Voluntary carbon credit supply – what credits are available, and how many of them are there?
In the voluntary carbon market (VCM), project developers carry out activities that either remove greenhouse gases (GHGs) from the atmosphere or reduce the amount of GHGs entering the atmosphere compared to scenarios where those activities did not occur. They are issued credits (measured in tonnes of CO2 equivalent) representing the amount of emissions their activities have “saved” - in other words, how many units of climate change mitigation the activities have caused. Other entities (businesses, individuals, and, in some cases, public institutions or governments) can purchase these credits, thereby sponsoring the mitigation projects that generated them. The buyers can then apply the credits toward a GHG reduction target (typically offsetting the buyer’s own emissions) and/or make environmental claims such as supporting climate change mitigation efforts that have reduced emissions by a certain amount.
The act of claiming or offsetting is completed when such credits are cancelled or retired from the registry they are logged in, as they are then considered to have been “used” and are not available to offset anyone else’s emissions (see Textbox 1).
| Textbox 1: What is “retirement”? |
| Ever since carbon offsetting began ramping up on an international level several decades ago, projects have been generating credits and those credits have been logged in registries. The registries are typically run by the organizations that set the standard for what constitutes a credit: a unit of climate change mitigation achieved through a methodology one standard has developed is logged as such in that standard’s registry. The four major registries in terms of credit volume are the ACR (formerly known as the American Carbon Registry), the Climate Action Reserve (CAR), the Gold Standard, and Verra. |
| Like other commodities, credits may change hands among buyers and sellers – the amount of credits logged in the various carbon credit registries worldwide constitutes the amount currently in circulation (i.e., available to buyers for offsetting or other claims) whether they are changing hands or not. It is only when credit is used to, e.g., offset a company’s GHG output or meet an organization’s climate target that it is retired and thus taken out of circulation. |
| Thus, buying a carbon credit does not constitute offsetting emissions or helping to mitigate climate change – retiring that credit is what constitutes these acts. However, only the credit owner can authorise the registry to cancel or retire it. |
Below, we take a look at the credits that have not yet been retired: those that have been issued, are logged in a registry, and are thus available for purchase. By the end of 2023, the amount of such available credits in the four major registries (see Textbox 1) was about 720 million – what types of projects do they come from, when were they issued, and what methodologies do the projects that generated those credits use? An examination of non-retired credits by project type, vintage, and methodology reveals a notable concentration in specific categories.
Forestry and renewable projects dominate
Credits from projects in the areas of forestry and renewable energy projects collectively account for nearly 70% of the over 720 million units in circulation - see Figure 1.
Forestry and land use projects include those focused on preventing deforestation and forest degradation (commonly referred to as REDD projects), as well as those focused on improving forest management and those focused on afforestation and reforestation. Together, they constitute the largest share of credits in circulation at roughly 35%. Credits from REDD projects make up the bulk of this amount.
Figure 1: Distribution of credits in circulation by project type
Credits in the renewable energy category come from projects generating electricity renewably where it otherwise would have been generated by fossil-fuelled facilities. The credits represent the net reduction in GHG emissions for the power sector of the project’s host region. Relevant technologies include wind power, small-scale hydro, and solar photovoltaics.
Plenty of “old” credits
About one-fourth of the credits in circulation were created more than eight years ago: their “vintage year” is 2016 or older, meaning they were generated before the Paris Agreement entered into force – see Figure 2. Excluding those older credits, vintage years 2020 to 2021 constitute the bulk of the pool, with approximately 230 million credits currently in circulation from those years.
Figure 2: Distribution of credits in circulation by vintage year
Big volumes in few methodologies
A significant amount of credits in circulation come from only a limited number of methodologies. Approximately 54% of the total credits in circulation, equivalent to around 386 million credits, are concentrated in four methodologies: renewable energy projects in the Clean Development Mechanism of the now-expired Kyoto Protocol (ACM0002) and three of Verra’s REDD+ methodologies (VM0007, VM0009, and VM0015), see Figure 3 and Table 1. A whopping 30% of credits in circulation, equivalent to 215 million credits, are from projects using the ACM0002 methodology alone. It is one of the oldest carbon crediting methodologies being used in active projects, having been applied to the power sector of emerging economies during the heyday of the Clean Development Mechanism in the early and mid 2000’s.
Figure 3: Top 8 methodologies with the largest share of credits in circulation
The differentiation among REDD methodologies is more nuanced: following the launch of Verra’s new REDD methodology VM0048 last November (see our analysis on this here), Verra initiated a transition process wherein VM0009 has been deactivated, while VM0007 and VM0015 are undergoing updates and revisions.
Table 1: List of methodologies and project categories
| Methodology | Category name |
| ACM0002 - Grid-connected electricity generation from renewable sources | Grid-connected renewable energy |
| VM0007 - REDD+ Methodology Framework (REDD-MF) | REDD |
| VM0009 - Methodology for Avoided Ecosystem Conversion | REDD |
| VM0015 - Methodology for Avoided Unplanned Deforestation | REDD |
| VMR0006 - Energy Efficiency and Fuel Switch Measures in Thermal Applications | Efficient cookstoves |
| AM0023 - Leak detection and repair in gas production, processing, transmission, storage and distribution systems and in refinery facilities | Methane reduction in industrial facilities |
| Transition to Advanced Formulation Blowing Agents in Foam Manufacturing and Use | Industrial processes |
| GS TPDDTEC - Technologies and Practices to Displace Decentralized Thermal Energy Consumption | Efficient cookstoves |
Usable supply or unwanted stockpile?
If the VCM were a compliance market, in which entities must cover their emissions with carbon units, the “normal” rules of supply and demand would apply: there would likely not be over 700 million credits in circulation, as emitters would have no choice but to use the available supply to fulfil their emission reduction compliance obligations. Since the voluntary market involves only the type of “compliance” its participants set for themselves, using its credits is more about the claims companies can make than about covering their emissions.
The decision of whether buyers opt to use a credit by retiring it is strongly influenced by the narrative surrounding the credit (including the circumstances of its generation and the project it supports) rather than solely by the mitigation volumes involved – after all, corporate entities can change their self-set sustainability targets and thereby alter the amount of credits necessary to comply with them. The only “enforcement” is the court of public opinion, as opposed to mandatory markets governed by laws that prescribe penalties. Indeed, oil company BP last year revised a 2030 emission reduction target it had set in 2020, meaning it will need fewer carbon credits over the next six years – fellow fossil fuel giant Shell this year followed suit by weakening its 2030 target to a 15% reduction in carbon intensity rather than the 20% it had previously aimed for.
In this context of flexible/changing demand, which credits get retired and which stay in the available pool of supply is determined mostly by what “goes over well” with the buyers’ clients and shareholders. One type of credit that does not “go over well” is an old one: claiming to help mitigate climate change now by retiring a credit generated over eight years ago (meaning the actual emission reduction it represents took place even earlier) is not inline with companies’ desires to be seen as supporting more recent mitigation efforts. This explains why so much of the volume remaining in circulation (nearly 25%) is made up of these older vintages.
Overall, the growing stockpile of unused carbon credits is largely made up of “unwanted” legacy credits that will mostly remain in circulation, confusing what constitutes the “real” available supply in compliance market terms. It is not possible to discount a concrete set of credits in circulation completely, as even the oldest or least desirable ones still constitute units that can legitimately be applied toward voluntary mitigation targets – indeed, some companies are still retiring older vintage credits, even ones generated as early as 2008. However, the data clearly show that “old” credits are less popular: of the 47 million credits that were retired from the four big registries mentioned above so far in 2024, less than one-half of one percent is from the 2008 vintage year.
The “seal of approval” for carbon credit quality
Starting in April, the Integrity Council for the Voluntary Carbon Market (ICVCM) is coming out with a series of “verdicts” on what constitutes a high-quality carbon credit: updates to its CPP label; read our last analysis on the ICVCM here. Standing for Core Carbon Principles, the CPP is an integrity label or ‘seal of approval’ similar to fair trade labels on chocolate products or Forest Stewardship Council certification for wood/paper products. It is the result of ICVCM’s assessment of over 100 carbon credit methodologies across 36 project categories.
As we stated in our VCM 2023 Recap and 2024 Outlook, prices for carbon credits are likely to diverge according to adherence to the CCP – credits that fulfill the CCP criteria will fetch higher prices on the market going forward. Moreover, the voluntary carbon market’s own integrity initiative (VCMI), which features a code of practice for companies to make credible environmental claims, explicitly states once it becomes available, it will only accept CCP-aligned units. We thus expect to see limited to no demand for credits without CCP labels going forward.
That, in turn, means that credits currently in circulation that do not get a CCP label are highly unlikely to be used. They will remain in their registries (as “non-retired” units) contributing to the unwanted stockpile of credits.
In terms of market analysis, this is actually a beneficial development: the clearer it becomes which of the many credits in circulation do not constitute real “supply,” the better analysts can track market dynamics such as the supply-demand balance and other price signals.
However, the ICVCM assessment process is complex, iterative, and does not include many types of credits. Results of the assessment (i.e. which credits get the CCP ‘seal of approval’) will come out gradually over the course of 2024 depending on the credits’project type and methodology (see Textbox 2), with the first batch slated to be announced next week.
| Textbox 2 – ICVCM carbon credit category assessment explained |
| Back in July 2023 when the ICVCM released its assessment framework, it called on carbon-crediting programs to apply for assessment: if the credits they offer are assessed to meet the quality criteria, they are given a CCP label. Due to the vast differences in carbon credit project types and reviewers’ ability to assess these consistently, the assessment was broken into categories: |
| (1) Carbon credits from project types for which review was deemed straightforward (landfill gas capture, destruction of ozone-depleting substances, and sulfur hexafluoride avoidance) are subject to an internal assessment, the results of which are due around the first week of April 2024; |
| (2) Carbon credits from projects whose methodologies involve more complex or controversial counterfactual scenarios (renewable energy, efficient cookstoves, water purification, improved forest management, and REDD+) undergo a multistakeholder assessment among experts with specialised project knowledge, with all results not expected until Q3 2024; |
| (3) Carbon credits from project categories that were upfront deemed unlikely to meet the ICVCM criteria (electricity generation from natural gas, waste heat recovery, and industrial energy efficiency) will be assessed only once other evaluations are complete. |
Of the over 720 million carbon credits in circulation, only 36 million are in categories undergoing internal assessment. Thus, next week’s results will give only a small clue as to what portion of the current market supply is “real” and what portion can be considered part of the unwanted stockpile of credits that will not get retired.
Results of the multistakeholder assessment later in 2024, however, will provide much better insight: the categories subject to that process account for approximately 350 million of the credits in circulation. We will continue to release analyses as the various assessment results are made public.
Caveats
The use of CCP labelling as an indicator for what constitutes “real supply” in the VCM is limited: approximately 120 million of the credits in circulation were generated using methodologies for which the ICVCM has not established an assessment process, projects utilising more than one methodology, or using methodologies that have not been publicly disclosed. Although these therefore cannot receive a CCP label, they are not necessarily unwanted legacy credits unlikely to be retired: many organizations seeking to offset their emissions or make mitigation claims prefer to do so using credits from bespoke projects with individualized methodologies.
Similarly, a large chunk of credits from Verra – specifically in the REDD category – are not being assessed because Verra came up with a new REDD methodology in November 2023 (see our analysis on this here) with which it had applied for ICVCM assessment and replaced the five REDD methodologies. The 178 credits from those methodologies collectively account for a full 25% of total credits in circulation: those credits cannot (yet) receive a CCP label since they are not being assessed. However, Verra requires all registered REDD projects to adopt the new methodology (which is being assessed in the multistakeholder working group for which results are expected in September) over the next year, allowing project proponents to apply the new methodology retroactively to past issuances. Thus, if the new Verra REDD methodology receives the CCP label, credits from Verra REDD projects, including those in circulation, will have the ICVCM ‘seal of approval’ as of next year.
We will publish analyses as the ICVCM assessment process continues throughout 2024, starting with the initial launch of CCP-labelled credit categories in April. Every assessment result gives better information as to the voluntary carbon market’s “real” supply.