6.5.1  Standard setting

1079.  High-integrity offsets bought by businesses can play an important role in the transition to net zero. The Review's engagement with key investment stakeholders shows a real appetite to go further by offsetting greenhouse gas emissions outside of the UK ETS. However, before voluntary carbon markets can grow responsibly, businesses need assurance of the integrity of any offsets and greenhouse gas removal (GGR) investments. As such, government action can play a key role in setting standards for carbon offsets, providing reassurance to businesses and ensuring that investments lead to credible emissions reductions.

1080.  The space for offset standards is fragmented, to the detriment of the emerging carbon market. There are various standards for offsets and their longevity set by organisations internationally. This has created a fragmented investment environment where it is difficult for businesses looking to invest to know the exact offset of their investment, as well as for businesses looking to attract investments and as such support emissions reductions and removals:

"The market for purchasing UK offsets is currently fragmented, inconsistent, and lacks regulation and verification mechanisms. Addressing this would support the reduction of emissions from land use and the use of land for carbon sequestration in the UK.'' - UK Centre for Ecology & Hydrology771

1081.  The lack of transparency/regulation in the emerging carbon market has led to a prevalence of low-quality offsets. Offsetting will not succeed in delivering net zero ambitions and emissions removals where associated claims are not based on scientific evidence.

1082.  This is particularly important in the light of previous offset schemes having lacked transparency, which has led to the risk of greenwashing where companies would buy cheap offsets that did not necessarily provide the emissions reductions claimed. This has previously led to a lack of confidence in the integrity of offsets, which makes businesses less likely to invest in credible offsets. The roundtables held by the Review highlighted examples of so-called 'greenhushing' where companies invest in the voluntary market, but do not want to make this public due to the risk of being accused of greenwashing. This leads to less investment despite businesses being keen to lead on decarbonisation efforts.

1083.  Government can mitigate this by putting in place guidance for businesses looking to purchase offsets and endorse international standards to ensure the transparency and integrity of carbon offsets while avoiding VCMs becoming a substitute for businesses to reduce their own greenhouse gas emissions. There is potential to harness voluntary carbon markets in the UK for delivering both nature-based greenhouse gas removals, building on the UK's "leading examples of good governance with the Woodland Carbon Code and the Peatland Code", and engineered GGRs, building on the Government's Green Finance strategy and GGR programme.

1084.  Government should endorse a set of international standards for offsets. The UK Government has welcomed the work of the Voluntary Carbon Markets Integrity Initiative (VCMI) and the Integrity Council for Voluntary Carbon Markets (ICVCM) to ensure that voluntary markets for carbon have integrity are accessible for all globally. However, the Government has yet to endorse a set of standards for offsets.

1085.  Nature-based solutions need to be considered as part of wider approaches to ecosystem markets. Nature-based solutions will be a key part of the 'net' in net zero, and voluntary carbon markets can leverage private investment to massively scale up efforts in this space. As set out in Pillar 3, government has a role to play in ensuring there are readily investible nature-based solutions projects in the UK. More broadly, government should ensure that private investment in nature-based solutions for climate is not considered in isolation from other natural capital and habitat restoration. Upcoming work undertaken by Defra will set out the development of high- integrity ecosystem markets including markets for nature-based carbon sequestration and abatement as well as other ecosystem services (such as biodiversity and nutrient pollution mitigation) to ensure a coherent and sustainable approach.