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  • Writer's pictureClimate Action Co

NZ Voluntary Carbon Market: Context, Opportunity and Actions to Scale

Updated: May 24

Opportunity

  • The New Zealand government will need voluntary carbon credits for NZ's inevitable shortfall in our Nationally Determined Contributions at 2030. There is broad consensus that a large chunk of these credits should come from NZ alongside our support of developing economies to decarbonise through purchasing the remaining carbon credits needed offshore.

  • There is an immediate export opportunity for the voluntary carbon market in NZ. Selling voluntary carbon credits overseas brings money into rural communities, is good for the NZ balance of payments and facilitates conservation and restoration.


Compliance Market Context

  • Australia has 32 different methods for carbon removal or emissions reduction in their ETS equivalent. NZ still has just the one which still massively favours pine forests.

  • NZ has the largest compliance carbon credit market (emissions trading scheme) : economy size ratio in the world, of the 30+ countries who have one.

  • NZ has the only carbon credit in the world (NZU) which can’t be subtracted from a company's emissions budget. I.E. If Fonterra buys 100 NZU, they can’t subtract these 100 NZU from their emissions budget, they need to buy voluntary units to do this.

  • Pine NZUs are the only carbon removal credit in the world which can’t be used in a voluntary capacity.

  • The Australian compliance carbon market, which is shortly to expand significantly under new regulation, has exactly the same standards for their compliance credits as their voluntary credits. This is the approach NZ should take and the rest of the world such as South Korea, China and Japan are taking.


Voluntary Market Demand Context

  • The global voluntary carbon credit market was embroiled in controversy in 2023 leading to price declines. Despite this, total demand still increased. Early signs in 2024 show strong market growth and prices rebounding.

  • A voluntary carbon market focused on high-quality removals could scale to US$884 billion (NZ$1.4 trillion) by 2050, according to research from BloombergNEF.

  • Global standards shifted from the International Carbon Reduction and Offset Alliance (ICROA) as the governing body, to The Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Market Integrity Initiative (VCMI) standards. This was why Toitū shifted away from natives as native NZUs were approved by ICROA, but no one has yet attempted to get a NZ credit approved by ICVCM.

  • Globally, the voluntary carbon credit space has been dominated by calls for ‘greater integrity’. While increased integrity is important, many actors are now finding that the highest integrity credits are having the least impact. For example, many carbon credits only have 30% or less of the funds from the credit purchase going to action on the ground. The rest is being spend on consulting and various layers of verification.

  • Higher levels of integrity are needed, however, this costs money which means less action on the ground. A careful balance between integrity and efficacy is needed.

  • Voluntary market actors are now calling for higher ‘efficacy’ credits. With the primary focus of their credit purchase being the % of funds that are going to impact on the ground.


Voluntary Market Supply Context

  • NZ has one of the lowest rates of voluntary carbon project development of any country, developed or developing, in the world.

  • Currently, the NZ voluntary carbon market has been extremely small and involved just a few organisations selling native forest NZUs as voluntary carbon credits.

  • CarbonCrop with Climate Action Company are the only companies who have developed and sold voluntary carbon removal credits in NZ. We have done this across 10+ projects.


Are Carbon Credits an Excuse to Pollute?

  • Some spectators of the voluntary carbon market have been claiming that carbon credits are an excuse to continue polluting.

  • However, most economists agree that this logic, when used in reference to the whole market, is irrational.

  • Very simply, if the cost of purchasing a carbon credit is above the cost of cutting emissions, the business will cut emissions. (I.E. marginal abatement price). If the price of the credits is below the price to cut emissions, the business will continue to pollute. Unfortunately, voluntary carbon credits have been priced too low, so in most cases have been below the cost of emission abatement.

  • In a recent study, ecosystems marketplace looked at over 7,000 companies worth $110 trillion. They found companies that purchased voluntary carbon credits were nearly twice as likely to reduce emissions.


Additionality

  • NZ native forests are able to easily address other principles required for voluntary carbon credits (I.E. permanence, no double counting, leakage).

  • NZ has some of the strictest laws in the world preventing native forest deforestation. This makes proving additionality subjective because it is much easier to prove additionality if there is a risk of deforestation. Hence the vast majority of forest voluntary carbon projects around the world are avoided emissions rather than carbon removal.

  • Additionally isn’t a yes or no question. It’s a nuanced spectrum of ‘how additional’ a project  is. The width of the spectrum is largest for nature based carbon removal projects. Additionality is important so projects don’t get rewarded for carbon that would have been sequestered anyway, however, it is also important to understand the perverse outcomes of additionality.

  1. Strict additionality interpretation can disadvantage indigenous communities who have been good custodians of the land for generations. For example, a mining company profited to remove a salt marsh decades ago and now gets paid to restore it. Whereas the indigenous community next door who have been great custodians of their salt marsh the whole time get nothing.

  2. Additionality can incentivise delayed adoption of sustainable land use. For example, with soil carbon, if I as a farmer switch to regenerative practices now before soil carbon credits are available, it will be ineligible for credits in the future because my management was already regenerative. So I will delay these new sustainable practices until I can get soil carbon credits.

  3. Additionally incentivises deforestation so carbon projects have a lower or easier baseline to start from. The use of the pre-90 ETS date is an example of how additionality has incentivised deforestation of natives in NZ.

  4. Additionality incentivises developing countries to keep poor deforestation laws in place so their country has greater access to carbon markets.

  5. Strict additionality favours industrial carbon removal as opposed to nature based solutions where additionality is more subjective.


  • It is important the morality of additionality is applied and interpreted in a nuanced way so that it incentivises future carbon removal and real climate action in the most pragmatic way possible.


Actions to Scale

  • The ICVCM is the new global governing body for voluntary carbon credit legitimacy that all market participants are looking to. In April 2024 the first ICVCM approved voluntary carbon credit standards were announced.

  • NZ needs ICVCM approved carbon credit methodologies to sell credits locally and offshore at scale. Climate Action Company is currently working towards this.

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