Resources

• Voluntary Carbon Markets Integrity Initiative (VCMI)
• VCMI Claims Code of Practice
• Integrity Council for the Voluntary Carbon Market (ICVCM)
• Science Based Targets Initiative (SBTi)
• Carbon Integrity Platinum Claims by Bain & Company and Natura Cosmetics
• "Dutch airline KLM misled customers with vague green claims, court rules" (The Guardian, 2024)
• "Six big US banks quit net zero alliance before Trump inauguration" (The Guardian, 2024)
• Singapore regulations allows companies to use carbon credits to offset 5% of their carbon taxable emissions (National Climate Change Secretariat Singapore)
• "News Corporation Is Carbon-Neutral, Murdoch Declares" (NY Times, 2011)

Host and Guest

Climate Rising Host: Professor Mike Toffel, Faculty Chair, Business & Environment Initiative (LinkedIn)

Guest: Mark Kenber, Executive Director, Voluntary Carbon Markets Integrity Initiative (LinkedIn)

Transcript

Editor's Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Mike Toffel:

Mark, thank you so much for joining us here on Climate Rising.

Mark Kenber:

Well thanks Mike for inviting me, I'm looking forward to our conversation.

Mike Toffel:

Why don't we begin with a brief overview of your background in the carbon markets and how that led you to the VCMI, the Voluntary Carbon Market Integrity Initiative.

Mark Kenber:

Yeah, happy to. So, I'm Mark Kenber and I'm British and I've worked on climate change for about 30 years and environmental issues for about 35. I started doing this when I lived in Ecuador. And so, I come at it very much from a sustainable development perspective rather than a pure conservation perspective. And you when I, when I talked to people about conservation in Ecuador, they said, yeah, that's all very well for middle-class people in the north, but we've got a survival issue here. And so, I've always taken kind of my focus on climate change has been because it is an inhibitor or a barrier to good quality livelihoods for people and obviously sustainable development.

So, I worked in Ecuador, set up the climate change office in the Ecuadorian government. And then when Kyoto Protocol was agreed in 1997, there were new mechanisms which allowed trading of carbon. And these were largely based on the US experience, which many of you will know, the Clean Air Act, which allowed emissions trading, socks and knot permits to be traded to meet air pollution and air quality goals.

So, I got involved in different kinds of market-based instruments, whether they be taxes, I worked on taxes for agricultural pollution and industrial pollution in Ecuador and across Latin America, then got brought into climate change after the Kyoto Protocol. And like many of us who work on climate change, once you're in, there's no turning back. You become hooked on climate change. It is such a compelling issue. It's a shame that it's also a potentially catastrophic issue because it's, if you're interested in politics or economics or behavior or any aspect of life, climate change is there.

And I've always believed that Capitalism is probably one of the, if not the driving, one of the drivers of climate change. The expectation given how successful capitalism is and has been in many other regards to assume that someone else is going to have created the revolution that's going to change all of that.

Probably not very sensible and wishful thinking. And therefore, what can I do? How can we use the tools of markets and capitalism to point us in a direction that is consistent with a safe climate? And that has been the basis for all the work I've done on carbon markets. I was involved in negotiations around the European emissions trading scheme over 20 years ago. I co-founded two of the biggest standards in carbon markets, for carbon crediting markets.

And every time I move away to something else, for example, I worked on community energy development in the UK for a couple of years. I've worked on transition risks in tropical agriculture, something always pulls me back to carbon markets and that's why I'm here as the Executive Director of the Voluntary Carbon Markets Integrity Initiative but also on the board of the Integrity Council for the Voluntary Carbon Markets.

The World Bank often said in the 1980s and 90s, we need to get the price right and the right prices mean different things to different people but my belief is if we can harness the power of market-based instruments of taxes of fiscal measures that drive us towards actions that are good for the climate but also good for us and if we ask people to make sacrifices time and time again they're going to get tired pretty quickly. So, we need to find ways and think market-based tools allow that to have climate, what we could call climate prosperity.

Mike Toffel:

So, let's go back to the founding of the VCMI. What year was it founded?

Mark Kenber:

In 2021.

Mike Toffel:

And can you describe the problems that motivated its foundation? So, like what did the world look like in the voluntary carbon markets in 2020 or 2019, wherever the kernel of this idea was born?

Mark Kenber:

So voluntary carbon markets or voluntary use of carbon credits by companies have happened for more than 20 years. I mean, it may surprise some of those listening that one of the pioneers of declaring carbon neutrality was News Corporation. And that's the same News Corporation as one by Rupert Murdoch. Rupert Murdoch stood up at the annual conference of News Corp and said, climate change is an existential of our time and News Corp will be carbon neutral.

Now, what that meant then is very different from what will be acceptable now. They bought a bunch of offsets, calculated the footprint of their headquarters and some of their studios and bought offsets to cover them. And that at the time was considered good practice. What we saw in around 2019 and 2020 was suddenly this market of companies buying carbon credits or perhaps selling carbon credits to their customers.

Many of the people listening would have been on an airline website and you had to tick a box, would you like to offset, or would you like the company to plant some trees to compensate your emissions? There was a kind of occasional boom and occasional bust, but then around 2019, 2020, suddenly it looked like taking off. The market tripled in scale of a year.

And I think then there were concerns by consumers, by governments, but also by corporates themselves that why would we do this well if the people who do it badly get the same amount of credit and same amount of claim as we do. That was one concern.

The second concern was they were seeing that companies were being questioned by NGOs and in some cases being taken to court for misleading claims for what we commonly call greenwashing, but misleading or fraudulent claims. So, you know, there were shipments of carbon neutral LNG gas. And yes, it was offset by planting some trees somewhere, but it was still being sold by a company whose main job was to pollute the planet or was making profit out of selling fossil fuels.

And so there were lots of concerns from those who wanted to do it right, they were being undermined by those who were doing it badly. And then broader, that this carbon neutral offsetting thing could just be a road to obfuscation, to cheating, and undermine real action. So we were set up by a combination of a private foundation, the Children's Investment Fund Foundation, and a department of the UK government and they said to us, we believe proper guidance is needed for companies, because companies need it and because society needs to be able to know that if two companies say I am carbon neutral or I'm net zero, whatever it is, it means the same thing, and they're not cheating on the planet.

So, we were set up to do two things. One was to create guidance and possibly certifiable claims by companies they could use to say, we have compensated our emissions, but this is part of a broader journey where we are showing genuine climate leadership and it's not an indulgence, it's not a get-out-of-jail free card. This is above and beyond our action to decarbonize ourselves.

And then another part of our work is to work with countries that host projects so that they're not selling their family silver or their nature on the cheap and subsidizing those of us in wealthy countries by counting our emissions as coming down while in fact providing no benefits to those countries. So we work with countries like Kenya, like Ghana, like Peru and others to help them think how do we create these carbon credits in a way that is really beneficial to us, that drives our development, that provides real capital, that it's not just selling carbon credits at a couple of bucks that helps fill a bit of the budget gap this year, but how can it transform our society, how can it leverage other sources of capital.

So we were set up to those two things, creating what sounds a bit nebulous, is to create a high integrity carbon market, meaning a carbon market that really delivers for the planet. It's fine that it should reduce costs, but it should be really delivering for the planet. It's not primarily a cost cutting mechanism.

Mike Toffel:

And how many people work at your organization now?

Mark Kenber:

So, we're now 23 people spread all around the world. We're a very product of a post-COVID world where lots of remote working, has its challenges. Today I'm in the office and it was great to spend time with my colleagues. On the other hand, it's fantastic being able to have people based in Rio and Kenya, in Nairobi and Geneva and getting real international perspectives. So, we're 23 people. Our model is not to become a huge organization.

 We have lots of partnerships and a lot of our work is done through collaboration through organizations as big as the World Bank to small local organizations in Kenya. Whoever we can work with to help multiply our impact we'll work with and its people who are broadly like-minded, don't have to agree - there's not a party line - but believe that getting more finance from the private sector into climate mitigation and sustainable development can only be a good thing.

Mike Toffel:

Now, this is the guidance that you provide, which is under the rubric of claims code of practice that you've developed. As I understand it, there are two parts to that. There's the carbon integrity claims, and then there's the scope three claims. Can you walk us through these mechanisms?

Mark Kenber:

Yes, so I think if we take the starting point, what I was saying a few moments ago, the concerns that the broader public governments, NGOs had was that companies would use cheap, potentially poor-quality carbon credits, instead of investing in their own supply chains, their own businesses to reduce emissions.

So our starting point was that the use of carbon credits needs to complement or supplement internal decarbonization, not be a substitute for it. And therefore whether their claims or guidance, the first step of what we call foundational criteria, which are basically a set of criteria which define what is corporate good practice on climate change. And there are things, they're the sort of things that we would all expect that a company knows what its emissions are.

So it's got its footprint. That it's got a target to reduce those emissions over time in line with 2 degrees, 1.5 degrees, the Paris Agreement, but something that is consistent with what science says needs to be done, that they're actually allocating capital to that. It's all very well to stand up at Davos or wherever it happens to be and say, yeah, I commit to net zero and then forget about it on the plane home. So we want to see that people are taking it seriously, which means you're allocating capex and opex, that probably executive remuneration is linked in some way to your climate targets and that your policy advocacy, you're not making a big net zero hero statement on the one hand, and on the other hand, behind the scenes lobbying for no climate policy, subsidies for fossil fuels, etc.

So, whatever the claim or the guidance is, the first step is companies have to show that they are following good practice. They don't have to be world leaders, but they need to be doing what any sort of person who knows a bit about climate change would say, yeah, this is what a company should be doing.

That's the first step. Then companies need to decide. And you mentioned the carbon integrity claims. The carbon integrity claims are what in the climate world we call pure beyond value chain mitigation.

So, companies are expected to set targets for their emissions and emissions are broadly broken down into three scopes, as they're called. The first one is your operating emissions as an organization. Scope two is the energy, the emissions associated with the electricity you buy in. And third are the emissions from your suppliers, but also the use and disposal of your products. And good practice says that companies at a minimum should cover the first two, but really for best practice leading companies they should be covering all three scopes.

And for many companies 60, 70 % of their emissions are in their scope three, that's the suppliers or the use of their products, it's really important that companies do take that seriously. If you think of some of the world's largest companies, they influence hundreds of thousands of suppliers around the world. So, the carbon integrity claims require companies to show that they're either meeting their targets or that they are on track to meeting their targets.

And then they buy carbon credits, and we require them to meet a minimum standard. And I mentioned before the Integrity Council for the Voluntary Carbon Market. So that's our sister organization on the supply side of the market which sets standards for what good carbon credit needs to look like. So, we require companies to use those what are called core carbon principal label credits and then they can use those to offset or compensate between 10 or 50 % of their remaining emissions, they are carbon integrity silver, between 50 and 95 % carbon integrity gold, and above that carbon integrity platinum.

And there's a logo and they have to provide information which has to be, in some cases, just publicly disclosed and in other cases independently third party validated.

And maybe we'll come back to talk about these. You know, two companies, Bain and Co., the consulting firm, and Natura and Co., Latin America's biggest cosmetics firm, have made carbon integrity platinum claims. So, they've been through every step. But those, I mean, if we're completely honest about it, there are a limited number of companies at the moment that can do that. Because reducing your scope one, your scope two, and your scope three emissions in line with a net zero world in 25 years’ time is not easy.

And yes, we can argue, and I have argued many times, that if companies actually started when we started talking about climate change, that's to say 30 years ago, it would be a lot easier. But we have to start from where we are. Many, many companies have done nothing or have done very little. And getting those emissions down by 5%, 6% every single year is no easy task. And so there's a very limited group of companies that can go above and beyond. And that's why we've been working on the thing that you mentioned.

Mike Toffel:

So, as we talked about the silver, gold, platinum for carbon integrity claims, and you mentioned percentages, can you just spell out what that percentage was again?

Mark Kenber:

So let me give you an example. Let's say, Mike, your company had 100 emissions in 2020, and your emissions should get to 50 by 2025. So, you had to cut them in half by 2025. That's your target.

And for these carbon integrity claims, firstly, you have succeeded in doing that. So, you've reduced them from 100 to 50, but you still have 50 emissions. And you say, as a responsible corporate, I'm going to take responsibility for those remaining 50 emissions. I can't reduce them any further. I've done what I should do. But I'm going to buy high quality carbon credits to compensate or offset those remaining 50 emissions. And if you offset all 50 or more, then your carbon integrity platinum.

If you offset, say, 25 of those 50, or above, you could be carbon integrity gold. And if you compensate between five and 25 of them, then you'd be carbon integrity silver. So, the grading silver, golden plan is how much of your remaining footprint after you take an action, you decide to cover with carbon credits.

Mike Toffel:

Now, this is above and beyond meeting the goal that you set. So, what about using carbon credits to meet your goal? So, I'm going to change your numbers a little bit just to make it so it's not 50-50. you have a start with 100 and you have a goal of reducing by 40, so you're hoping to only have 60 tons left at the time of your goal, what some organizations are doing is to achieve that 40 reduction. They're doing some internal work, and they're purchasing carbon credits to offset the remainder to make that goal of 40. You're talking about the remaining 60 in my numbers, but what about the initial 40?

Mark Kenber:

Exactly. the carbon integrity claims are for those, it's real leadership action: so the ones who are going above and beyond meeting their targets. The case you talk about is absolutely much more prevalent. Most companies are not meeting their targets by their own efforts alone and are not on track to.

So, I assume many of your listeners will have heard of the Science Based Targets Initiative, which has 9 or so thousand companies, leading companies, who have set pathways and targets. Most of the short-term targets for 2030, an analysis that we did and that has been corroborated by many others, is that as many as 70 % of them are not on track to meet their Scope 3 targets and will not meet their Scope 3 targets in 2030.

And so, the question we then ask is, well, do we get to 2030 and those companies go, sorry, I tried and that's the end of it, or should they find other ways to take responsibility and then potentially create internal prices of carbon? So our argument and our Scope 3 claim that you mentioned is that would allow companies to use certain safeguards.

So not just use carbon credits willy-nilly without control, but if they've made significant effort to reduce their emissions, but for reasons that really are beyond their control, either because the technology is not available or because things have happened in the market that the energy prices have changed or suppliers aren't able to net zero or low carbon goods, they should then not only have the potential to but should be required to use carbon credits to bridge that gap.

So, if you were supposed to get from 100 to 40 and you could only get to 60, then I don't think it's acceptable that you say, sorry, I tried. There are mechanisms such as carbon credits to offset that remaining 20.

Now, you wouldn't want to say, “Mike, just go ahead and buy offsets and don't do anything” because in the end, we need you as a company to reduce your emissions because that drives technological change, it drives changes up and down your supply chains. It probably makes you think about the lower carbon products you're going to produce for your consumers and so on and so forth. So, it's not either or. And this is, what you've touched on is the heart of an exceptionally febrile debate at the moment, between those who believe that any use of a carbon credit to meet a target, any use of an offset to meet a target, means that a company is evading its responsibilities, it's trying to cheat the system, it's misleading the public, despite the fact that in almost all reporting systems carbon credits and internal decarbonization have to be reported and labelled separately.

So, there's that view. And then there's the view that we need carbon credits because that's the only way to channel finance to countries that host projects and why would we want to make life more difficult and more expensive for companies if there are cheap options carbon credits of two or three bucks why do we require them to reduce emissions at a thousand bucks a tonne and so on and so forth and my personal view is the reality is neither of those.

Mike Toffel:

So let me push back a little bit on that second extreme, because the economist view would be we should be channeling our decarbonization finance to the lowest, what's called marginal cost of abatement, the lowest cost per ton reduction. And if that's a $2 per ton project in a different country, compared to the example you gave, thousands of dollars, but imagine even a hundred dollars of spending on internal decarbonization.

The economically efficient solution would be to go ahead and do that even if it's all of the emissions to meet your target. So, if you're going from a hundred to forty and your internal options are maybe range from sixty dollars to two hundred dollars per ton, but the market allows you to purchase say five dollar a ton options if they're of high integrity. The economist would say that's the efficient thing to do. Do it for all, at least in the short run. So help our listeners understand what the problem with that thinking is?

Mark Kenber:

Okay, so there are a number of issues, and I have to say as an economist, albeit a lapsed economist myself, I don't entirely disagree with your analysis, but I think from a purely economics perspective, there's a difference between a static view and a dynamic view. If we look only at any given moment of time, and you can guarantee the quality of the credits and you may want to come back to that, then at any given moment in time, you might say, yes, you're absolutely right. Why would you want a company to pay 60 bucks if it can pay two bucks…and the impact is the same?

But when you think dynamically, where does innovation come from? Where does technology change come from? Where does the drive to make products more efficient, to make them more efficiently and so on and so forth? That doesn't happen if your internal price of carbon is effectively $2 a tonne, because that's what you have to pay for carbon credits. And it doesn't drive R&D, it doesn't drive product development. And so that's the reason why we often talk about a balance between the two.

Take the auto sector. We want companies to currently continue investing in low impact, highly efficient electric vehicles, because we know that if we're going to have private transport, which we undoubtedly will need to electrify and we need to make them a lot more efficient. There wouldn't be much incentive to do that if they didn't have to take responsibility for the emissions associated with production and use, or if they could just buy $2 credits.

So the dynamic argument is important as well because often those who theorize or talk about carbon reductions in corporates assume some sort of straight line. And we know that life isn’t based on straight lines. We know that technology adoption is lumpy, prices are lumpy. And so that's where you can use carbon credits to smooth out the journey or to say, okay, I'm going to take responsibility for my emissions now because I know every emission everyday counts. So just saying I'll do something in 10 years is not good enough, but not at the cost of innovation.

Mike Toffel:

Right. S-curves, adoption curves are not linear.

Mark Kenber:

Exactly. And I think most companies who have taken the plunge in this would say, actually, we don't want to just offset. Many of these actions that we take

are beneficial to us. People often call energy efficiency the forgotten energy source because that's the cheap way of reducing our energy bill. And you don't invest in that if you can just offset it on the cheap. So that's why we have that combination. But we also recognize that, and I go back to the binary nature of the debate, that companies aren't just doing the right thing or cheating. The gray area is where most of us live.

And in our proposed claim on Scope 3, which we'll be publishing in the next few months, it says that your reliance on carbon credit should decline over time. You need to demonstrate that you're investing in overcoming the barriers and you'll get onto a net zero aligned pathway. If I continue to take a target and fail, I'm going to get accused and I'm going to get attacked much more than not having taken on a target in the first place. And that's got to be a perverse incentive.

Mike Toffel:

Totally. It's not only that there's no benefit, but also that there's risk actually in trying to strive to be a more aggressive carbon reducer, which is definitely ironic.

Mark Kenber:

Exactly. And that's why in the last two or three years, this word green hushing has suddenly appeared. Companies used to blaze in their environmental and sustainability achievements. And now more and more companies are saying, yeah, we're doing a lot, but we're not telling anybody about it.

Mike Toffel:

All right. So let me ask two more questions here. So, for those organizations that are earning the silver, gold, or platinum ratings, as you're describing, two questions on that. One is, is that only at the organizational level, or could that be at the product level? And then the other question is, where are they bragging about having achieved this? Are these labels fixing to products? Are these things they're putting on their website? Is it more on your website, where you're listing those who have achieved these standards.

Mark Kenber:

So, when we started, we were looking at labels for organizations as a whole and for products and services. There are already some protocols for products and services, but very quickly regulators, whether they be consumer protection regulators or advertising regulators, immediately put this area in their crosshairs and have probably gone stricter than I would have done, but they're putting regulations in place. I've often advocated that this, you know, we’re a nonprofit with voluntary initiatives, if these things really are going to bite, they have to be managed by policymakers and regulators. And I mean, if you look in the European Union, there’s a policy called the Green Claims Directive, which is currently being negotiated, and that is about products and services. And it very clearly says, you cannot say that a product is climate friendly or good for the climate if you've used offsets to achieve that. Now, I don't 100 % agree with that, but that's the rule they've taken. So, in a way, the wind was taken out of our sails on that by regulators around the world, and that's not a bad thing. And then there was also a concern that you might have a company who say, let's say it makes a toothpaste, and it has its net zero or climate friendly toothpaste and the rest of the company is a climate disaster. Should it be benefiting from extra sales of this toothpaste while everything else it's doing is counter to climate action? So, our labels are for organization wide. They can display them on all their marketing materials on products, but they have to say, you know, let's say it's Natura and Co, a carbon integrity platinum organization, not that the product is that per se.

So, both Bain and Natura have carbon platinum claims, have them on their websites, they put them on their marketing materials. And Natura in particular talks a lot about it. And it says to us that it attracts better staff. It has people who are motivated by purpose as well as salary and so on. It has helped them grow market share. There is a demographic in 16- to 35-year-olds who want the cosmetics and products that they buy to be, if not good for the planet, at least not bad for the planet, and there's still value in that.

I was talking with colleagues just before talking to you that what we found in the last five or ten years, and this may resonate with some of your listeners, is that those things that were considered badges of honor or symbol five or ten years ago, yes I recycle or yes I buy zero impact toilet paper or whatever it happens to be - people aren't shouting about that anymore. And so, I think it's quite brave of a company like Natura to say, yeah, we are a climate friendly company. We believe that this is a crisis and we're doing everything we can. for them, it works.

Mike Toffel:

Yeah, I mean, now any organization that creates standards like yours has, whether it be for building green buildings or for other materials, they always need to think about how stringent those standards should be. Because on the one hand, you want them to be as stringent as possible to drive change. But on the other hand, the more stringent you go, the fewer companies are willing to go there with you. And so, folks like LEED on green building and your organization has created this sort of tiered approach, which is a little bit of a hybrid to try and say, we'll meet you where you are and provide sort of options for companies. And there's no shame in being silver because you're certainly better than not having it. And there's still aspiration beyond that.

As you think about these different tiers that you have, where are you in terms of your own organization's journey toward getting companies onboard to adopt your standards and meet your standards?

Mark Kenber:

If I'm completely honest, it's been much more difficult than we expected. When we started this work, we did run a big process of consultation with corporates, many of whom said, if you provide some clear guidance that is seen to be rigorous, we will follow it and we will use it and we want those certifiable claims. Three years later, the world has changed, much more uncertainty, political dynamics have certainly changed, climate change is now seen as a woke thing rather than an existential problem that we all need to deal with.

So, I think and corporates, as we've mentioned a few moments ago, are scared of being attacked because their environmental claims aren't good enough. So, the demand has kind of fallen off. We have a lot of companies who we talk to regularly who would like to make claims but now is not the right moment. But then there's also the issue that, as I mentioned, our carbon integrity claim is deliberately designed to recognize real leadership. I mean, that's a pretty small group.

When we talk about Whether the Scope 3 work or where we believe our work should go and where corporates really need help is using carbon credits as part of achieving their targets, even if they have to be accounted for separately. And there, there is a lot of interest. But companies are saying to us, we would love to follow your guidance, but we need permission. And that permission either needs to come from our government, or it needs to come from something like the Science Based Targets Initiative or a target setting program.

And it could all be the International Standards Organization that is also working on standards for this. And so, companies are confused about what we are and aren't allowed to do. We want to take action, but we're terrified of being criticized for doing the wrong thing. So, let's just do nothing and then we'll come back to you when we know what that right thing is.

That is where, and I include myself in this, the non-profit community and those around us who create standards and aspirations for companies, are often our own worst enemies. We often make things too complicated. It's important to have a high bar and it's important to have a leadership standard, but that can't be the only standard because most, I mentioned the Science-Based Target Initiative has nine or 10,000 companies. There are 332 million companies in the world.

Okay, a lot of those are mum and pop corner shops, but there are 100, you probably know better than I do, 100 to 120,000 large, listed companies in the world. So only 10 % of those or less than 10 % of those have a meaningful climate target. So just making it more ambitious and harder is not going to get those 90,000 on. So, we shouldn't make something that's so easy, they all look great and nothing changes, but we need to recognize this as a journey. How do we get people on the journey? How do we get companies to realize there are some benefits from taking action, whether they're in cost cutting or innovation or new customers or better employees. And then how do we push them further and further, so it really is aligned with what climate science tells us.

Mike Toffel:

Right. When you mentioned the fear of being called out through associating decarbonization with being woke or fear of lawsuits or fear of reputational harm, my sense is that those fears are paramount in the US context where, and maybe it's just because that's the stories that my media feed being based in the US sends me. Is this also an issue in Europe and in Asia? I would just return with some students from a course that I co-lead in Northern Europe, in Denmark, Netherlands, and Belgium. Now, granted, we visited companies that are pursuing this, but they seemed all in to try and figure this out in a way that was quite different from the US context.

Mark Kenber:

So, the answer I think is yes and no. you mentioned the Netherlands. So KLM has been through the courts in and out and back and forth through the courts for many years about claims made in the past about the climate friendliness or not of using its airplanes. at times it said it was, I can't remember the exact language, but I think it said it was climate neutral or had no impact because it offset all the emissions associated with the flight.

And the court said, “No, that's misleading. You are still flying a very large bit of metal through the air using fossil fuels. You cannot say this has no impact on the world's climate because you're misleading. You're basically telling customers you can fly guilt free because you're having no impact on the environment and that is misleading.

That's just as much the case in Europe as it is in the US. Perhaps what's different is Europe, as you know, has had climate regulation and climate policy in place for over 20 years. So many companies are already covered by an emission trading scheme or some other sort of regulation. And therefore, voluntary action is less of an issue.

They are interested in how they can use carbon credits and other kinds of carbon units to meet their obligations, because to reduce cost or smooth out all the things we were talking about before. And they are also interested in looking at what the role of different kinds of mechanisms are in their supply chains, which are often outside Europe. In fact, many large companies, their supply chains will be in Asia, Latin America, and Africa. So what's the role of carbon credits, different ways and market mechanisms to deal with those supply chains?

So they're interested in that, whereas when I talk to companies in the US where, you know, frankly, it doesn't seem to be any prospect of any economy wide cap and trade system or carbon tax. I mean, it's been tried for many years, as you know, over the last decades. Voluntary action is outside states like California. It's quite hard for those companies to see any real material advantage and they will continue. I look at the six financial institutions this week that pulled out of the Net Zero Banking Alliance, and they all said in their statements, they didn't give reasons why they were leaving, and you can interpret that, but they all said we will continue to invest in the transition and in climate change and so on and so forth. So, they can then define what they do themselves, not be held to account against someone else's standard.

When you talk about Asia, it’s really, really interesting. Big growth economies, lots of companies there that will probably be the household name multinationals in 20 years’ time. And the companies that I speak see that unless they have a strategy and a plan that's aligned with a net zero world, that's aligned with dealing with climate change, there won't be a market, they won't have a license to operate, therefore, and they will lose money. I mean, I wouldn't say they're all racing forward reducing their emissions, but they are actively looking at how do we create a viable consumer proposition. It's interesting that in many developing countries in the millennials and Gen Z there are far greater interest in climate change and concern about climate change than in Europe, US and other industrialized countries. So, they're being driven by their consumers, they're being driven by their younger employees who will be the bosses in 10, 15, 20 years’ time. So, they seem to be, and I can't speak for them, to be far less ideological about it. It's not, okay, it's either this or this. Let's find out what works, try that, and then try something else, and keep going.

And I think also much closer relationships, although this is a massive generalization between governments and corporates. So, if you think, you know, that in Japan, you know, lots of policy and action happens through consultation between the big business associations and the Ministry of Economy, Trade and Industry. And so, it's less of an imposed policy, almost what are often called voluntary initiatives, which are not quite as voluntary as they would be if they were in Europe or the US. And so, there's that relationship between governments, and it's true across lots of Eastern, Southeast Asia, between governments and corporates. They're not hand in glove, they're independent, but there is a lot more negotiation.

I think what you would probably call in political economy a corporate type state where corporates and government and unions and others work closely together to build strategy. And I think that's what we're seeing a lot in the ASEAN countries thinking about carbon markets, carbon credits, how to drive climate investment and the role that governments and corporates can play together in that. Try out new things, start voluntarily, ramp up the things that work, forget quietly about the things that don't work so and I mean it's a pretty exciting approach and so I think it's less ideological and there's less concern about greenwashing and greenhushing than perhaps there is in Europe and the US.

Mike Toffel:

Interesting, interesting. Well, let's continue on this theme of looking ahead. I know that you were with Article 6. Let's talk a little bit about Article 6 and the blurring of voluntary markets and regulated markets and this emergence of this mitigation contribution unit. And then I know you have some examples like the Singapore story.

Mark Kenber:

So just a quick bit of background, Article 6 is an article in the Paris Agreement, which was agreed in 2015. And Article 6 creates a set of mechanisms that allow countries to cooperate with each other to meet their targets. And cooperation is a general term for broadly market-based mechanisms. So, if you're a country, Mike, and you have a target and it costs you 200 to meet your target and I can reduce emissions at 50, I'll send you some of my emissions and then we both meet our targets. And it's the same as an emissions trading scheme for corporates, but it happens at country-to-country level.

One part of Article 6, known as Article 6.4, which is now called the Paris Agreement crediting mechanism, allows corporates to invest in projects anywhere in the world, but broadly speaking, it'll be emerging markets and developing economies. And those could be projects such as reforestation or restoration of degraded lands, protection of forests, shifting from dirty energy to clean energy, cleaning up transport systems, clean cook stoves for people who don't have access to clean cooking and deforesting as a result, you can invest in those projects like any other offset project, the difference being that because these transactions happen on a country to country level, there has to be double entry accounting.

So, if I run a project in Kenya and sell the project to say Japan, those credits move to Japan, Kenya has to add those emissions back into its inventory and Japan can take them out. So there's that double, so you're not getting double counting. But however, within that mechanism, there is what you referred to the mitigation contribution unit, which is where a company can buy a credit, not use it to comply

With its national obligations and not give it up to its country, to its government, to use it for its own voluntary purposes, and then there doesn't have to be that double ledger accounting because the corporate accounting system is completely separate from the country accounting system. But what that's meant is that whereas in the past, if we'd had this conversation a year ago, we'd have been talking about voluntary markets and regulated or compliance markets. Now there's a blurring and I think that's a good thing. It means that standards will harmonize, but it means that a company that wants to use the carbon credit could buy from the purely voluntary market, which is unregulated, run mainly by NGOs, or it could buy one of these mitigation contribution units, which it can use to meet its own self-imposed or voluntary target, or if it needs it to meet a government obligation, then it would buy one of these that has the double ledger accounting.

And that's led to bunch of use cases that range from absolute compliance to absolute voluntary and a lot of very interesting middle grounds. So you mentioned Singapore. Singapore has a carbon tax, 25 Singapore dollars a tonne, scheduled to go up pretty dramatically over time and companies are allowed to use carbon credits from international markets that meet certain safeguards or minimum minimum standards to meet up to five percent of their Singapore tax obligation.

So, if they can buy carbon credits for less than 25 Singapore dollars a ton, then they can use them up to 5 % of their tax obligations. So, the use of the credits is voluntary within a regulatory compliance system. And so, we've got these different cases where it could be completely voluntary to meet your own target. You could be required to do it in some regime or some sort of hybrid in the middle.

And that, I hope, will drive more demand. And I'm hoping more and more countries will follow a Singapore type example. It doesn't have to be a tax, but a tax is a good way to explain it, where they allow or even require companies to use carbon credit to meet some of their obligations.

Colombia, for example, in South America has a system where they have a quite low but nevertheless significant carbon tax. Companies can offset some of their tax obligations by investing in nature projects within Colombia. So there's no question of double entry ledger accounting, but it gets private capital from Colombian companies into protecting Colombia's forests, restoring forests and other natural environments. And so that's a good way of channeling private sector finances, particularly in a country that doesn't have a huge public sector budget and has got more urgent needs like poverty, alleviation, hunger and so on and so forth, get private sector money into those, into projects that allow them to meet their obligations, but also benefit the country.

And so that's where, you know, the shift from talking about compliance versus voluntary. It's a false dichotomy. There are different shades of grey. I think this is a phrase I've used a lot throughout this conversation. You know, there's a lot in the middle. And I think that's where we can assuage a lot of the concerns people have about integrity. mean, if you take the Singapore tax, if you're spending $25 a tonne, something that looks like it'll rise to $50 to $100 a tonne, you can't accuse those companies of taking the easy way out. They are going to reduce every emission they can that costs less than $100 a tonne and they'll use carbon credits but it's only 5 % and that's reasonable.

Mike Toffel:

They're capped at 5%.

Mark Kenber:

Capped at 5 % and if you look at, what's called the marginal abatement cost curves of companies, so the schedule of how you reduce emissions if you're a company, we know that the last 5 or 10 % is the really expensive stuff and if you look at it in your home life, it's the same thing. The easy stuff is getting your kids to, no it's not that easy, but the relatively easy stuff is getting your kids to turn the lights off every now and then and unplug things and do your recycling and occasionally take the bus and on a sunny day take a bicycle. The difficult thing is when you have, should we not have a family holiday this year and are we going to give up eating meat or whatever it may be. And those are expensive and difficult things and it's the same from companies. So, if you allow them that last 5-10%, use high quality carbon credits, but then raise ambition as a whole overall, then you're getting a win-win both for the companies and for the planet and that's after all what we're all about.

Mike Toffel:

Any other trends we should be keeping our eyes on in the voluntary carbon markets as we look forward?

Mark Kenber:

So, I think there has been a push towards integrity, partly driven by the many scandals and accusations that have taken place over the last two to three years. So you're seeing that companies are recognizing that carbon credits on the whole are still pretty cheap and therefore let's go for the high quality ones. Let's do the due diligence ourselves. But that's now being supported by the emergence of ratings agencies that are like bond rating agencies, but specifically for carbon credits that are becoming ever more sophisticated. There's much more financial and trading infrastructure being put in place and its infrastructure that some of which is already there because of things like the European emissions trading scheme. But recognize that there is going to be a lot of trading, whether it's country or corporate to corporate or somewhere in between.

So, I think that is not a choice, but at the moment we're seeing one route is where companies are investing in projects themselves or through a project developer, keeping quite quiet about it, doing the due diligence, often wanting to tell a story. And then the financialization approach, which is where you've got exchange based trading, spot markets. If you want scale, then the latter is probably where you need to go. But if you want confidence and you don't want to have to go in greenwashing, then you know companies are going to actually do everything they possibly can to make sure they're bulletproof.

But what we're seeing in the market is there is now for the first time ever a premium for credits that are, for example, certified by the Integrity Council of the Voluntary Carbon Market and products that are expected to be certified under Article 6 of the Paris Agreement, those are considered more reliable and therefore companies are prepared, you know, the margins are small, so companies are prepared to pay that extra bit to make sure that they're getting something that is perceived to be quality. So, there's a, I wouldn't call it a race to quality, but there's definitely a trend towards higher integrity.

I think the biggest determinant of what happens over the next one, two, three years will be decisions by those, whether they be policy makers or voluntary non-profit organizations, whether and how companies can use carbon credits as part of their decarbonization journeys. I mentioned earlier that companies say they need permission. So, if they get that permission, either from more governments saying, yes, we encourage you to use carbon credit, in these circumstances or organizations like ISO or SBTI say yes you can use carbon credit in these conditions that will unlock the market at the moment. Otherwise, it's going to remain fairly stagnant in the short term.

Mike Toffel:

Great, great. Super helpful insights on where to keep our eyes focused. As we think about those listeners or viewers who might be interested in learning more about this space and working in this area, either as a developer or as a broker or in an NGO trying to advocate for higher quality, what advice do you have for folks looking to get into this space? What resources should they be keeping their eyes on?

Mark Kenber:

So, my first bit of advice, and this is what I say to all the colleagues in my organization, is start by reading things you disagree with, as well as the things you agree with. Because as I've mentioned a couple of times, this has become a very polarized ideological debate. And the answer, if there is such a thing as an answer, is not in either extreme.

It's in nuance and we're often uncomfortable with nuance. But so, first thing is understanding the nuance, understand that what works in the steel sector may not work in the agriculture sector. And therefore, they may need different approaches under a common umbrella. So, it's to be open minded because otherwise it's very easy to get to horrible phrase, but to believe the last thing you heard or the last thing you read. So that's important because all the people I know who are employing in this space, whether they be project developers or organizations like mine, want people who are able to be open-minded, able to listen to different opinions and think what does that mean in terms of driving a high quality, high integrity finance flow to people who need it to develop, to deliver carbon mitigation.

Second, I would say don't get fixated on deciding what your perfect job in this space would look like. Because partly by the time you've got there, that job won't exist anymore because the market's moving really, really quickly. But also, if I look at my team, I have people who've done project development, I've done people who've done corporate advisory, I've done people who've done storytelling, I have people who have done assurance and validation and all of them have done a little bit of all of those things.

So, they bring those different perspectives and so I will say there are two parts that one is work in a sector that you may have thought I'm never going to work there. So, you might think I'm a nonprofit person. I'm not going to work in a company. If I had one thing I would change in my career, I would have spent five years working in a bank to really understand how financial institutions make decisions, understand what makes them tick, what works, what doesn't work. And that would have informed me a lot of the work I've done in the non-profit sector on target setting, corporate engagement. I would have learned a lot more. So probably back then I was, I'm never going to work for those guys, but I should have done. I would have learned a lot from it. And you're not trapped. You can always leave. do that. Experience the people, the people you don't think you're going to want to work with because they are all humans after all and you learn that quite quickly they may work for an organization with a badge but at the end of day they're human beings and they probably believe 90 % of the same things as we do so you'll learn a lot from it and that will make you much more effective if you've been in the private sector work in NGO those of us who work in nonprofits cry out for private sector people because they have different disciplines different skills and if you bring those skills together with people who are scientists and non-profit people. That's how you create a really effective team.

So, try different things. There is a lot of work in this space. Climate change sadly is not going away and market-based mechanisms will continue to operate in different ways in different countries. So, it's a good space to be in. There are an increasing number of jobs and that's another reason to try out the different things. Try the things that, what are the bits that you really like? Do you like the on-the-ground due diligence? Do you like the project economics? Do you like trading and the selling? There's so much in there, try it out and each of those experiences will be really valuable. When you come to an employer, someone like me, I look at this, you did a bit of forest protection in Brazil and you sold in Korea, you're on because that's the kind of experience I look for. There's lots and lots of deep technical expertise out there and if that's your bag, great, but what the market needs is people who can combine and bring, coalesce and bring things together and then be able to make the market grow.

Mike Toffel:

And I'll market for you that VCMI has a newsletter that periodically comes out as a way to sort of keep abreast of what's going on in space as well.

Mark Kenber:

It does. And thank you for plugging that. There are, you look at ours, look at the integrity council of the voluntary carbon market, which determines what constitutes good quality projects. And then there are lots of newsletters. MSCI produces a newsletter on carbon credits and voluntary corporate action. And there are a number of other sites.

Mike Toffel:

Great. Well, Mark, thank you so much for spending the time with us here on Climate Rising. It's been a really interesting, wide-ranging conversation to learn about the perils and promises of carbon credits and making claims based on carbon credits and the merging of voluntary and compliance markets and so much more. So, thanks so much.

Mark Kenber:

Fantastic. Thank you very much, Mike. It's been a pleasure.