the VCM and related biodiversity offset markets, which have been calling for greater clarity from government on how it intends to boost investment in carbon removal projects that are widely expected to play a key role in meeting long term net zero targets.
The market has been hamstrung in recent years by a series of scandals over projects that have failed to deliver promised emissions reductions and removals, as well as uncertainty over future corporate demand for carbon and nature credits.
As such, some players in the market have called for regulators to deliver reforms that can help bolster integrity in the market and unlock increased investment. Proposed reforms include tighter regulations on carbon credit projects, integration between the VCM and regulated carbon markets such as the UK's Emissions Trading Scheme (ETS), and clearer rules governing corporates' net zero transition plans.
Sebastien Cross, co-founder and chief innovation officer at carbon credit ratings agency BeZero Carbon, said it was "an immense relief for the industry to hear the UK government's intention to consult on the voluntary carbon market".
"Carbon markets play a critical role in funnelling private sector finance into climate action, so it's essential we renew momentum and scale this burgeoning sector after two years of uncertainty," he said. "The government must reignite progress not only to achieve our climate targets, but also to unlock the huge economic potential on offer. We look forward to introducing the role of project-level ratings and risk metrics into the conversation."
The news came on the same day as BeZero Carbon published new research revealing buyers of carbon credits are willing to pay more for credits that support UN Sustainable Development Goals (SDGs). It found that in 2023 projects that issued credits backed by SDG-related claims commanded a price premium of 106 per cent compared to credits without them.
"This correlation between the 'beyond carbon' impacts of a carbon project and the price of its credits is heightened by carbon ratings, as buyers pay over three times more on average for high-rated credits ('AA') with SDG claims than those rated 'C' without SDG claims," the company said.
"It is enormously significant that carbon markets are learning how to effectively price the impact of credits beyond carbon," said Cross. "Global progress towards SDGs must be made by 2030, yet targets are currently veering off course. There is a growing role for carbon markets in stimulating finance to boost advancements towards SDG goals, as corporates are increasingly willing to purchase credits with SDG claims at a higher price."
In related news, carbon credit platform Sylvera this week launched a new service called Connect to Supply, which aims to make it easier for buyers to find and procure carbon credits across various project stages, including pre-issuance. The company said the product would leverage a robust and growing network of over 200 suppliers and developers, to help ensure buyers can access the best available prices.
And in further carbon market news, the UK ETS Authority announced it is consulting operators in the scheme on a proposal to move the start of the second allocation period for the cap-and-trade scheme from 2026 to 2027.
The proposed change would align the new allocation period with the governments plan to introduce a Carbon Border Adjustment Mechanism (CBAM) that would impose levies on carbon intensive imports from jurisdictions without credible carbon pricing regimes from 2027 onwards.
However, the government is also facing calls from some business groups to pull forward the launch of the CBAM to 2026 to bring it into line with similar plans in the EU. Experts have warned that if the EU introduces its carbon import levies a year earlier, the UK risks becoming a dumping ground for imported steel and other goods looking to avoid the EU levies.
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