Environmental marketplaces: creating a high-integrity voluntary carbon market in the UK

Voluntary carbon markets offer an opportunity for businesses to take proactive steps towards mitigating their carbon usage, while simultaneously demonstrating corporate responsibility and environmental stewardship.

The market is based around credits, representing a tonne of CO2 (or other greenhouse gas in CO2 equivalent) removed from the atmosphere, which businesses can voluntarily purchase to offset their carbon emissions. This private investment can contribute to the reduction or removal of greenhouse gas emissions through projects, such as reforestation, improved land management or renewables developments that generate associated credits for purchase.

The government has reiterated its commitment to the use of market-based measures to support net-zero and environmental targets. The UK Emissions Trading Scheme, which results in companies trading allowances with one another, has demonstrated the ability for successful mandatory market compliance mechanisms. These de facto markets have helped to propel the UK to consider the viability of a voluntary carbon market alternative.

Voluntary carbon market consultation

Despite the positive intention behind the voluntary market, concerns over credibility, transparency and quality of some credits have dampened their reputation and the growth of this market. These concerns are exacerbated by negative media coverage on carbon credit projects viability or the revision of corporate decarbonisation targets downwards.

In order to combat some of these concerns, the government published a set of six principles for UK voluntary carbon and nature market integrity in November 2024.

At the time of announcement, the government committed to elaborating on the principles and considering the options for their implementation. On 17 April, it launched a consultation on expanding upon the principles to shed further light on its rationale and on how the implementation of each principle could help to raise integrity in the market. The consultation closed on 10 July with the government's response pending.

Six principles and implementation

The first principle is that "credits should only be used in addition to ambitious actions within value chains". The government has made clear that the use of credits should not simply be a way of disregarding a business' own carbon emissions. Instead a business should first strive to reduce its own environmental impacts and those of its supply chain partners before turning to offset those impacts through acquiring credits from voluntary markets. Among other suggestions, the consultation has proposed implementing this principle through the recognition of the Voluntary Carbon Market Integrity Initiative's (VCMI) code of practice for claims. The VCMI code sets standardised criteria and certification thresholds and would serve as the foundational guide for buyers of high-integrity credits.

The second principle requires suppliers to ensure credits meet "high integrity standards, delivering the claimed environmental benefits". The UK government has recognised that credits should be independently validated and verified, address any social and environmental harms and support broader environmental and social goals. There has been an increasing use of companies such as the carbon credit registry Verra to undertake these validation exercises. The consultation is proposing to endorse the Integrity Council for the Voluntary Carbon Market's 2023 core carbon principles and assessment framework as a minimum quality requirement.

The third principle requires "measuring and disclosing the planned use of credits as part of sustainability reporting". To build trust and confidence in the market, the government want details such as the project type, certifying standard and credit relation to wider environmental objectives and targets to be detailed in companies sustainability reports. The consultation is seeking comments on whether the existing environmental reporting guidelines that were updated in 2019 are facilitating this exercise, whether they could be improved and whether they should be updated to reflect disclosure requirements under VCMI's code.

The fourth and fifth principle require "planning ahead" when making transition disclosures and "making accurate green claims using appropriate terminology". The rationale for these principles is around the transparency of an organisation's environmental impact in the short and long term. To facilitate the implementation, the consultation is seeking views on the role of the voluntary carbon market in net-zero transitional plans where lack of clarity is inhibiting their use and whether additional guidance could benefit organisations. In terms of terminology, the government is seeking feedback on its alternative proposals; either building on international initiatives to create an official definitions list, or the development of a UK standard for claims relating to carbon credits.

Principle six requires "co-operation with others to support the growth of high integrity markets". The government has recognised that collaboration will promote standardisation, enhance information sharing, ensure fair market access, lower transaction costs and improve transparency. The consultation is seeking feedback on whether additional initiatives are needed to support global interoperability of carbon markets and whether further clarification around accounting and tax treatments of credits would be beneficial. 

Osborne Clarke comment

The introduction of a set of principles for voluntary carbon market integrity back in 2024 was a step in the right direction towards ensuring the credibility and effectiveness of carbon offset initiatives.

However, this year's consultation seeks to further expand on the policy and rationale for the six principles, while grappling with how these can be practically implemented to unlock the potential of the voluntary carbon market. By clarifying expected standards with stricter principles and guidelines, the overall integrity and transparency of the market should benefit, making it increasingly attractive for investors, suppliers and purchasers.

While there is a small risk that higher standards, increasing scrutiny and accountability may reduce the number of businesses participating in the voluntary carbon market, the integrity of the market is paramount to its success. A more rigorous and transparent framework is likely to drive private finance and attract new entrants.

We anticipate that further details about the voluntary carbon market landscape and its practical reality will emerge following the publication of the responses from the consultation.  

This is the second Insight in our UK-focused series on environmental marketplaces, which has previously looked at emission trading schemes and will next focus on developments around nature markets.

Osborne Clarke is at the forefront of these developments and ready to help businesses navigate the fast-changing sustainability regulations. Please contact our experts if you wish to further discuss these developments.