Permanence in carbon markets: regulating what matters
By Pedro Martins Barata and Gabriel Labbate, Co-Facilitators of CIWP 13: Permanence (Monitoring and Compensation)
Finding a feasible and high-integrity approach to permanence, i.e. how to ensure that previously credited emissions reductions or removals are not reversed whether willfully or due to natural causes, remains a highly discussed topic in carbon markets. New mechanisms and approaches are being developed and piloted across the market, while regulators are wrapping their heads around what thresholds are both robust and achievable.
Over the past several months, the Integrity Council’s Continuous Improvement Work Program (CIWP) on Permanence (Monitoring and Compensation) has brought together experts from across the carbon market ecosystem to explore a set of issues identified for further consideration in the Integrity Council’s earlier work on permanence.
As the working group has now concluded its meetings, we offer an early look at some of the themes that emerged from the discussions and the areas where the group’s recommendations may help inform the future evolution of permanence frameworks.
Reversal risk assessment
A central focus of the working group’s discussions was how crediting programs assess reversal risk. Participants explored approaches to categorising different sources of risk, distinguishing between avoidable and unavoidable reversals, and ensuring that risk assessments remain robust as scientific understanding, data availability, and climate conditions evolve.
The working group saw that the market is ripe for greater consistency in project-level risk assessment across carbon-crediting programs. Participants suggested common minimum risk categories, clearer definitions of avoidable and unavoidable reversals, and increased standardisation around data quality and transparency.
Discussions also highlighted the importance of assessing reversal risk over timeframes that reflect long-term monitoring and compensation obligations, making use of current and forward-looking information, and periodically reviewing risk assessment tools to ensure they remain fit for purpose as risks and available evidence evolve.
Strengthening buffer pools
Buffer pools remain the most common mechanism for compensating for reversals, used across the board from independent crediting programs to domestic crediting mechanisms and international mechanisms like those under Article 6 of the Paris Agreement. As such, this CIWP discussed approaches to strengthening buffer pools, including through stress tests.
Discussions explored how buffer pool adequacy- and stress-testing could help evaluate the ability of buffer reserves to withstand a range of potential loss scenarios over time. Participants agreed that the Integrity Council should take an active role in piloting stress-testing approaches and discussed what information such pilots may provide to programs, market participants, and other stakeholders.
A recurring question throughout the discussions was how buffer pool resilience can be assessed in a consistent and transparent manner. Participants discussed the various types of tests, who should administer those, the transparency of results, and how programs should respond where testing identifies potential shortfalls.
Novel compensation approaches
A third area of focus was the exploration of novel compensation mechanisms: approaches beyond buffer pools that address liability and compensation for reversals. The working group explored how novel approaches may operate alongside buffer pools, the practical considerations associated with their adoption, and the factors influencing uptake. The discussions focused specifically on permanence trusts and insurance solutions.
Both permanence trusts and insurance are currently being piloted by carbon-crediting programs, and, in some cases, have been adopted as alternatives or complements to buffer pools. At the same time, experience with these mechanisms is limited, and there are still outstanding questions around their implementation, e.g. the governance of permanence trusts, or how insurance can combine with other approaches to support long-term permanence claims.
The working group considered if the Integrity Council should establish a set of performance or eligibility criteria against which any compensation mechanism can be evaluated. These criteria could include solvency, accountability, transparency, and long-term liability. The working group also discussed how the CCPs could move towards this tool-neutral approach, maintaining a credible integrity threshold that is agnostic of specific mechanisms for addressing reversals.
Why these discussions matter
As carbon markets continue to evolve, questions surrounding permanence remain central to discussions about environmental integrity, market confidence and the long-term effectiveness of climate mitigation activities.
The working group’s discussions reflected both the growing body of experience with existing permanence approaches and the emergence of new ideas and mechanisms seeking to address longstanding challenges. They also highlighted the importance of continued dialogue across the market as stakeholders consider how permanence frameworks can evolve alongside scientific, technological and market developments.
Looking ahead
The CIWP on Permanence (Monitoring and Compensation) working group has now completed its meetings, and the Integrity Council is preparing a final report capturing the discussions, findings and recommendations that emerged through the process.
We are grateful to all participants who contributed their expertise, perspectives, and time to this work.
The final report will be published following COP31. In the meantime, we look forward to continuing conversations with stakeholders across the market and welcome opportunities to engage with participants attending COP.
Stay tuned for the report’s release and the next chapter in the ongoing discussion on permanence in carbon markets.