This is a slow burning fuse, but indications are it is approaching ignition. Emitters and other publishers of VCM standards have largely ignored legal constraints on misleading representations. However, upcoming legal cases will put the spotlight on express or implied claims that off-setting, in-setting, carbon avoidance projects (like cook stoves) and short-term reversal carbon removals (like forests that can be cut down before 2100) cannot be proved to help the planet.

If off-setting (and in-setting), already much criticised, cannot be proven to help the planet, and must be, what will happen is defensible GHG statements, whether made to the public, to market participants or for financial reporting, will detail the benefits to the planet a financial intervention is responsible for. For example, “we have and will capture and store until 2100 x tonnes of CO2 to remediate for past and future GHG we are still trying to reduce”.

In most OECD countries large emitters now have no choice but to address climate change risks and how they will mitigate them. Regulators are requiring the same standards as financial market participant behaviour regulations preventing misleading representations (see 1 above). In addition, emitters must increasingly navigate their way through jurisdiction specific regulations such as the Carbon Border Adjustment Mechanism and Green Claims Directive in the EU. A broader example are the requirements of the International Sustainability Standards Board. Indirectly emitters must also be conscious the impact their behaviour has on FTAs which increasingly include climate related default clauses.

COP 29 agreed the Supervisory Body of the UNFCCC could develop mechanisms for Paris Agreement Art 6 international crediting of carbon from a country’s NDC (corresponding adjustments). While not requiring VCM transfers to comply, a premium for VCM transactions of 80% is already reported, and it is likely only a matter of time before emitters will require any VCM transfer to comply with Art 6. Art 6.2 deals with actual transfers and Art 6.4 with the methodologies that can be adopted to recognise the credits that are available to transfer. Despite some standards hoping to comply with A6.2 rules (only) it is likely A6.2 and A 6.4 will become jointly prescriptive. This matters because very few published standards can comply with SBM014-A06 which regulates how carbon reversals are dealt with.

As well as regulatory pressure, which are often driven by the need for public and competition fairness, emitters may also face private pressure from their supply chain partners and their bankers, insurers and other stakeholders (such as activist shareholders) to ensure they can prove they are helping the planet.

Over-crediting (claiming greater benefits that are delivered) is endemic in the VCM. Recent credible investigations and reports indicate that on average projects only deliver 16% of the benefits they claim (2024 Max Plank Institute) and in 2022 over 90% of projects verified by Verra, the world’s largest verifier, had no discernible benefit to the planet at all. In addition, there have been recent high-profile frauds where benefits were promised but never delivered.

Buyers have become wary of buying over the counter carbon credits and are increasingly looking for high quality off-take agreements, with project developers having to satisfy strict criteria to proof integrity. However, the market is presently dominated by a handful of emitters and most emitters are waiting for quality to merge. There are present over 300 VCM published methodologies, and only one agreed by all countries, and that was UNFCCC at COP 29 (November 2024). UNFCCC adopts the principles of ISO 14064 (which PFS is validated to by SGS), so there are in fact two agreed sets of principles for the VCM. Ability to demonstrate compliance with UNFCCC Supervisory Body methodologies or validation to ISO 14064 may be what will bring emitters back to the VCM.