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Taskforce on Scaling Voluntary Carbon Markets JANUARY 2021 TASKFORCE ON SCALING VOLUNTARY CARBON MARKETS FINAL REPORT TABLE OF CONTENTS Executive Summary ............................................................................................................................. 1 I. Core carbon principles and attribute taxonomy ........................................................................... 11 II. Core carbon reference contracts ................................................................................................. 14 III. Infrastructure: Trade, post-trade, financing, and data ................................................................... 16 IV. Consensus on the legitimacy of offsetting ................................................................................... 18 V. Market integrity assurance ......................................................................................................... 19 VI. Demand signals ........................................................................................................................ 23 VII. Roadmap to Implementation .................................................................................................... 25 1. Carbon Credits and Climate Change: The Crucial Importance of Carbon Markets ............................... 26 2. A Blueprint for Scaling Up Voluntary Carbon Markets ....................................................................... 32 3. The Requirements for Scaling Up Voluntary Carbon Markets ............................................................. 38 3. Outlooks for Voluntary Carbon Markets ........................................................................................... 50 4. Blueprint Recommendations ............................................................................................................ 70 6. Roadmap to Implementation ......................................................................................................... 110 7. Acknowledgments ......................................................................................................................... 114 8. Appendix ...................................................................................................................................... 117 TASKFORCE LEADERSHIP TIM ADAMS PRESIDENT AND CEO THE INSTITUTE OF INTERNATIONAL FINANCE BILL WINTERS CEO STANDARD CHARTERED ANNETTE NAZARETH SENIOR COUNSEL AT DAVIS POLK FORMER SEC COMMISSIONER SUPPORTER MARK CARNEY UN SPECIAL ENVOY FOR CLIMATE ACTION AND FINANCE FINANCE ADVISOR TO UK PRIME MINISTER BORIS JOHNSON FOR COP26 ABOUT THE TASKFORCE The Taskforce on Scaling Voluntary Carbon Markets is a private sector-led initiative working to scale an effective and efficient voluntary carbon market to help meet the goals of the Paris Agreement. The Taskforce was initiated by Mark Carney, UN Special Envoy for Climate Action and Finance Advisor to UK Prime Minister Boris Johnson for the 26th UN Climate Change Conference of the Parties (COP26); is chaired by Bill Winters, Group Chief Executive, Standard Chartered; and is sponsored by the Institute of International Finance (IIF) under the leadership of IIF President and CEO, Tim Adams. Annette Nazareth, senior counsel at Davis Polk and former Commissioner of the US Securities and Exchange Commission, serves as the Operating Lead for the Taskforce. McKinsey & Company provides knowledge and advisory support. The Taskforce’s more than 50 members represent buyers and sellers of carbon credits, standard setters, the financial sector and market infrastructure providers. The Taskforce’s unique value proposition has been to bring all parts of the value chain to work intensively together and to provide recommended actions for the most pressing pain-points facing voluntary carbon markets. The Taskforce is also supported by a highly engaged Consultation Group, composed of subject- matter experts from approximately 120 institutions, who contribute additional perspective to the recommendations. ABOUT THE REPORT This report was developed by the Taskforce on Scaling Voluntary Carbon Markets, drawing on multiple sources, including a research collaboration with McKinsey & Company, which is providing knowledge and advisory support to the IIF. The Taskforce is responsible for the conclusions and recommendations of the research. Members of the Taskforce on Scaling Voluntary Carbon Markets provided insights across their particular fields of expertise. The findings in this report do not necessarily reflect the views of individual Taskforce members or contributors. ACKNOWLEDGEMENTS We would like to thank all Taskforce members and Consultation Group members that contributed their time, insights and perspectives. We would like to express our special thanks to the philanthropic entities who have supported this project as donors, including the High Tide Foundation, which has served as the lead donor with the Children’s In-vestment Fund Foundation and Quadrature serving as supporting donors. We would also like to express our special thanks to Bloomberg Philanthropies and ClimateWorks Foundation for their assistance coordinating our funding. The work of the Taskforce would not have been possible without the generous support and thoughtful engagement of all of these supporting institutions. PREFACE: A WORD FROM THE TASKFORCE LEADERSHIP The need for climate action, and tools to carbon market, one that promotes genuine mobilize finance for the low-carbon and action of high environmental integrity. We resilient transition, grows more urgent by the sincerely want to thank the voluntary market day. To achieve the Paris goals to limit global participants for their trailblazing efforts in warming to 1.5 degrees Celsius, the global developing the current well-functioning and community needs to reach net-zero emissions credible market, which is now in a position to by no later than 2050. This will require a further improve and scale. whole-economy transition—every company, Along with the carbon avoided, reduced, or every bank, every insurer and investor removed, the scaling up of markets has the will have to adjust their business models, further potential to help support financial develop credible plans for the transition, and flows to the Global South, as activities and implement them. projects in these countries can provide a cost- Stakeholders across the global economy effective source of these carbon-emission are stepping up to this challenge. Investors, reductions. Voluntary carbon markets can executives, policymakers, and consumers also play a critical role in scaling down cost have realized the role they can play and have curves for emerging climate technologies, promoted or committed to strategies to bringing these technologies to market earlier, achieve net-zero or net-negative emissions. and allowing them to be used in direct To identify the risks and opportunities decarbonization efforts. arising from this transition, investors are The Taskforce on Scaling Voluntary Carbon demanding transition plans and granular Markets was convened in September, information about how companies plan to bringing together experts from across the reach these targets. Concrete climate action carbon markets value-chain, from more than by corporations, including appropriate use of 20 sectors of the economy and six continents, offsetting, cannot wait until 2050, but needs and with experience of the full history of to start now. these markets. Supported by a Consultation Many companies, especially in hard-to- Group covering an even broader set of abate sectors, will need to offset emissions experts and observers, it has worked at pace as they achieve their decarbonization goals, to draw up a blueprint and roadmap to build creating a surge in demand for credible the market infrastructure needed for a fully offsets. The credibility of voluntary carbon functional voluntary market. credits in transition plans will be open to The Taskforce’s recommendations aim to increased scrutiny. To facilitate this global identify the infrastructure solutions necessary decarbonization there is a need for a large, to scale voluntary carbon markets. These transparent, verifiable and robust voluntary are recommendations for the private sector developed by both current and potential Group for their continued engagement. market users to ensure this market can This report is the beginning of a longer deliver to the needs of its participants process. Going forward, the Taskforce and without compromising the integrity of Consultation Group will continue to move decarbonization. The Taskforce has found with deliberation, at pace, and with inclusivity six key areas where efforts are required to drive real change in the market. While the to achieve a large, transparent, verifiable, majority of the required work will be driven by and robust voluntary carbon market; individual market participants, the Taskforce these themes are establishing core carbon and Consultation Group will support four principles, core carbon reference contracts, topics: i) Stakeholder engagement, ii) infrastructure, offset legitimacy, market Governance, iii) Legal principles & contracts, integrity, and demand signaling. iv) Credit level market integrity. We would like to thank the Taskforce This is truly an historic opportunity to members for their extensive contributions contribute to getting the world to net-zero, and dedication to this effort, as well as all and we encourage continued participation respondents to the public consultation on the from across the economic
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