The Voluntary Carbon Markets could play a vital role in the energy transition with some estimating the industry will be worth US$250bn by 2030. However, the VCMs are still relatively new and largely unregulated, with differing standards and methodologies for carbon accounting, which leaves the market vulnerable to litigation risk.
As part of LIDW, I was joined on this panel by colleagues from across the legal industry to discuss some of the disputes risk facing those participating in the market. Here are some key takeaways from our discussion.
- While not the only mechanism for offsetting carbon emissions, carbon credits have emerged as the most popular. These credits allow corporates and other organisations to offset their emissions by investing in projects which reduce greenhouse gas emissions elsewhere. One of the major issues for those using carbon credits is the risk of greenwashing – companies need to be clear what terms like "net zero" and "carbon neutral" actually mean and when claims are being made on the basis of offsetting rather than GHG emission reductions at source.
- The 'value' of a carbon credit is difficult to measure and projects can change over time – the lack of consensus on carbon accounting methodologies can lead to a valuation gap between different industry players and could give rise to litigation.
- The role of verifiers may come under scrutiny, particularly where they are involved with challenged projects and they will need to ensure that their methodologies are rigorous and continue to develop as the industry matures.
- Some offsetting projects have been criticised for alleged human rights violations, where local people have been forcibly evicted or displaced by carbon credit projects, and there can be challenges for governments in balancing the benefits of carbon credit projects with the need to develop local infrastructure and provide energy security, which may compete with each other.
Whilst a force for change and progress, the voluntary carbon markets like many new industries will face challenges as it develops and matures and we will undoubtedly see disputes arising...
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