Investigations by the Guardian and SourceMaterial brought damning and destabilising indictments of the carbon offset market; harnessing academic conclusions, the reports echoed that leading certifier Verra has approved carbon credits which either do not match the carbon claimed to be reduced or removed from the atmosphere, or which have no genuine carbon reduction.

The legal sector must face this challenge as both advisors to offset projects and corporate carbon-credit purchasers, and as credit consumers themselves. In client work and internal strategies, law firms lean heavily on the carbon credits issued from climate mitigation projects to make significant claims of ‘carbon neutrality’, declared where credit purchases help finance a mitigation project which can offset carbon corresponding to the buyers’ operational emissions. Similarly, providing advice for carbon reduction and removal projects on the issuance of credits is an increasingly fertile area of client work for firms.

Accordingly, the legal sector has an inherent interest in rebuilding trust – waning amid popular scrutiny of the veracity of carbon credits – following its advocacy of carbon credits, both to reassure the validity of the corporate carbon-neutral strategies on which it advises and to ensure that nature-based climate solutions actually pursue an environmental good.

Carbon credits and the VCM

At its fundamental level, a carbon credit is marketed as an option for a purchaser to effectively offset 1 ton of CO2 that it emits, in that the purchase of a credit purportedly finances the management of an environmental or technological solution that correspondingly reduces or removes the equivalent CO2 from the atmosphere.

Private actors purchase carbon offsets from climate mitigation projects on the Voluntary Carbon Market (VCM). As a non-regulated decision for voluntary actors, the credits do not count toward complying with legally binding emissions compliance objectives.

We are at a juncture where criticisms of carbon credits cannot be ignored; the VCM cannot be left to continue issuing spurious credits which do not correspond to the carbon which projects actually mitigate, since such would only mask and perpetuate our current, unsustainable global emissions levels.

However, neither should commentators simply condemn – and encourage the abandonment of – the offset market, since there are fundamental risks which would emerge amid the VCM’s failure. When considering emissions removal projects, where carbon financing incentivises the protection of natural carbon sinks and supports communities to develop in harmony with their local environment, the withdrawal of said financing may leave the area vulnerable to resurgent deforestation or natural destruction, particularly in emerging markets with insufficient protections for sustainable land use.

At this point, the emissions supposedly ‘offset’ would be returned to the atmosphere and the VCM would have served only as an exercise to perpetuate greenhouse gas emissions among credit purchasers. With the development of climate litigation concerning false sustainability claims, the VCM must guard against the risk of greenwashing inherent in this scenario and strengthen its standards and verification processes.

Despite – yet also because of – my scepticism toward the current transparency and quality of the VCM, the potential pathway that appears most feasible and most productive to me in fact requires greater, albeit more scrutinised, participation. If the UN’s target of a 45% carbon reduction by 2030 is to be met – and acknowledging that carbon credits are an engrained method of driving corporations to financially contribute to decarbonisation – the carbon market must credibly ensure that corporate finance maximises its environmental impact.

Internally, law firms are already making important steps to acknowledge that, where their carbon emissions are to be offset, credits should be verified and be sourced from projects which provide quantifiable evidence that carbon finance is making a material impact. Linklaters, for instance, from 2019-2022 purchased carbon credits from the Gola Rainforest Protection Project, taking value from the project’s REDD+ verification, the scrutiny the project received from the RSPB, and the fact that the co-benefits – here the capacity-building of local farmers – provide a local economic variable that could be monitored.

However, the legal sector has a key role not just as a purchaser of carbon credits, but also as counsel within ESG strategies, as representation of reduction and removal projects, and as advisors on the development and implementation of informal regulatory frameworks. Within these arenas, the legal sector must fulfil important work that helps strengthen and scale-up the VCM, reassure carbon credit demand, and provide more stable funding to ensure that valuable projects remain operational.

Reforming the VCM

Seeking to create the conditions and confidence necessary to build scale within the VCM, the Integrity Council for the Voluntary Carbon Market has developed its Core Carbon Principles (CCPs), which, I would argue, must underpin the legal sector’s activity regarding the VCM. My support for the CCPs comes from the fact that I perceive them to be the most feasible near-term method of reforming the VCM to help it pursue good outcomes within corporate-side decarbonisation and community-side environmental protection.

The CCPs released in late March 2023 provided guidance on how – at the level of carbon-crediting programmes like Verra’s Verified Carbon Standard, which issue the credits corresponding to the carbon offset by a mitigation project – the VCM can align itself to a threshold of quality and integrity, and accordingly build the trust in the market necessary to grow at scale. Here, I focus on four key aspects: how the principles help create uniform standards, reassure the veracity of the link between finance and carbon mitigation, provide focus on the types of projects suitable for carbon finance, and offer a potential avenue for interaction with international climate frameworks.

Seeking to build stakeholder understanding of project strategies, credit origins and quantification, environmental and social impacts, and the veracity of the mitigation activity, prior best practices have been consolidated into principles on effective governance, credit tracking, transparency, and robust third-party validation and verification. These principles help create coherent, uniform standards that help provide lawyers a sense of predictability in legal work – whether as purchasers of carbon credits, advisors on corporate ESG strategies, or as counsel for offset projects themselves – and aid in building certainty on the environmental and emissions impact of carbon-mitigation projects.

Potentially focusing the types of mitigation activities lawyers will advise on in relation to obtaining carbon finance, the Robust Quantification principle requires emission reductions and removals to be verified ex-post, following the mitigation activity. By preventing the ex-ante issuance of carbon credits by projects, quantified before the emission reduction or removal, the CCPs may consequentially adapt the profile of clients seeking carbon finance; with emerging technologies which require an injection of finance before reducing or removing carbon seemingly ineligible for CCP-labelled carbon finance, lawyers may increasingly be providing advice to those existing projects whose issued credits reflect an already-realised mitigation impact. While limiting the scope of carbon finance, such will help assuage accountability concerns that certain projects overestimate their environmental impact in order to issue more carbon credits and secure extra finance.

Importantly, the principle of Sustainable Development Benefits and Safeguards – stressing that carbon-offset programmes must meet best practices on social and environmental safeguards while delivering positive sustainable development impacts – may present a significant opportunity for legal interpretation. That the principle stresses adherence to the UN Sustainable Development Goals suggests that carbon finance is refocusing to become a tool wherein corporates and individuals support predominantly nature-based carbon reduction and removal strategies to boost the resilience of communities disproportionately vulnerable to climate change. Accordingly, the impact will perhaps be that the focus of legal work shifts further toward community-level, nature-based carbon-mitigation solutions, wherein lawyers active on advising projects may be forced to expand their understanding of environmental and social risk, sustainable management, and human and community rights.

Pertinently, the CCPs include an additional attribute of “Host country authorisation pursuant to Article 6 of the Paris Agreement”. The attribute therefore established a relationship whereby a carbon credit authorised by the host country for trading toward the attainment of another country’s Nationally Determined Contributions (NDCs) can instead be traded on the VCM as a high-quality, internationally recognised credit for corporate purchasers. With the interaction between the VCM and Article 6 currently untested, the legal sector will face vital work in reassuring a complementary role for the VCM that does not impinge upon compliance markets and host countries’ NDCs, utilising the standardisation the CCPs provide to interact efficiently amid the international cooperation, rulemaking, and scrutiny established within Article 6.

Article 6

Article 6 established a mechanism whereby host states can authorise emissions reductions and removals to be transferred by the host country to another party as an ‘internationally transferred mitigation outcome’, contributing toward the recipient’s Nationally Determined Contribution (NDC).

Reconceptualising the VCM

Earlier, I posed that the VCM requires greater participation to build the integrity and confidence necessary to provide a dramatic increase in the scale of carbon finance. My argument here follows three assumptions: the current price of carbon offsets (currently averaging below $5 per credit) incentivises corporates to purchase cheap credits toward making ‘carbon neutral’ claims, rather than committing more strongly to wholesale decarbonisation; a lack of sufficient checks on mitigation projects creates an uneven glut of low- or no-impact mitigation projects; and these factors combined prevent funding from being filtered toward projects with the greatest climate impact.

Accordingly, I would argue the VCM requires an increase in participation that, at a basic level, drives up the price of credits, consequentially pushing down the relative cost of decarbonisation initiatives while focusing carbon finance toward high-impact projects.

Yet no change in participation is forthcoming while the VCM faces legitimate doubts on the quality and credibility of its credits, both regarding their transparency and their emissions impact. Should such doubts be assuaged, market demand could consequently increase, boosting credit prices and thereby augmenting the finance available for climate action.

With law firms finding it increasingly important – for client outreach, staff engagement, and their sustainability strategies – to make a positive contribution to the green transition, especially boutique firms who may lack the capacity to commit extensive hours and finance to climate action beyond their client work would benefit, should stronger best practices provide confidence that carbon finance can help support authentic emissions reduction and removal projects. Accordingly, such may help manage the concerns of Norwegian boutique firm Glittertind, which commented that, presently, the lack of sufficient information on the mitigation impact and social consequences of offset projects creates uncertainties surrounding the purchase of carbon credits.

The first release of the CCPs is an important development in the VCM which will help consolidate existing disparate standards and provide a necessary sense of uniformity, helping clarify legal work while providing simplifying processes for buyers. Additionally, the CCPs go some way to focus carbon finance on accountable, transparent projects which help local communities protect their native environments while delivering on global carbon mitigation; here, should the upcoming release of the category-level CCPs provide further confidence on the quality and character of high-quality carbon credits, there could emerge an exciting future role for the VCM as a supplementary tool within global decarbonisation.

By familiarising itself with these emerging standards and contributing to the dialogue on their development, imbuing the CCPs into internal strategies when purchasing carbon credits within law firms, and remaining cognisant of the best-available guidance during client work for projects and corporate clients, the legal sector must play a vital role in facilitating the development of a high-integrity VCM.