New code to confirm companies use carbon credits credibly

Step 1: Meet the prerequisites

The VCMI requires that companies only use carbon credits “in addition to – not as a substitute for – science-aligned decarbonisation across their value chains”. The VCMI Prerequisites are designed to ensure that this is the case and to offer guidance to companies on steps they should take to align with the goals of the Paris Agreement.

Before making voluntary use of carbon credits (and making a VCMI Claim), companies must:

• Make a public commitment to achieve science-aligned long-term net zero emissions no later by 2050, covering Scope 1, 2 and 3 emissions.
• Set and make public interim emission reduction targets that:
  • include a first near-term emission reduction target for 2025, or within two years of making a public long-term net zero commitment;
  • include subsequent emissions reduction target(s) with target dates no more than five years apart, established by the date of the preceding target; and
  • follow the SBTi guidance for setting the target boundary and emissions coverage (this means 95% coverage of Scope 1 and 2 emissions, and 67% coverage of Scope 3 emissions if Scope 3 emissions represent over 40% of the inventory from all scopes).
• Provide detailed information on the plans and strategies adopted to achieve their targets, including their current and expected use of high-quality carbon credits.
• Maintain a publicly available GHG emissions inventory that follows the GHG Protocol (or equivalent) and covers all Scope 1, 2 and 3 emissions.
• Make a public statement declaring that the company’s advocacy activities – either individually or through trade bodies of which it is a member – are consistent with the goals of the Paris Agreement and do not represent a barrier to ambitious climate regulation.

Compliance with all the prerequisites must be confirmed by a credible, independent third party.

Step 2: Identify what types of claims are being made

The Code proposes a three tiered recognition system -

VCMI Gold – To achieve VCMI Gold, an organisation:

• must be on track to achieve its next interim target for Scope 1, 2 and 3 emissions, through emissions reductions within its value chain; and
• must have covered all (100%) remaining unabated emissions through the purchase and retirement of high-quality carbon credits.

VCMI Silver – To achieve VCMI Silver, an organisation:

• must be on track to achieve its next interim target for Scope 1, 2 and 3 emissions, through emissions reductions within its value chain; and
• must have covered at least 20 percent of all remaining unabated emissions through the purchase and retirement of high-quality carbon credits.

The proportion of remaining unabated emissions covered through the purchase and retirement of carbon credits must increase over time. For example, if an organisation purchases and retires carbon credits to cover 20 percent of its remaining unabated emissions in the first year in which it makes a VCMI Silver claim, it must purchase and retire credits to cover more than 20 percent of unabated emissions in the following year in order to retain the claim.

VCMI Bronze – VCMI Bronze is more flexible about the handling of Scope 3 emissions and will only be available until 2030 (by which time a company must be fully on track to achieve its next interim target for Scope 3 emissions through internal emissions reductions only and thereby graduate to VCMI Silver).

• must be on track to achieve its next interim target for Scope 1, 2 and 3 emissions, through emissions reductions within its value chain; and
• must have covered at least 20 percent of all remaining unabated emissions through the purchase and retirement of high-quality carbon credits.

To achieve VCMI Bronze, an organisation:

• must be on track to achieve its next interim target for Scope 1 and 2 emissions through emissions reductions within its value chain;
• must reduce its Scope 3 emissions through a combination of emissions reductions within its value chain and the purchase and retirement of carbon credits to the level required for its interim target (the proportion of carbon credits that can be used to cover Scope 3 emissions to meet the next interim target is limited initially to 50 percent and this proportion must decline over time to ensure continuous improvement); and
• must have covered at least 20 percent of all remaining unabated emissions through the purchase and retirement of high-quality carbon credits.

Step 3: Purchase high-quality credits

The Code requires all credits which are used as the basis for VCMI credible claims to be high quality and meet basic criteria. The Code does not provide detailed guidance for what constitutes a "high-quality" carbon credit. Instead, it acknowledges the work of CORSIA and the IC-VCM.

The credits must be:

• associated with a recognised and credibly governed standard-setting body that meets certain criteria set out in the Code;
• have high environmental quality meaning they:
  • reflect reductions and/or removals that go beyond what would occur in the absence of demand for carbon credits;
  • are monitored, measured, quantified and independently verified by a credible, independent third party; and
  • are generated from activities that have measures in place to address material risks of non-permeance and leakage;
• generated from activities that, where relevant, are compatible with human rights, and promote equity, apply social safeguards and demonstrate positive socio-economic impacts (in accordance with the minimum standards set out in the Code); and
• generated from activities that contribute to the protection and enhancement of environmental quality.

This means that, at a minimum, those activities include environmental safeguards that avoid, minimise and mitigate adverse impacts, and the carbon credits comply with the environmental laws in the jurisdiction in which they were generated.

The Code notes that activities should strive to generate environmental co-benefits, such as improving water quality, enhancing biodiversity, creating more resilient energy delivery and improving soil health.

Step 4: Report transparently on the use of carbon credits

The Code states that transparent reporting of information is essential for substantiating a claim. Organisations must report full information in publicly available annual sustainability (or similar) reports to demonstrate that prerequisites and claim requirements have been met.

Organisations must communicate in these reports how they use carbon credits toward their climate commitments, goals, targets and claims, including providing the following specific information:

• number of credits purchased and retired to make a claim, the proportion use to cover emissions beyond a company’s targets and the proportion use to cover Scope 3 emissions;
• certification standard name, project name, ID and issuing registry for each credit used;
• host country;
• credit vintage;
• methodology / project type; and
• whether or not the carbon credit is associated with corresponding adjustments (as evidence by authorisation and authorised use) by the host and/or buyer country.