On October 23, 2024, the Asia Climate Summit in New Delhi brought together global climate leaders for pivotal discussions on the role of independent crediting programs within compliance schemes. Organized by the International Emissions Trading Association (IETA) in partnership with FICCI and the International Carbon Action Partnership (ICAP), the summit featured high-caliber voices, including Kishor Rajhansa, COO of the Global Carbon Council (GCC), who shed light on the complexities and evolving significance of carbon markets.
Session Highlights: “From Voluntary to Mandatory: The Use of Independent Crediting Programs in Compliance Schemes”
Moderated by IETA’s Björn Fondén, the session provided a platform for experts to analyze the gradual convergence between voluntary and compliance carbon markets. Joining Rajhansa were esteemed speakers like Kavya Bajaj (Gold Standard), Nandini Bajaj (Qantas), Rajani Ranjan Rashmi (ICAO TAB), and Elisa de Wit (Norton Rose Fulbright), each offering perspectives from their respective sectors.
Kishor Rajhansa noted that the traditional boundaries between voluntary and compliance markets are increasingly fading as independent crediting programs begin playing essential roles within compliance frameworks. He observed, “This blurred line is beneficial, it signals a maturation of both markets, underscoring that stakeholders now approach these systems with a unified understanding. However, a key distinction remains: voluntary credits address host country NDCs, while compliance credits are aligned with international mitigation commitments like NDCs, CORSIA, or OIMP (Other International Mitigation Purposes). Depending on the purpose for which the carbon credit is sold within the compliance market, it either helps meet the NDC targets of acquiring countries or fulfills the carbon neutrality commitments of private sector actors, including international airlines.”
Rajhansa emphasized the rigorous standards in compliance schemes that, while not solely focused on the origin or vintage of carbon credits, demand strict adherence to established guidelines. “Governments prioritize compliance and reliability, allowing CORSIA-approved or Article 6.2 programs to issue credits that meet critical quality standards. This structure ensures a dependable supply of credits to meet international targets without compromising on quality.”
The Role of Marginal Abatement Costs (MAC) and GCC’s National Registry Solutions
Rajhansa delved into the economic underpinnings of carbon markets, highlighting the importance of marginal abatement costs (MAC). He explained, “MAC is vital for both host and acquiring countries, determining the minimum viable price for carbon credits and directing funds towards additional climate action committed to cover corresponding adjustments.” This, he added, ensures host nations have the resources necessary to honor their climate commitments while allowing project owners to see meaningful returns.
In alignment with this vision, GCC is actively working on National Registry Solutions, creating interoperable platforms to streamline participation in compliance markets. “By building robust software solutions, GCC is simplifying the process for countries to adopt carbon markets, ensuring they have the tools to manage carbon credit issuance effectively,” he noted. This innovation aims to reduce barriers, fostering a more accessible market for nations looking to implement or expand their carbon trading frameworks.
Integrity and Value in the Evolving Market Landscape
Kishor Rajhansa highlighted the growing corporate demand for correspondingly adjusted credits, noting, “There’s a significant willingness among corporates to invest in these higher-quality credits, and they are ready to pay a premium for them.” This trend reflects a broader recognition of the value of integrity in carbon markets.
He also emphasized the impact of meta standards, stating, “Frameworks like the ICVCM and VCMI are establishing essential rules for integrity in the use of carbon credits within voluntary markets. This development alleviates concerns about demand, allowing us to focus on the issuance of high-integrity carbon credits based on clearly defined rules.”
Additionally, he introduced the Carbon Credit Project (CCP) label, which signifies that credits meet stringent quality criteria. “The CCP label ensures that credits adhere to established integrity standards, empowering the market to determine their value based on supply and demand dynamics.” Rajhansa concluded that this clarity arising from the blurred lines between voluntary and compliance carbon markets has taught valuable lessons, contributing to the maturation of these markets.
Audience Question: Understanding the Role of Marginal Abatement Cost (MAC)
One question from the audience addressed the role of the marginal abatement cost (MAC) in establishing carbon credit pricing. Kishor explained that in the long term MAC is instrumental for both host and acquiring countries in determining minimum credit prices. This pricing ensures that funds are directed toward supporting host countries’ climate actions aligned with their NDCs. The MAC framework allows host countries to finance additional climate action, while project developers can realize profits above this threshold. Although MACs determined by entities like McKinsey and the World Bank exist, Kishor noted that more efforts are needed to develop robust MAC frameworks across nations and continents to enhance sustainable climate financing.
Conclusion
The Asia Climate Summit 2024 underscored the transition underway in carbon markets, with GCC’s participation reflecting a commitment to harmonizing international standards and simplifying carbon credit mechanisms. As stakeholders navigate this evolving landscape, initiatives like GCC’s National Registry Solutions and the CCP label are poised to play crucial roles in supporting global climate goals with transparency and efficiency. Furthermore, the session highlighted the importance of stakeholder engagement and the implications of blurred lines on market stability, reinforcing the need for collaboration in achieving a sustainable future. GCC’s highlighted message is that countries may engage with established international crediting programs like GCC to operationalize Article 6.2 and focus on climate action and climate finance to meet their NDC targets, rather than reinventing the wheel altogether again.