From Forest Carbon's Junior Project Manager, Daniela Smith
I recently joined Forest Carbon after completing a four-year law degree at Edinburgh University. I was introduced to the concept of carbon markets during the environmental law course I took in my final year, but this was mainly focused on compliance markets. My first four months with Forest Carbon have given me insight into the other side of the coin: the voluntary carbon market (VCM).
If, like me, you are relatively new to the concept of the VCM, this blog will provide you with some more insights into terminology, timescales, and conservative counting!
What is the Voluntary Carbon Market?
Voluntary and compliance carbon markets provide a mechanism for regulating and trading CO2 emissions, where one carbon credit represents one tonne of carbon dioxide equivalent (CO2e).
Businesses operating within certain emissions-intensive industries are regulated by compliance markets, such as the UK & EU Emission Trading Schemes (ETS). On the other hand, the voluntary carbon market provides a purely voluntary platform for organisations to purchase carbon credits. These could be organisations that aren't regulated by the compliance market or organisations with a voluntary programme in addition to meeting compulsory targets.
Importantly, credits purchased from the VCM cannot be used to meet compliance targets. The VCM facilitates financial support for nature-based solutions by trading a project’s associated carbon reduction or removal. Through this trade a buyer can use the purchased credits to make a claim within its sustainability strategy, whilst supporting project owners to overcome the associated cost of land-use change for afforestation and peatland restoration projects.
How is the UK VCM regulated? How does it work?
The UK VCM is regulated by the Woodland Carbon Code (WCC) and the Peatland Code. Other standards are emerging for different nature-based solutions. Over the past four months, I have mainly been focused on the WCC.
There are two types of credits available on the WCC. Woodland Carbon Units (WCUs) and Pending Issuance Units (PIUs). WCUs represent carbon that has been removed from the atmosphere - and verified! PIUs represent a promise that carbon will be sequestered in the future. As the UK VCM is still young, the market mainly consists of PIUs at the moment.
3 VCM facts that might surprise you
My journey into the voluntary carbon market (VCM) with Forest Carbon has been eye-opening. In my first four months, I've come across facts about the VCM that genuinely surprised and intrigued me. The following list highlights these standout facts, revealing aspects of the VCM that might not be immediately obvious. From cautious counting methods to project timescales and quirky terminology, these insights showcase the unexpected side of the VCM, providing a glimpse into some of its intricacies.
Surprising fact #1: Conservative counting
WCC documentation contains certain assumptions. These assumptions don’t always capture a project's impact in its entirety from the beginning. In this way, the code counts successes conservatively, choosing to err on the side of caution.
For example, in projects where natural regeneration is part of the design, credits issued at project validation are conservative. Natural regeneration planting is dependent on the surrounding seed source and the conditions of the project. This means that natural regeneration areas of planting are assigned low densities when inputted into the WCC carbon calculator. This presumption for significantly lower density of natural regeneration means conservative credit estimates are assigned to natural regeneration planting at the outset.
I was lucky enough to go and see one of our projects which has natural regeneration as part of the project design. Off the spreadsheets, the natural regeneration planting has been well established. The density is significantly higher than the initial project documentation would indicate. Due to some of these inherent presumptions, if a project owner wishes to forward sell the project’s predicted credits (PIUs), there can be fewer available to sell at project validation because of the conservative approach.
There are mechanisms in place where the reality of planting density, and by association the reality of carbon sequestration, will be reflected. This will be determined at verification stages when more credits can be assigned to the project to reflect the increase in sequestration compared to initial projections. From a project owner’s perspective, the full financial potential of their project may only be evident in subsequent project verifications, potentially 5, 15, 25, 35… years down the line.
Notably, the WCC may not be the ideal choice for every project due to associated validation and verification costs, which can be challenging for smaller projects. I, as well as the rest of Forest Carbon, believe in the accessibility of the VCM for all projects, but smaller ones might face hurdles with fewer assigned PIUs. If credit prices rise or WCC costs decrease, it could broaden the VCM's accessibility to a wider range of projects.
Surprising Fact #2: Project Timescales
Before I launch into this one, I think it’d be helpful to do a quick recap of what all of the acronyms stand for, as there are many.
CO2e: Carbon dioxide equivalent. A unit of measurement that standardises the climate effects of different greenhouse gases.
WCC: Woodland Carbon Code. The quality assurance standard for woodland creation projects in the UK.
PCC: Peatland Code. Same as above, but for peatlands
WCU: Woodland Carbon Unit. 1 tonne of CO2e removed from the atmosphere by a WCC-certified project.
PCU: A Peatland Carbon Unit. Same as above but for peat under the PCC.
PIU: Pending Issuance Units. A ‘promise to deliver’ a WCU or PCU in the future.
Now we’re all on the same page, here’s the next fact. It makes sense, but was something I initially overlooked: trees take a while to grow, and it is over the tree’s lifetime that carbon is being sequestered. So you can't plant a tree now and make an immediate claim of carbon being removed - as it has not occurred yet!
This is where the distinction between pending credits and the realised carbon credits (WCUs or PCUs) becomes evident. PIUs are proportionally converted into WCUs throughout the project’s lifetime, in line with verification events. These verification events consist of on-the-ground surveys to check the project conditions such as tree health and planting density. The realised credits issued on verification represent the actual volume of emissions the project has sequestered to date. The relevant portion of PIUs will then be converted to claimable realised credits in the form of WCUs or PCUs. The VCM’s PIUs do not allow for hard claims to be made until the emissions reductions have been converted to realised credits.
The length of Woodland Carbon Code projects can range from a minimum of 30 years to a maximum of 100 years, and the full impact of carbon sequestration from the trees will only be realised gradually over these decades.
This long-term perspective can be a bit difficult to grasp, especially for businesses looking for more immediate results. The carbon credits generated by these projects will only be fully realised in the future. However, this two-credit mechanism is crucial for such nature-based projects, facilitated by the VCM, as it supports land managers to access early finance to implement immediate land-use change in instances whereby they are unable to take long-term capital risk themselves.
For buyers, although the benefits of carbon sequestration may take up to 100 years to fully materialise, the commitment to and investment in these projects is necessary for them to be able to unlock claimable credits through the VCM in the future.
Surprising Fact #3: Terminology
Another funny surprise of the VCM is some of the terminology used. For example:
"Vintage" - refers to the period, typically year(s), that the emission reduction/removal has occurred or is expected to occur following monitoring, reporting and verification (MRV) procedures.
"Retirement" - refers to the fulfilment process whereby a verified credit or PIU is assigned within a registry, typically on behalf of the end user. By doing so, it is taken out of circulation and cannot be reused (double counted).
While it may seem unusual to attribute such language to trees, peat, and carbon, I think it paints a nice picture of these natural elements getting to rest after completing their environmental service within a project's lifespan.
I have only touched on a few aspects of the VCM in this blog. There are many more interesting facts about the VCM and about nature-based solutions in general! I’d encourage anyone interested in finding out more to have a read through more of the ‘blogs’ and ‘knowledge base’ on our website. Please also get in touch if you want to discuss this further or enquire about our work with the UK VCM.