Voluntary carbon markets
Carbon credits bought from voluntary carbon markets can be used to make climate claims in the marketing of companies, products and services. Climate claims may concern e.g. the carbon-neutrality of a product or service.
Voluntary carbon markets have become increasingly popular in recent years. The increase in the demand for these services is due to both the climate ambition targets set by companies and organisations for themselves and consumers’ concerns about climate change.
According to the good practices, all operators should primarily reduce their own emissions and carbon footprint. The organisations’ own climate actions can be supplemented by supporting voluntary climate actions of other parties that would otherwise not be taken. Voluntary climate action is one way to promote climate work in Finland and globally.
The development of voluntary carbon markets in Finland is guided by EU regulation and international agreements, including the Paris Agreement. According to a study by the Ministry of the Environment, separate national solutions that may soon become outdated should be avoided. International and national good practices, guidance and regulation are developing rapidly.
EU regulation on the certification of carbon removals is currently under preparation.
- Commission proposes certification of carbon removals to help reach net zero emissions | European Commission
Guide on good practices for voluntary carbon markets
There have been lots of ambiguities and suspicions of greenwashing associated with the climate claims of companies. The Ministry of the Environment and Ministry of Agriculture and Forestry published a guide on good practices for voluntary carbon markets in February 2023. The aim of the guide is to improve the reliability of the domestic carbon markets and provide tools for those operating in the voluntary carbon markets.
The guide contains good practices for both the producers and buyers of carbon credits. It is based on the current and evolving EU regulation and international guidelines.
- Guide on good practices for voluntary carbon markets | valto.fi
- New guide outlines good practices for voluntary carbon market | Press release 1 February 2023
Term ‘emissions compensation’ no longer recommended
The term ‘emissions compensation’ (‘kompensaatio’ or ‘hyvittäminen’ in Finnish) has also been used to refer to climate actions by companies. This term is ambiguous and it should no longer be used.
According to the guide, in connection with voluntary climate actions we should use the terms emissions offsetting or national contribution claim.
- Offsetting claim refers to the offsetting of climate harm caused by the company or its product by buying carbon credits that are not counted towards the tracking and accounting of the climate target of any country. An offsetting claim can cover all or part of the emissions. A carbon neutrality claim is an offsetting claim that covers emissions from the source in full.
- National contribution claim means that the claimant, i.e. the party making the claim, has contributed to the national climate targets of a certain country by buying carbon credits that meet the minimum criteria. The party making the claim does not count the mitigation outcomes from the credits towards offsetting the climate impact of its own emissions.
Voluntary compensation/offsetting of climate emissions is not the same as ecological compensation. Through ecological compensation, adverse impacts on biodiversity caused by human action in a certain area are offset by improving biodiversity in another area.
How can carbon credits be used to take climate action?
Carbon credits bought from voluntary carbon markets can be used to make climate claims. According to the good practices, climate claims must be based on carbon credits that meet internationally established minimum criteria.
To ensure the quality of the credits, certification programmes have been developed that enable to verify the mitigation actions and the outcomes they produce. Carbon credit means a certified mitigation outcome that corresponds to one tonne of carbon dioxide equivalent. Mitigation outcome can be either a reduction in greenhouse gas emissions or increase in carbon removals.
One key minimum criterion for the credits used to prove climate claims is additionality, i.e. the project that produced the credit would not have been carried out in any case e.g. due to statutory requirements or in a way that is economically profitable.
The internationally established minimum criteria that are also included in the good practices are:
- Robust baseline setting
- Robust quantification methodologies
- Tracking and reporting
- Avoidance of carbon leakage
- Authenticity, independent verification and certification
- Avoidance of double counting
- ‘Do no significant harm’ (DNSH) principle
Besides these, in some certification programmes the criteria also include the delivery, tracking, reporting and verification of positive sustainable development impacts.
Voluntary climate actions that do not fulfil all minimum criteria can also produce significant climate and other benefits, which is why it is important and advisable to support these as well. However, these should not be used for offsetting claims, such as those concerning the carbon neutrality of organisations.
Double counting avoided through contribution claims
According to the good practices, operators should avoid double counting, i.e. a situation where the same reduction in emissions is claimed by more than one entity. One example of double counting is when an emission reduction included in the country’s emission balance is used for a carbon neutrality claim of a company, product or entity.
Finland reports its greenhouse gas emissions and e.g. the carbon removals by forest carbon sinks on an annual basis. The calculations are made in accordance with international agreements and standards. Finland’s greenhouse gas inventory covers greenhouse gas emissions from human actions and carbon removals within the country’s borders. Measures such as afforestation projects carried out in Finland are included in the reporting.
Based on a study published by the Ministry of the Environment and Ministry of Agriculture and Forestry, at the moment the EU legislation does not allow the so-called national adjustments. In national adjustments, the State would make changes to the way its own greenhouse gas emissions are counted or commit to exceeding its national target by an amount corresponding to the company’s or organisation’s mitigation result.
One way for companies to avoid double counting is to make contribution claims in their marketing, which means that the credits used will also contribute to the achievement of Finland’s carbon neutrality target.
Reliable information to consumers
Consumers must have access to reliable information on emissions that are to be offset without unreasonable effort and significant costs and how this is to be done. According to the Consumer Protection Act, companies may not give false or misleading information in their marketing or customer relations. This also applies to environmental claims. The two main principles that apply to their use in marketing are:
- The claims must be clear, accurate and understandable, and they must not mislead consumers.
- The company must have evidence to support its claims.
Besides the certification of carbon removals, within the next few years the EU plans to introduce new regulation and stricter requirements concerning the criteria for climate claims, sustainability reporting by companies and corporate responsibility.
Domestic carbon markets developed based on research
The Ministry of the Environment, together with other ministries, has analysed the current situation with respect to voluntary carbon markets and the role these could play in climate change mitigation. Different kinds of projects that produce emission credits and the international standards related to these, European offsetting schemes and quality assurance of the projects have been analysed as well.
Government’s analysis, assessment and research activities – Emerging international framework for voluntary climate measures
The study funded by the Government that started in March 2023 and will run for 1.5 years will examine how the national legislation, guidelines and reporting of carbon dioxide emissions should be updated in the longer term, and the impacts of changes in the international regulatory frameworks on national emission reductions, consumer protection and operating conditions of companies.
Impacts of the development paths of carbon offsetting – KolKom (in Finnish)
The project investigates the impacts of carbon offsetting on production and value chains in the forestry and agricultural sectors. The project is part of the Catch the Carbon research and innovation programme. It will run until the end of 2023.
Carbon offsetting information service – HIMA
The project produces a service for sharing information on carbon offsetting. It will run until the end of 2023.
Possibilities of municipalities to use offsetting based on net carbon sinks in the land use sector – KUNTANIELU (in Finnish)
The main objective of the project is to create better conditions for municipalities to strengthen the net sink of the land use sector and to lay the foundation for offsetting operations at the level of municipalities that enable them to move towards carbon neutrality.
A preliminary study on carbon offsetting projects in the land use sector (in Finnish)
A project funded by the Ministry of Agriculture and Forestry examined projects in the domestic land use sector.
Regulation of voluntary emissions offsetting (Abstract in English)
A project funded by the Ministry of the Environment in 2021 investigated how offsetting services should be regulated in Finland. The study examined what kind of guidance instruments are available and assessed their suitability and impacts.