Good Practise Guidelines

Good practises for voluntary carbon markets

Organizations can use carbon credits bought from voluntary carbon markets to make climate claims related to their operations, products, and services. However, there is some uncertainty around the production of carbon credits and the related claims. Good practises are essential to credible offsetting and contribution claims and should be based on mitigation outcomes that comply internationally established criteria. Claims should be clear, unambiguous, truthful, and verifiable. Otherwise, the claim can be considered misleading (greenwashing).

Most carbon programs apply internationally established criteria to ensure the quality of carbon credits.

Criteria for certification of carbon credits

Additionality
Robust baseline setting
Robust quantification methodologies
Monitoring and reporting
Permanence
Avoidance of carbon leakage
Real, independently verified, and certified mitigation outcomes
Avoidance of double counting
The ‘do no significant harm’ DNSH principle

1. Additionality

Additionality is a key criterion to avoid taking voluntary mitigation action to support mitigation activities that would take place anyway due to legal requirements or financial attractiveness. The additionality requirement aims to ensure that mitigation activities focus on the types of measures that need additional support through carbon credit sales to be implemented, thus contributing to climate change mitigation. Delivering additional mitigation outcomes is the only way to justify that they genuinely cover emissions from certain operations. Additionality has two dimensions: financial additionality and regulatory additionality. Both dimensions of additionality should be met in accordance with good practises.

Additionality is generally demonstrated and assessed specifically for each mitigation activity for the duration of a certain crediting period. The developer of the mitigation activity should demonstrate that the activity is not required under any existing legislation or policy framework and that it is not financially attractive enough to be implemented at market conditions (without additional revenues from the sale of credits). Only mitigation outcomes that exceed the baseline are counted as additional.

2. Robust baseline setting

‘Baseline’ means a scenario used as a point of reference for a voluntary mitigation action to assess its mitigation impact – the baseline represents a plausible situation in the absence of the mitigation activity. The mitigation outcomes of voluntary mitigation actions are quantified, and their additionality is determined in comparison to a baseline, which is a quantified estimate of the trend in emissions or carbon removals if the mitigation activity is not implemented. The baseline should be a credible scenario of the trajectory of GHG emissions or carbon removals in the absence of the mitigation activity.

A baseline can be set in two ways:

A standardized baseline reflecting the standard carbon removal performance of comparable activities in similar social, economic, environmental, and technological circumstances, considering the geographical context (recommended by the EU).
An activity-specific baseline is determined in terms of a project-specific baseline based on the operator’s individual performance (trend without mitigation activities).

Baselines should be periodically updated to reflect social, economic, environmental, and technological developments.

According to good practises, setting a robust baseline requires consideration of current and planned policies and targets and conservativeness of assumptions. The baseline should take account of legal requirements, i.e., it should be consistent with national legislation. The baseline also considers the relevant emissions trends outside of the mitigation activity.

3. Robust quantification methodologies

Emission reductions and removals should be quantified using applicable and recognized calculation methods, such as those developed and approved within the framework of international or national carbon crediting programs.

Net carbon removal benefit = CR_baseline – CR_total – GHG_increase > 0

where:

CR_Baseline is the carbon removals under the baseline.
CR_Total is the total carbon removal of the mitigation activity.
GHG_Increase is the increase in direct and indirect greenhouse gas emissions, other than those from biogenic carbon pools in the case of carbon farming, which are due to the implementation of the mitigation activity.

When calculating mitigation outcomes, the benefit resulting from a mitigation activity is always compared with the baseline, meaning that a mitigation outcome is quantified in terms of the additional climate benefit generated by the activity in comparison to a baseline. This is generally expressed in terms of tons of carbon dioxide equivalent (CO₂e). Any emissions caused by implementing a mitigation activity should always be deducted from the mitigation outcome, including emissions from manufacturing and use of fertilizers or other products consumed, transport, fuels consumed, etc. Furthermore, any reductions in carbon sinks in forest activities, such as partial harvesting cuts, should be considered when calculating the mitigation outcome.

4. Monitoring and reporting

Mitigation outcomes should be monitored in accordance with the chosen quantification methodology and monitoring results should be transparently reported in a monitoring report in accordance with the chosen quantification methodology. The monitoring results and report should be verifiable, and an independent auditor should be able to audit the mitigation outcomes and baseline quantification.

The geographical location of the mitigation outcome and its carbon removals and emissions should be accurately monitored. For carbon farming (agriculture and forests) and carbon storage products, the LULUCF Regulation provides a blueprint for accurate monitoring and reporting of carbon removals in line with IPCC guidelines. The rules laid down under the LULUCF Regulation encourage monitoring land use in a geographically explicit way, at low cost and in a timely fashion, for example through digital databases, Geographic Information Systems (GIS) and remote sensing, including the Copernicus Sentinel satellites and services (e.g., Climate and Land Services), or commercially available services.

The implementation of mitigation outcomes should be accurately monitored, and the outcomes should be recorded in a monitoring report. The monitoring report should clearly indicate the quantity of mitigation outcomes generated by the mitigation activity during the reporting period concerned (e.g., one year or a longer period) as tons of carbon dioxide equivalent (t CO2e) and the parameters used for quantification, such as emission factors and their sources (broken down into continuously monitored parameters, annually monitored parameters and those fixed at the beginning of the mitigation activity). The quantity of mitigation outcomes in tons of CO2e determines the number of credits sold for the mitigation activity.

5. Permanence

Generally, the mitigation outcomes underlying the carbon credits should be permanent in order to genuinely contribute to climate change mitigation. Potential non-permanence risks should be monitored and managed and any possible releases of carbon from carbon pools into the atmosphere should be offset through an applicable compensation mechanism. Permanence is an important characteristic for carbon credits used to offset emissions or contribute to national climate targets on a permanent basis.

According to good practises, mitigation outcomes should be as permanent as possible, while potential non-permanence risks should be monitored and managed and any possible releases of carbon from carbon pools into the atmosphere should be offset in full. Good practises recommend that permanence should mean over 100 years. Except for the land use sector, the emissions reductions generated as a result of mitigation activities are, as a general rule, permanent and their removals are long-lasting. Carbon crediting programs pursue various approaches to determine permanence and manage non-permanence risk. There are also differences between types of mitigation activities and often also between methodologies. The carbon crediting program applied determines the period of permanence required from mitigation outcomes.

Carbon crediting programs have developed various approaches to managing the non-permanence risk of mitigation outcomes in the land use sector, including buffer pools, liability for reversal of mitigation outcomes, or partial crediting of mitigation outcomes, where only a portion of the mitigation outcomes produced is credited, considering permanence. There are also temporary credits which need to be renewed once their period of validity expires.

As part of planning a mitigation activity, the activity developer should assess the permanence of its mitigation outcomes and the risks of their reversal (due to both human activity and natural disturbances).

6. Avoidance of carbon leakage

Voluntary mitigation action should not result in an increase in greenhouse gas emissions or reduction in carbon sinks elsewhere, i.e., outside the boundaries of the activity. While carbon dioxide leakage is not relevant in all types of mitigation activities, its risk should be considered in mitigation activities carried out within the forestry and land use sector.

In the case of carbon farming, the carbon captured in forests, or the mitigation outcomes generated by a peatland re-wetting activity should outweigh the emissions from the indirect land use change emissions that can be caused by carbon leakage.

Activities such as extending forest rotation length or forest conservation should not result in harvesting operations moving elsewhere. However, this is virtually impossible to avoid completely. International standards, such as the Verified Carbon Standard (VCS), have applied regional assessment of timber market flexibility in North America to estimate the amount of carbon leakage (tCO₂) related to forest activities.

Draft quality criteria for carbon credits

Step 1: Assessing the inherent leakage risks associated with the type of mitigation activity. Any potential material sources of leakage will be identified.

Step 2: An explanation of how any identified potential leakage emissions is minimized through requirements in the respective quantification methodologies and how any residual leakage emissions are considered in the calculation of mitigation outcomes (bearing conservativeness in mind).

7. Real, independently verified, and certified mitigation outcomes

A mitigation outcome is real when the emission reduction or carbon removal has taken place before the corresponding carbon credit is issued and used by its buyer (e.g., to make a climate claim). For a carbon credit to be issued, the quantity of mitigation outcomes and fulfilment of minimum criteria needs to be verified by a competent third party. Various carbon crediting programs have been developed to ensure the quality of credits, providing the framework for verifying and certifying that mitigation activities and the resulting mitigation outcomes meet the program criteria.

Carbon removals claims should be authentic, robust, transparent, reported, monitorable, verifiable, credible, and certified, should not undermine near-term emission reduction action in emitting sectors, should guarantee additionality and should ensure an appropriate accounting of carbon removals in national GHG inventories.

Real mitigation outcomes: According to good practises, mitigation outcomes should represent actual emissions reductions or carbon removals, i.e., be real.

Independent validation and verification: Mitigation activities and outcomes must be validated and verified by an independent third party.

Certification: Mitigation outcomes should be certified within the framework of a carbon crediting program. The program should have effective governance to ensure transparency, accountability, and credit quality.

8. Avoidance of double counting

Avoidance of double counting involves different situations. Avoidance of double issuance and double use means that the same credit is not issued through different carbon crediting programs or used more than once by different buyers. Avoidance of double claiming means that the mitigation outcomes underlying a carbon credit are not counted towards more than one target or claim. Avoiding double counting between a state and a non-state actor would either require that the relevant mitigation outcomes are not counted towards the government target, or that the government makes a corresponding adjustment to exclude them from the accounting of its own climate target.

Carbon crediting programs aim to avoid double issuance and double use of credits by means of registries of mitigation outcomes with relevant key information, including serial numbers. Double use is avoided by cancelling credits that are used through transferring them to a cancellation account or otherwise preventing their reuse.

9. The ‘do no significant harm’ (DNSH) principle

Mitigation activities should minimize and, wherever possible, avoid producing all negative environmental, economic, or social effects. Mitigation activities must not endanger any values relevant to sustainable development, such as biodiversity or social and cultural values. The environmental and social impacts of mitigation activities must be considered as part of planning and implementation.

It is appropriate to establish minimum sustainability requirements for carbon removals to ensure that carbon removal activities have a neutral impact on or generate co-benefits for the sustainability objectives of climate change mitigation and adaptation, the protection and restoration of biodiversity and ecosystems, the sustainable use and protection of water and marine resources, the transition to a circular economy, and pollution prevention and control.

According to good practises, any potential environmental and social risks and impacts arising from mitigation activities should be assessed, implementing environmental and social safeguards to avoid, minimize and compensate potential risks and harms. Proponents of mitigation activities should develop and implement an environmental and social management plan and monitoring mechanism and report potential risks and impacts and their management measures. In line with best practises, impact assessments and monitoring reports should be verified by an independent third party.

Mitigation activity developers should engage local communities and stakeholders in both planning and implementing the activities. Engagement is particularly important in planning and implementation of mitigation activities that may have significant social or environmental impacts. Consultations should enable local and relevant stakeholders to voice concerns and demand fair treatment and, when appropriate, seek redress or compensation. Good practises also include establishment of a feedback mechanism, consideration of feedback in activity implementation and communications about the mitigation activity. As a rule, however, mitigation activities should be planned to avoid causing this type of harm, meaning that mitigation activities involving significant harm should not be implemented.