Approaching targets set by the Paris Agreement are drawing growing attention to the development of carbon pricing mechanisms, fostering the rapid evolution of the global carbon markets. This accelerated growth is not free of any challenges, since both the compliance and the voluntary segments of the carbon markets have been scrutinized publicly and repeatedly since their establishment. The root of these challenges and criticisms lies in the lack of transparency that plagues certain carbon operations and schemes, which brings about issues such as double counting and greenwashing, damaging the reputation of the institutions in charge and creating suspicion towards the market.
Market players and participants have undergone various revamps and redesigns to tackle these challenges since they affect their performance and growth prospects directly, turning to platform development and market-wide partnerships as two key solutions to their troubles. These are of special relevance for the voluntary market, which remains highly affected by the absence of regulation, that will be decisive in influencing the success of its expansion in the coming years.
Partnerships can be pivotal to reducing risks and costs by combining the capabilities and experiences of actors that play a similar or completely different role in the market, supporting robust growth by fostering connected value chains. These can take many forms, including NGOs, business collaborations, joint ventures, forums and other institutions, contributing to the achievement of global targets, the expansion of the market and the promotion of best practices.
Likewise, platforms can support both sales expansion and access democratization by backing credit financing, production and exchange with data, ensuring the quality and scalability of market operations. Advances in blockchain technology have contributed to the efficiency and security of data reporting, verification and monitoring, aiding registries, standards and developers in their tasks.
The logic behind these market developments can be understood by approaching the industry with Frost & Sullivan’s 6P Framework in mind, which explains the transition from policies to platforms and the integration of governments, the private sector, and civil society in the carbon markets:
The collaboration between Verdana and EcoRegistry, which brought about Asia-Pacific’s first digital registry for the carbon markets, EcoConsortium, presents a great example to illustrate the importance of both platforms and partnerships for the advancement and growth of this industry. While Verdana specializes in dMRV (digital measurement, reporting and verification) solutions, EcoRegistry offers an environmental commodities registry leveraged by several institutions. By combining their capabilities and portfolio, the two companies have not only expanded geographically in the Asia Pacific region but presented a digital solution that reduces errors and provides credibility over permanence, additionality and leakage of credits, tracing these across their entire lifecycle.
The market must develop trust in the supply side of the industry, leveraging novel technologies and partnerships to support a clear flow of information between all actors in the carbon value chain, tackling criticisms and suspicion from credit buyers and the general public. While the voluntary market seems to be more vulnerable to these threats rooted in the lack of regulation that characterizes it, the compliance sector can also benefit from augmented visibility, especially given its legally binding properties and expanding nature. For the evolution of the market, guaranteed transparency remains imperative.
