California Governor Gavin Newsom has signed the Voluntary Carbon Market Disclosures Act (VCMDA), a law aimed at combating 'greenwashing' by requiring detailed disclosure of net zero, carbon neutrality, and emissions reduction claims, as well as voluntary carbon offsets (VCOs) purchased, used, marketed, or sold in California. The VCMDA will take effect on January 1, 2024, and applies to public and private companies operating in California or making claims or selling VCOs in the state. Violations of the VCMDA can result in civil penalties of up to $2,500 per day per violation, not exceeding $500,000. The law's scope is broad and may apply to companies that operate in California and make claims anywhere in the world if those claims are read by individuals in California. Companies should review the VCMDA and prepare the required disclosures in advance of the effective date. The VCMDA overlaps with the SEC's proposed rule on climate-related disclosures and goes further in some aspects. Companies subject to the VCMDA should also consider the interaction with similar requirements and standards in other jurisdictions.
California has passed two landmark climate disclosure laws, SB253 and SB261, which require major corporations doing business in the state to disclose their greenhouse gas emissions and climate-related financial risks. These laws have a more expansive reach than the SEC Proposed Rule, applying to most large U.S. companies doing business in California.
The Financial Conduct Authority (FCA) has also welcomed the launch of the Transition Plan Taskforce Disclosure Framework, which aims to provide better information to financial markets regarding how companies plan to adapt their business models, operations, and products and services in the transition to a low emissions economy.
The U.S. Treasury Department has introduced nine guiding principles for financial institutions with net-zero commitments, aiming to promote consistency and credibility in achieving net-zero goals. These developments reflect the growing recognition of the importance of sustainability and the need for increased transparency in the financial sector. The rising tide of governmental requirements for climate-related reporting cannot be denied.
In addition, a global securities watchdog, IOSCO, has proposed 21 safety measures to improve integrity, transparency, and enforcement in voluntary carbon markets (VCMs). The measures aim to address concerns about the quality and double counting of credits in the sector, which could lead to fraud. IOSCO is seeking public consultation on the proposed measures, which include standardizing terminology, requiring companies to disclose their use of carbon credits, and implementing anti-fraud and market manipulation safeguards. VCMs cover pollution-reducing projects that generate carbon credits for companies to offset their emissions and meet net-zero targets. The sector is expected to grow from $2 billion in 2020 to about $250 billion by 2050. The proposal comes as the COP28 climate summit in Dubai debates the prioritization of ending fossil fuel use versus promoting emissions capture technologies.
The Biden-Harris Administration has released a Joint Policy Statement and Principles for Responsible Participation in Voluntary Carbon Markets (VCMs). The statement and principles aim to address challenges in VCMs and ensure that one credit represents one tonne of carbon dioxide reduced or removed from the atmosphere. The administration believes that high-integrity VCMs can play a meaningful role in reducing global greenhouse gas emissions and supporting the objective of global net-zero emissions by 2050. The Department of Energy, Department of Agriculture, and Department of Treasury are among the agencies taking actions to encourage the responsible development of VCMs. The Department of Agriculture has released a Request for Information seeking public input on VCM protocols, and the Department of Energy has announced the semifinalists for its $35 million Carbon Dioxide Removal Purchase Pilot Prize.
The USDA has published a request for information to support the implementation of the Growing Climate Solutions Act. The request aims to gather input on how to establish a certification program for voluntary greenhouse gas credit markets in the agriculture and forestry sectors. The USDA is seeking feedback on various topics, including program design, eligibility criteria, verification requirements, and market transparency. The deadline for submitting comments is May 31, 2024.
The US Treasury Secretary, Janet Yellen, announced a set of principles for voluntary carbon markets (VCMs) that the Biden administration would like to see adopted. The move is seen as an important step in seeking better standards for VCMs. However, while guidelines on certifying and trading offsets are important, they are not a substitute for real action. VCMs have faced controversies and criticism for allowing companies to buy meaningless credits to offset their carbon impact. Yellen emphasizes that the primary responsibility of economic actors is to reduce their direct carbon impact. The challenge with VCMs is the difficulty in verifying the claims of projects and distinguishing between hypothetical emissions and certain emissions. Yellen's statement aims to ensure that the challenges with VCMs do not overshadow the concept itself. The article highlights the need for stronger regulation and the danger of principles being manipulated for lip service. The world is running out of time to address climate change. [929be3c3]