Corporate net zero demand to jolt VCM forward: Bezos
Quantum Commodity Intelligence – Looming corporate net zero transition plan requirements around the world could within years boost the ailing voluntary carbon market (VCM), if regulators decide to allow companies to use carbon credits to help implement their plans, according to a seasoned climate diplomat.
Paul Bodnar, a director at the pro-carbon market Bezos Earth Fund, told Quantum that regulations that are emerging in different jurisdictions, such as the EU's so-called Corporate Sustainability Due Diligence Directive (CSDDD), require large companies to draw up and implement business plans aligned with the Paris Agreement's climate goals.
"Of course a lot of corporates don't like this idea (of having to present transition plans with corporate targets) because they have enough paperwork to write," he said.
"But one could see an arrangement where companies get more comfortable with the idea of business plans that are pegged against climate goals if they can use carbon markets to meet some of those goals," the director added.
The views of Bodnar, who served as climate advisor at the White House during the Barack Obama administration, come against the backdrop of lacklustre demand for carbon credits amid policy uncertainty.
Much of the uncertainty is down to the Science Based Targets Initiative (SBTi), a standard for voluntary corporate climate goal setting, which has been against corporate carbon credit use and has recently sent mixed messages over whether it will reconsider its stance.
The Bezos Earth Fund, which is one of the largest funders of the SBTi, has come under fire for lobbying the London-based standard to drop its opposition to carbon credits.
Bodnar, who is in charge of sustainable finance, industry, and diplomacy at the philanthrophic organisation, refused to comment on the SBTi's approach and the Bezos Earth Fund's involvement in SBTi's reviewing process.
Grand bargain
He said that net zero transition plan requirements are emerging not only in the EU, but in the UK and Hong Kong, and many other parts of the world will likely follow suit, which could ultimately prompt companies to turn to the VCM.
In the EU, the most advanced among the jurisdictions, companies exceeding at least 5,000 employees and €1.5 billion ($1.66 bn) in annual turnover will be required to comply with the requirements from 2027, with smaller companies covered over the following years.
The director said that a "sort of a grand bargain" is needed among the different jurisdictions that carbon credits are allowed to help meet transition plans.
Quasi-compliance market
He believes that companies will endorse it as they want to avoid having to write "imaginary business plans" that they're then on the hook to implement.
"If that's the way it landed (and carbon credit use is allowed), what is now the voluntary carbon market would become something more akin to a quasi-compliance market because it'd be using compliance requirements even if those are just disclosure requirements," Bodnar said.
He said that without such a grand bargain, the VCM remains a small corner of the commodity market.
In 2023, the VCM's value amounted to $723 million, down from $1.9 billion in 2022 and $2.1 billion in its peak year in 2021, according to figures by Ecosystem Marketplace.
Bodnar pointed out that the VCM, even in its prime, is eclipsed by other environmental markets such as the US' wetland mitigation banking market (WMBP) which totalled $8 billion last year.
The WMBP is a competitive grants programme for nature conservation, supporting the development and establishment of wetland mitigation banks to make credits available for agricultural producers.
