Navigating Recent Changes to Voluntary Carbon Markets

James Lawler: [00:00:00] Welcome to Climate Now. I’m James Lawler. Today we’ll turn our attention back to the carbon markets, wherein companies or individuals can purchase credits from entities that remove, reduce, or avoid greenhouse gases as a way to offset their own emissions. We’ve done a few episodes on this podcast about the carbon markets, and the reason we’re turning back to them in this episode is because on July 30th of 2024, the Science-Based Targets initiative, SBTi, released a new analysis as part of the review into their corporate net-zero standards. This is part of an ongoing back and forth about how corporations should count their offsets toward net-zero goals. So, we are going to talk about what those recommendations were and how companies are responding and what the future might hold for how the voluntary carbon markets will likely evolve going forward. So, our guest is Dr. Jennifer Jenkins, who is the chief science officer at a company called Rubicon Carbon. Rubicon offers carbon credits to corporations and consumers. So, we spoke to Dr. [00:01:00] Jenkins about the updates to SBTi’s recommendations, the organizations that set market standards, and the challenges of incorporating voluntary carbon offsets into corporate strategies to decarbonize. 

A note to our listeners that this interview was recorded on July 30th of 2024. 

Welcome Jen to Climate Now. Thanks for joining us.  

Dr. Jennifer Jenkins: Yeah, thanks. It’s great to be here.  

James Lawler: So, Jen, let’s start off with your experience. How did you come to work in the carbon markets?  

Dr. Jennifer Jenkins: I started my career in science. I have a PhD in ecosystem ecology and I studied forest atmosphere carbon exchange for my degree. And from there I went to the USDA Forest Service and did work on carbon storage and trees. We needed to sort of understand how much carbon was being stored by those trees so that we could monetize that. And so that was when my engagement with the carbon market began. In 2016, moved into the private sector and became passionate, and, you know, I’m still passionate, about helping companies to meet [00:02:00] the net zero challenge. We have a climate crisis on our hands, and I really believe strongly that the private sectors can make the difference today.  

James Lawler: So, tell us what is Rubicon? What is your role at, what is your role there? And where does Rubicon fit into the voluntary carbon markets or VCM? 

Dr. Jennifer Jenkins: Rubicon is a relatively new entrance to the carbon market. We’re an integrated carbon credit management firm. We service the entire carbon credit supply chain. We make investments into high quality projects and we package credits into portfolios called Rubicon, and the portfolios house our product, which is Rubicon Carbon Tonnes. Ultimately, these are intended to help the world’s largest corporations to meet their sustainability goals. And really our focus is on trying to build the tools that carbon credit purchasers need to easily and seamlessly navigate today’s carbon market. We call it VCM 2.0; VCM 1.0 was founded in the late 1980s. The [00:03:00] first carbon credits were created in 1988, and a lot of work has happened since then.  

James Lawler: Okay, great. Now, I’d love to spend a few minutes unpacking the state of the Voluntary Carbon Markets, or VCM, today. The website cdr.fyi, which we link to in our transcript, has a great chart that shows VCM growth. It shows that in January 2022, about $57 million worth of carbon credits had been sold. By the end of 2022, the carbon credits sold were valued at $400 million. And now to, as of July, as of late July, 2024, that number has leapt to more than $3 billion of carbon credits sold. So, give us a sense of the health and the state of this market. Who are these buyers who are buying? How many are there? Are we just talking about a few companies? Is it a growing group? Like, give us an understanding of the state of the markets today.  

Dr. Jennifer Jenkins: My short answer to your question of how many buyers are in the market is not [00:04:00] nearly enough. And the buyers that we do have are typically going to be in the high margin sectors, in the tech sector. The biggest buyers today for the credits, especially the high, the sort of most permanent removals, the biggest buyers for those credits today are going to be in those very high margin tech sectors. If you’ve read the CDR.fyi report, there’s probably four or five players that you can point out. You know, who’s not in the market today is the, the companies that really need to access the carbon market, which is the hard-to-abate sectors like chemicals, steel, cement, to some extent, aviation, although there is a separate aviation market that ought to solve that problem relatively soon. Credits are a fantastic way to provide flexibility for companies that have made ambitious, voluntary net zero [00:05:00] commitments, but might be having a little trouble actually doing all the internal decarbonization that they’ve committed to do. These are manufacturing sectors where we have built hundreds of years’ worth of innovation on fossil fuels. So, you’re not going to be able to overnight just sort of transition this behemoth of a fossil-based economy into some sort of mythical non-fossil-based system.  

James Lawler: Right.  

Dr. Jennifer Jenkins: They’re going to need some help and credits are a fantastic way to provide that flexibility to companies.  

James Lawler: Okay. So, Jen, tell us about the organizations that sit adjacent to the market and whose opinions or whose pronouncements are driving the way that buyers, or perhaps would be buyers, are understanding the VCM. What’s the ecosystem of organizations and what are their positions with respect to the VCM?  

Dr. Jennifer Jenkins: Yeah. It’s obviously really confusing. The market itself is opaque, it’s hard to transact, buyers need a lot of education, and they [00:06:00] need to have partners they can trust. The ICVCM stands for the Integrity Council for the Voluntary Carbon Market. So, ICVCM tells you if you’re a carbon project developer or a buyer, it tells you here is what good looks like from a credit perspective, these are the best quality credits you can buy, right? And that’s what ICVCM’s job is. The second initiative is on the demand side, called the Voluntary Carbon Markets Integrity Initiative, or VCMI, and that was created to tell companies how to make an appropriate claim using credits. So, the VCMI has something called the Claims Code of Practice, which is an auditable process that a company can use and then have checked by a third party auditor that says, yes, this company has met all the criteria to make an appropriate, robust claim, and they’ve used credits in the appropriate way, and they’ve used the right kinds of credits, and they’ve [00:07:00] made appropriate statements about the impact of their purchases. So, that’s VCMI. The third organization is called the Science Based Targets initiative, or SBTi, and they were started in 2015 as a consortium of NGO partners created to sort of help companies to set and validate their own net zero targets. So, if we imagine that as a society, we have a global net zero goal by 2050– in order to avoid the worst impacts of climate change, we need to have no new net emissions added to the atmosphere at that time– so there’s like a trajectory, right? A reduction of certain amount every year that we as a global society need to achieve. What SBTi does is they break that down into a bite sized chunk and say, okay, your share of that as a company, you need to reach this emissions by this date and that emissions by that date, in order to get to your net zero target date, and that target date can differ depending on the sector and the company. So, SBTi’s role was initially to set [00:08:00] targets, but in October of ’21, they also released what they call the Corporate Net-Zero Standard. And now with that standard, they have stepped into the role of telling companies how companies may or may not use credits to help meet their targets.  

James Lawler: So, Jen, maybe you could talk us through the process by which a company would go about setting and then acting against a target that they’d set with respect to their emissions. A company decides they’re going to do this, they set their targets, what, what next?  

Dr. Jennifer Jenkins: Yeah, exactly. So, I wake up, I’m hearing from investors, you know, I want to get access to a certain kind of funding. And so, to do that, I need to set up…  

James Lawler: Or my kids saying they won’t talk to me.  

Dr. Jennifer Jenkins: Right. And so, I decided I want to set a target. So, I call up SBTi and I write them a letter and I say, I’m interested in setting a target. Okay. And so now, the clock begins ticking. I have now two years to go through the next set of steps and establish my [00:09:00] target and a plan. And so, I know SBTi’s rules are if at the end of that two years I have not been successful, right, or I’m, I’m too late, then SBTi will essentially kick me out and they will remove my expression of interest and they’ll say, sorry, you got to try again. That will be public information. The fact that my expression of interest has been removed from SBTis database. And that’s happened to a bunch of companies. The other thing is, when you are expressing interest in an SBTi target, it’s very rare, if ever, that a company knows precisely how they’re going to reach that target.  

James Lawler: Right. Correct me if I have this wrong, but at the point of expressing that interest, they have not yet set a target. So, let’s say they’ve done that. SBTi says, great, welcome aboard. What happens then?  

Dr. Jennifer Jenkins: So, the company, they dig deep into their value chain, and they’ll do an inventory and they’ll figure out where they’re greenhouse gas emissions are coming from and what the largest sources of those emissions are and they will sort of in a way [00:10:00] rack and stack what are the options that they have for mitigating those emissions and they will look at what is the cost of each action that I could take in my value chain and how many tons will it mitigate. And they will first adopt the changes that will save them money.  

James Lawler: Right.  

Dr. Jennifer Jenkins: Things like changing out the light bulbs, moving to less expensive sources of fuel. Those are the kinds of things that the company will certainly take those actions immediately, but they’ll get to a point where they have to make a choice, right, because many of the internal decarbonization levers, especially for some of these hard-to-abate industries, are actually value destroying today. They’re so expensive because the technology is not scalable at a reasonable cost. You know, substitution of like a rubber material for another kind of material manufacturing a vehicle is [00:11:00] an example, right. It’s going to be hard to find a reasonable alternative.  

James Lawler: Right, right. So, the company does this work. They decide, yes, we’re going to move forward with our plan to reach net zero in a way that will allow the company to continue to exist from a financial perspective. So, they’ll do as much as they can, but then the cheapest thing to mitigate the last X tons is not going to be to shelve the multi-billion-dollar piece of equipment and build another multi-billion-dollar piece of equipment, it’s going to be to purchase some tonnage of CO₂ removal per year until replacement technology becomes cheaper or, or whatever that longer term plan is. Maybe you could explain what is the controversy right now around SBTi when it comes to offsets?  

Dr. Jennifer Jenkins: I think the company that is sort of examining all of its mitigation options is going to get to a point where it needs to stop because it simply can’t afford to [00:12:00] invest hundreds of dollars a ton into the next internal decarbonization option today. So, the controversy, what SBTi originally said in October of 2021 was we don’t care. You still can’t use offsets.  

James Lawler: And so now, that’s no longer the position they have today though. Am I right about that?  

Dr. Jennifer Jenkins: Well, the SBTi board of trustees, having heard from people like me, right, and in the market that this position SBTi had been taking was simply too inflexible, made an announcement in April 2024 saying, okay guys, we plan to consider the use of offsets in scope three for abatement. So, scope 1 emissions are the sort of fossil emissions that are embedded in your, in your own operations. So, think about natural gas, a process emission. Scope 2 is purchased electricity, so you’re going to inherit the emission factor from whatever grid you’re [00:13:00] buying the electricity from. Scope 3 is basically the emissions that you arguably are responsible for, but that you don’t have direct control over. So, a great example of that would be business travel. You wouldn’t be traveling if you weren’t in the business, but at the same time, you don’t own the airplane emission.  

James Lawler: So, now going back to SBTi, they say we’re going to consider the use of offsets when it comes to scope 3 emissions. What was the response?  

Dr. Jennifer Jenkins: Right. So, that was the board of trustees of SBTi reversing the original statement from the technical team at SBTi. 

James Lawler: Right.  

Dr. Jennifer Jenkins: Right. So, what was the response? People like me, we’re thrilled! We don’t love that it’s only scope 3 because we actually know that a lot of the harder-to-abate industries are going to really struggle with scope 1. But we figure it’s really important to allow flexibility, and so we’re, we’re kind of okay with scope 3 for now, right. Inside SBTi, [00:14:00] apparently there was a lot of internal disappointment and a lot of controversy about that statement forward, okay. The CEO of SBTi has since resigned. July 30th, SBTi released an update on its scope 3 process, and it released a report that laid out a few scenarios for how credits might be used in SBTi Corporate Net-Zero target process. What they did not do was support the board statement.  

James Lawler: In April of 2024, the SBTi board said that offsets are fine for scope 3 emissions, but SBTi then issued a statement in July saying, no, the 2021 prohibition on offset stands; there’s no revision to those standards. 

Dr. Jennifer Jenkins: At this time, right. But they’re taking in comment. The discussion isn’t over. And my own view is that if we’re going to revise the standard, [00:15:00] let’s go ahead and revise whatever part of the standard it is that’s prohibiting offsets.  

James Lawler: Right. So, basically the folks that really push back on offsets essentially fall into two camps, and there’s, there’s crossover here, but really two arguments. So, one argument is that if we let people buy offsets, then we give them an easy way out. Then the other argument is that the supply of high-quality CO₂ removal is very, very thin, and there have been a lot of scandals around projects that have claimed to offer carbon removal and then have been shown to not do so. Now, that said, as we’ve talked about a lot on this, on this podcast, there’s a very wide spectrum of CO₂ removal projects, ranging from forests and other nature-based solutions all the way to underground storage and class VI wells, from direct air capture plants where it’s more possible to physically measure how much CO₂ you’re [00:16:00] removing. So, you’ve got a wide spectrum of quality, but nonetheless, there is this market perception of fuzziness when it comes to really the quality or the integrity of the offset. Where do the organizations that you mentioned, the VCMI, SBTi, fall with respect to these two arguments?  

Dr. Jennifer Jenkins: Credits fall into a whole bunch of categories, right? And removals is only one category, and actually, removals is a very small proportion of the credits that have been issued to date in the market. 80 or 85 percent of the credits issued are actually not removals; they’re in the avoidance category, and an avoided emission is when the business as usual was actually to emit, right, and so instead we’re investing in a process that will reduce fewer emissions.  

James Lawler: Okay. Thank you.  

Dr. Jennifer Jenkins: So, that’s, you’re also correct that there has been criticism in the market of some of those [00:17:00] avoidance projects, right? There’s less criticism of the removals, but there has been a fair amount of criticism of the avoidance projects over the last couple of years. So, that is exactly the problem that the ICVCM was created to solve, the sort of quality and integrity standardization that the market so badly needs, and they’ve made a lot of progress. So, ICVCM is coming out with sort of a labeling process where they can tag credits that have been issued using the highest quality methodologies. The other thing that’s happening is that the most difficult methodologies, the ones with the biggest sort of issues or loopholes, if you will, were created using methodologies that Verra, which is one of the standard setting bodies in this space, has since retired or is no longer using. Verra has actually, is in the middle now of transitioning all of its projects to a new, more robust baseline [00:18:00] approach called VM0048 that will be much less susceptible to the kind of gaming and quality issues that you describe. So, bottom line, you asked, how does the quality and integrity relate to this problem? In a VCM 2.0 world, I think we can assume good quality. 

James Lawler: Yeah. Can you speak a bit about who keeps track of carbon credit use and, and how, how they keep track and, and how that role differs from the, the role of ICVCM?  

Dr. Jennifer Jenkins: There’s four: there’s ACR and CAR and Verra and Gold Standard. So, those four are what’s called registries. So, carbon is an intangible good. If you avoid a ton of carbon, you can’t put it on the scale and measure it.  

James Lawler: I think there’s a difference there, right? Avoided is certainly very hard to measure.  

Dr. Jennifer Jenkins: Right.  

James Lawler: Removed, in theory, it is measurable.  

Dr. Jennifer Jenkins: In theory, you could, yeah, you should be able to measure it.  

James Lawler: Right. Okay. 

Dr. Jennifer Jenkins: So, the four that we mentioned, Verra, Gold Standard, CAR, and ACR, are four what’s called registries. They [00:19:00] are entities that are responsible for issuing credits from validated and verified projects that a developer brings to them. They are responsible for issuing those credits and then holding them on a registry and they can’t be double counted because they’re only one buyer and there’s a record that is kept of the purchase and sale of a credit in the market. When a company chooses to use those credits for fuel emission or whether they just use them in as part of a marketing plan or whatever, the company is going to retire those credits which means they’re essentially taken out of circulation; they can no longer be used by anybody else for any other purpose. And so, the registry is responsible for maintaining records of, of that as well, right? To sort of prevent double counting.  

James Lawler: Got it. So, what does ICVCM do that is different?  

Dr. Jennifer Jenkins: So, ICVCM is a non- profit, a sort of consortium and a [00:20:00] collaborative group of experts in the voluntary carbon market, who are responsible for setting the standard, right? In a way, you can think of them as they sort of sit above the registries, defining the what needs to be part of an appropriate standard for carbon credit projects, and then for each one of the sort of carbon credit categories, right, what needs to be part of a robust methodology.  

James Lawler: What’s the relationship between ICVCM and their standard, known as Core Carbon Principles, or CCP, and the registries? How do carbon credit buyers interact with those entities?  

Dr. Jennifer Jenkins: So, the first thing the ICVCM does is they evaluate the standard, and a few things need to be true about that standard. And then once they’ve done that, then they convene expert stakeholder working groups, for many of their categories, to dig through the methodologies that each one of those standards [00:21:00] owns to try to decide, does that methodology meet our base criteria for quality? And so, so far, they have approved ACR and Verra and Gold Standard. If you are a buyer in this space and you’re looking for credits that have been tagged for CCP, you’re going to find very few. 

James Lawler: Okay. So very few. And that’s, that’s just because ICVCM is just getting started?  

Dr. Jennifer Jenkins: I think two reasons. One reason is that you said, they’re just getting started. I think the other reason is, actually, the credits that are in the market today, many of them were developed using old legacy methodologies. So, the credits that are in the market today are largely not eligible for CCP approval. That won’t be true forever. As soon as we begin to issue credits from VM0048, which is Verra’s new, updated, improved methodology, there will be credits in the market that comply with that, and I think that methodology is still sort of in the [00:22:00] evaluation phase. As long as ICVCM approves that methodology, then we’ll have CCP tags in the market for avoided deforestation projects.  

James Lawler: Got it. So, Jen, my understanding is that there are also the Oxford Offsetting Principles that guide companies on how to use the voluntary carbon markets. What are those and how do they fit in?  

Dr. Jennifer Jenkins: A great group of experts at Oxford University in the early 2020s put together a guidance for companies to help them understand how they might create a net-zero aligned offsetting strategy. And they laid that out in what’s called the Oxford Offsetting Principles. And it creates a taxonomy of carbon credits, and categories one through five defined by whether it is an avoided emissions project or a removals project, and whether or not it includes some level of carbon storage, and whether that carbon storage is ” temporary,” like a nature-based project, and that’s what the Oxford [00:23:00] Offsetting Principles support companies in doing. And then, gradually, over time, those companies can move to where they are using more and more permanent removals and storage when they get closer to their net-zero goal.  

James Lawler: What are some of the impacts likely to be as changes in processes that govern the VCM began to take hold?  

Dr. Jennifer Jenkins: The thing that’s most important to me when I think about corporate action is that the commitments companies are making are voluntary. If we make it so that they’re going to fail to meet their target no matter what they do, they’re going to pull out of these voluntary commitments. And in fact, we just heard July 30th, Air New Zealand, on the same day that SBTi released the next installment in its process around scope 3, Air New Zealand made a public announcement that they were, they were abandoning their 2030 target. They’re pulling out of the SBTi process. They’re saying there isn’t enough sustainable aviation fuel. Okay. So, that’s an internal decarbonization problem, [00:24:00] right? That’s, that shouldn’t surprise us. We knew there wasn’t enough SAF, and they’re experiencing delays in delivery of new, more efficient aircraft. So, this is a supply chain disruption that is causing them to need help meeting their targets. And since SBTi will not allow them to use offsets to meet those targets, they’re out.  

James Lawler: Yeah, yeah.  

Dr. Jennifer Jenkins: We’re going to see a lot more of that going forward unless these rules are changed.  

James Lawler: Right, right. You know, the flip side of that would be that we know that corporations will dive as quickly as possible toward, you know, whatever the cheapest way out of any problem is. I mean, that’s capitalism, right? We all have the cost of taking out our garbage, right? We can’t just throw our garbage into the street anymore or sewage into the street. We pay to remove it so that we can have better lives, but that wasn’t always the case, right. And I feel like carbon removal is sort of in the same place as we were before we had sewers almost. How do you get lots of corporations to just [00:25:00] accept that they need to pay, when they didn’t have to pay before, to do this? 

Dr. Jennifer Jenkins: I actually think there’s a lot of companies out there that want to participate, but they need flexibility because they’re not always going to have available technologies to help them meet the moment. I think we’re moving to a point where we have quality credits in the market, and we can use them. So, while we wait for the decarbonization technologies to be scaled and available, what credits do is they allow a company to act right now, and to help meet their commitment while they are also simultaneously investing in the internal decarbonization technology that they’re going to need and waiting for the cost curve for the most expensive ones to come down, right? 

James Lawler: And so, so, just to make sure I’m understood, the, the idea is that Rubicon invests in that project, [00:26:00] and then you sell the avoided emissions associated with what would have happened had you not invested to companies looking to offset their own emissions.  

Dr. Jennifer Jenkins: As an intermediary in the market, we package carbon credits from projects like that into diversified portfolios. So, we call our portfolios RCT, a Rubicon Carbon Tonne Portfolios. And so, when you buy an RCT, what you’re buying is the right to retire one credit from that or one ton from that portfolio at a time of your choosing. Those, the portfolios today, we have three sort of off-the-shelf versions. One is an industrial portfolio that contains the projects that I just described in the industrial category. We have another portfolio that is avoided deforestation, we call that nature-based emissions reductions; a variety of diversified projects from around the world that we have vetted internally and believe strongly are not sort of the lower quality, over-credited [00:27:00] projects. They passed the test of our internal in-house science team. And then the third category is, is removals category. And that is a blended removals, and because we wanted to keep the price point reasonable, it’s about 90 or 95 percent nature-based removals, so it’s mostly reforestation, basically tree planting projects, but there are some other removal tech in there, primarily sort of biomass, carbon storage projects.  

James Lawler: Got it. And can you give me a sense of the dollars per ton CO₂ for, for these various products?  

Dr. Jennifer Jenkins: Yeah. Of those three, I would say the industrials are probably the least expensive, but also very high quality, right? And then a little bit more expensive is going to be the avoided deforestation projects. And then the removals are going to definitely come at a higher price point; they’re in more demand in the market.  

James Lawler: Dr. Jenkins, really appreciate you coming on today. Thank you for your time.  

Dr. Jennifer Jenkins: Yeah. Thanks a lot. It’s been a pleasure. Appreciate the opportunity.  

James Lawler: Yeah. 

That is it for this episode of Climate Now. Thanks for tuning in. If you’d like to learn more about today’s conversation, you can visit our [00:28:00] website, climatenow.com, where we always upload transcripts of our episodes with links out to sources. For additional perspectives, you can check out our three-part series on voluntary carbon markets that aired in January 2024. If you have any questions about this episode, or if you know someone who you think would be a great guest, feel free to email us at contact@climatenow.com. Thanks for joining. Hope you can join us for our next conversation.