The US is set to announce tougher standards on the use and accounting of carbon offsets to reinforce the integrity of the nascent US carbon credit market, as reported by Reuters on April 19. US Climate adviser, John Podesta, said carbon credits should “represent real, additional, and permanent emission reductions”. He also emphasized that the new rules must avoid carbon leakage, where reductions in one area are simply replaced by increased pollution elsewhere. In addition, these standards will make clear that companies should not use carbon credits to replace or delay their investments in carbon reductions, according to Podesta.

The move aims to build confidence in the carbon market, positioned as a crucial tool to mobilize private sector investments into emission-cutting projects or renewable power. The upcoming standards intend to address key concerns about carbon offsets, such as how carbon credits are used and their quality. For example, critics caution that carbon offsets may allow polluters to keep polluting and slow down the progress of phasing out high-carbon infrastructure. Furthermore, there are also doubts that greenhouse gas (GHG) reductions of offset projects can be exaggerated or double-counted, potentially leading to a market flooded with cheap, low-quality carbon credits. Without robust standards, low-quality offsets could distort prices and divert investment from high-quality projects. Before the upcoming standards, the US Commodity Futures Trading Commission (CFTC) proposed last December the first federal guidelines for the country’s voluntary carbon market (VCM), calling on exchanges to verify the quality of voluntary carbon credit derivatives.

Sources:

https://www.reuters.com/sustainability/climate-energy/us-launch-carbon-offset-guidelines-boost-integrity-2024-04-19/

https://www.bloomberg.com/news/articles/2024-04-19/us-to-advance-carbon-offset-standards-to-prevent-greenwashing?srnd=green

https://www.ft.com/content/00068301-9d06-433b-8832-26a40639e658

https://www.offsetguide.org/concerns-about-how-offset-credits-are-used/

https://www.offsetguide.org/concerns-about-carbon-offset-quality/