Carbon credits can play an important role in accelerating the energy transition: here’s how….

In 2024, the Integrity Council assessed eight carbon crediting methodologies used to design and implement renewable energy projects. It found that credits generated from projects using these eight methodologies cannot be tagged with its high-integrity CCP® label.

Our assessment found that the methodologies were not rigorous enough in determining whether the projects would have gone ahead without the incentive of carbon credit revenues.

This means that while carbon finance for renewable energy projects can play a crucial role in accelerating the energy transition, that role must very specifically be to finance renewable energy projects that have no other means of finance.

Why is this important? Because a misallocation of carbon finance to projects that already have access to funding could undermine trust in the VCM, and disincentivize government and industry-led investment in the energy sector, enabling these actors to shirk their responsibility to rapidly scale up renewable energy capacity.

However, our assessment must not mark the end for carbon finance for renewable energy. Accelerating the transition away from fossil fuels to clean energy remains an urgent and critical goal. The Intergovernmental Panel on Climate Change stresses that renewable energy must scale rapidly by 2030 to deliver global emission targets.

The issue is that while renewable energy costs have fallen dramatically around the globe over the past decade, they have not fallen evenly across all countries. High up-front expenses and other barriers mean that there are still many places where it is difficult to deploy renewable capacity.

As such, renewable energy projects financed by carbon credits still have an important role to play in the decarbonisation of energy grids – particularly in least developed countries where it is difficult to secure the investment needed to transition away from fossil fuels.

New methodologies on the way

When the decision on renewables was announced, the Integrity Council explained it is ready to review more rigorous renewable energy methodologies once they are developed.

And we are encouraged to hear that carbon-crediting programs VCS and Gold Standard are already working on updating their methodologies in line with the CCP requirements – to better take into account the rapidly changing and variable circumstances around renewable energy deployment across different geographies and regions.

We look forward to assessing these new methodologies when they are ready. Our hope is that there will soon be more robust methodologies in place to unlock finance for a new wave of renewable energy projects in places where they are most needed, where they would not be possible without carbon finance.

How do new methodologies need to be different?

New methodologies for renewable energy projects must take a sophisticated approach to assessing additionality; ensuring projects genuinely require carbon finance to proceed and would not have occurred without the incentive created by carbon credit revenues.

There are wider considerations that will also facilitate the development of new methodologies. For example, international agencies concerned with improving energy access can help support this work by providing more reliable models and data sets to draw from.

Like all carbon crediting methodologies, those for renewable energy are frameworks used by project developers to design and implement carbon crediting projects. These methodologies encompass various categories of credits, they can involve the deployment of solar, wind, hydro, tidal/wave, geothermal, and biomass.

These methodologies set out the parameters and operations that must be followed, including how to define the baseline, quantify emissions reductions and establish a monitoring plan. It’s the project developer’s responsibility to apply these principles correctly. These are then validated and verified by an independent auditor – Validation and Verification Bodies (VVBs). This ensures the methodology has been properly applied and verifies the results during each monitoring period.

The current challenges

The Integrity Council found that the eight methodologies assessed failed to meet several CCP Assessment Framework requirements. In summary, the findings included:

• Complexity in demonstrating additionality: Many renewable energy projects are now competitive without carbon credit revenues, making it difficult to prove their additionality.
• Grid emission factors: When considering robust quantification (one of the CCPs), the methods for calculating the carbon dioxide emitted per unit of electricity (grid emission factors) in these methodologies do not consistently meet the required level of conservativeness, to avoid overstating the emissions reductions achieved by a project.
• Suppressed demand: Similarly, methodologies often fail to accurately quantify the barriers to deploying renewable energy, known as ‘suppressed demand.’ The lack of conservativeness in their approach to assessing these barriers can lead to an overestimation of the challenges faced in deploying renewable energy. This may result in inflated claims of emissions reductions achieved by projects.

Looking forward

Renewable energy projects remain vital for the decarbonisation of energy grids. The Integrity Council’s objective is for carbon finance to flow to renewable energy projects where it is most needed – especially for projects in the Global South.

The Integrity Council therefore is committed to assessing more rigorous carbon crediting methodologies while also addressing wider issues that require further examination in order to ensure a just transition. For instance, ensuring the social impact a fossil fuel phase out will have on workers in affected industries is considered.. To support the thinking on this, the Integrity Council is setting up a new Continuous Improvement Work Program to enable carbon crediting to support a just and equitable transition away from fossil fuels.