Our latest product, the VCM-Compliance Credit Tracker allows users to identify voluntary carbon market credits that also qualify for compliance carbon market schemes. Why is this important? Firstly, it allows market stakeholders to identify all projects that we believe are eligible for different schemes, both today and in the future. Secondly, it brings more transparency on compliance scheme eligibility requirements.
To provide some more context to how we’ve set this up and how this works, we’ve outlined some commonly asked questions below:
Q: How does the VCM-Compliance Credit Tracker function? What does it do?
The VCM Compliance Credit Tracker is the largest dataset for voluntary carbon credits eligible for use within compliance schemes worldwide. By tracking policy and regulatory updates of more than 12 compliance schemes, as well as the rules around the use of VCM credits to meet emissions reduction obligations, we have assigned labels to credits eligible for one or multiple schemes. Users can filter by jurisdiction (scheme), project location, price, registry and sector among other project-level fields.
The Compliance Tracker fits within our larger research of labelling credits and their use for multiple mitigation purposes. This includes assigning labels to VCM credits authorised for use under CORSIA phase I, and Article 6 of the Paris Agreement.
We have developed the dataset for many applications including price discovery and sector-wide reporting. Some queries of the dataset may include:
- Show a list of credits issued between the years of 2018 and 2020, from projects located in Colombia, under the price of $5.
- Show a list of all eligible credits which can be cancelled against Singapore’s carbon tax, based in Papua New Guinea under the price of $6.
- Show a list of all the projects with credits eligible for California ARB Compliance Offset Program, their prices, as well as the brokerages I can purchase the credits from.
- How many pre-2020 vintage credits from CDM projects worldwide are eligible for compliance schemes?
Q: What are the main differences between the voluntary carbon market (VCM) and regulated compliance markets?
The VCM (singular) and regulated compliance markets (of which there are many) stand apart in their scale, scope and how they operate. The VCM allows for the voluntary generation, and purchase of credits to offset carbon emissions. Projects are verified by independent standards (VCS, GSR, ACR, Cercarbono, ColCx etc.), and are recognised internationally (1 credit generated in country X = 1 credit generated in country Y). Once generated, VCM credits do not expire, are traded over the counter (OTC) and their prices are influenced by many factors (project type, location, co-benefits, quality) and typically range from under $1 to over $50 per tCO2e, at an average $3-$4 per ton for the majority of projects.
Regulated compliance markets are much larger (reaching more than $850 billion in valuation in 2021 according to Bloomberg), and can be local (regional, national and subnational) under which governments establish a limit on how much of an economy or region is allowed to pollute, with obligated companies which pollute more purchase allowances/permits from those who pollute less. These schemes vary in design (emissions trading system, cap-and-trade, carbon tax) and the way they operate (emissions cap, or intensity/bench-mark based), and credit units (not considered equal between schemes) are traded on exchanges. Prices are generally higher (eg. $20-$60 in the EU ETS), influenced by regulatory caps, supply and demand dynamics, and the cost of alternative emission reduction technologies.
Q: Why would regulated markets allow for the use of VCM credits as offsets?
VCM credits offer a few benefits to compliance schemes and vice-versa. Some of the many benefits of the use of offsets as a compliance option include:
- Reduced compliance costs
VCM credits allow economic flexibility, allowing for the most effective way of complying with regulatory obligations. This provides additional, potentially lower-cost abatement options for companies.
- Sectoral and geographical flexibility
Expanding the scope of emissions reductions beyond the carbon pricing jurisdiction. For example, China’s ETS is limited to electricity production and is adding cement and aluminium later this year. The use of offsets outside the scope can drive the flow of climate finance in the emerging economies and encourage broader climate action in other high-emitting sectors (e.g. aviation, shipping).
- Environmental and social co-benefits
High integrity VCM credits deliver co-benefits including biodiversity conservation, community development, improved health outcomes, and other positive factors.
- Enhanced price stability and predictability
By including VCM credits, regulated markets can enhance the liquidity and diversity of the pool of available credits to help stabilise prices, make compliance costs more predictable and assist long-term planning and investment.
- Strong market signals
Allowing VCM credits verified under robust standards can signal that credits are valuable and reliable. This can help bridge the trust gap currently in the market, as well as encourage a sectoral shift in investments from high-emitting technologies towards cleaner alternatives.
- A step towards a global carbon price
Allowing high-integrity credits can be a step towards linking different carbon markets, taking a step towards both internalising the cost of carbon as well as setting a price closer to the estimated ‘social cost’ of carbon ($230 per metric ton by 2030, according to EPA).
Q: How were compliance-eligible VCM credits identified?
We have identified credits based on publicly available qualitative requirements which governments have set on their domestic and international offsets and credits. Requirements around which credits can be used for compliance include approved lists of domestic and international standards (GSR, Verra, CDM), credit vintages (e.g. post-2021 credits), activities (sectors or methodologies) and host country locations (e.g. Papua New Guinea). Having tracked policy updates and guidance on over 29 countries to develop our AO Policy Scores, we have been able to track the flow of these credits and their prices over time. Knowing the number of credits can help us draw insights into supply and demand dynamics, market price dynamics, sentiment analysis, forecasted issuances and more.
We have done the research to create a tool that is immediately useful to clients, saving them time and resources.
Q: How many compliance schemes does the dataset cover?
The dataset covers 12 compliance schemes at the moment, in the following locations:
However, as more guidance comes online (eg. Brazil’s imminent launch of its ETS, or China’s CCER program specifies project types and methodologies), we will update our search parameters to identify all the projects we believe will be eligible for the scheme - both currently, and in the future.
Q: How often will the dataset be updated?
We will make updates to the filter parameters if and when policy guidance on compliance schemes becomes publicly available. For example: China’s CCER program is in the final stages of its relaunch. Although project developers may register to be eligible for the program, the Ministry of Ecology and Environment is yet to finalise guidance on methodologies and project types, as well as vintages of credits which will be accepted under CCER. It is also currently unclear if the program will accept projects located outside of the country. Once this guidance is published, we will notify our clients and partners through our AlliedOffets newsletter and will amend the filters to return projects aligned to the new eligibility requirements. All project and credit information within the Compliance Tracker is updated every 3 days alongside the rest of the AlliedOffsets Premium Dashboard database.
Q: How much will access to the dataset cost?
In building a dataset that is immediately useful for market participants, we will be creating a publicly available version of the dataset on the AlliedOffsets website, as well as through the Explorer and API trial. This version of the tool will not feature pricing level information as well as marketplace/broker information.
Subscribers to the AlliedOffsets database will be able to access the complete VCM-Compliance Credit Tracker dataset through Tableau Dashboard, Explorer and API.
- Premium product: Eligible projects for one or more schemes, credits, prices, brokers/marketplaces and labels for multiple international mitigation programs (Article 6, CORSIA, CCP etc.)
- Standard product: Eligible projects for one or more schemes, as well as credits, prices and marketplaces/brokers
- Public product: Eligible projects and credits for one or more jurisdictions.
Summary: What does the VCM-Compliance Credit Tracker tool offer?
- The world’s largest dataset of VCM credits eligible for use in regulated compliance carbon markets around the world
- An immediately useful dataset to identify which credits are eligible for one or more compliance schemes, including project-level information: country location, project name, registry, sector etc.
- Transparency on compliance scheme eligibility requirements (including approved programs, credit vintages, project sectors and methodologies, as well as country locations).
- A freemium version of the dataset available on the website, with a more comprehensive dataset (including prices and brokers) available to AlliedOffsets clients in Tableau Dashboard, Explorer and API versions.
