Taskforce on

Scaling Voluntary
Carbon Markets
Phase II Report Summary
July 8th, 2021
About the Taskforce

The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) is a private sector-led initiative
working to scale an effective and efficient voluntary carbon market to help meet the goals of the
Paris Agreement.

The Taskforce was initiated by Mark Carney, UN Special Envoy for Climate Action and Finance; is
chaired by Bill Winters, Group Chief Executive, Standard Chartered; and is sponsored by the
Institute of International Finance (IIF) under the leadership of IIF President and CEO, Tim Adams.
Annette Nazareth, senior counsel at Davis Polk and former Commissioner of the US Securities and
Exchange Commission, serves as the Operating Lead for the Taskforce. McKinsey & Company
provides knowledge and advisory support.

The TSVCM’s over 250 member institutions1, represent buyers and sellers of carbon credits,
standard setters, the financial sector, market infrastructure providers, civil society, international
organizations and academics. An advisory board of 20 environmental NGOs, investor alliances,
academics and international organizations provide guidance on TSVCM recommendations.

The Taskforce’s unique value proposition has been to bring all parts of the value chain to work
intensively together and to provide recommended actions for the most pressing pain-points facing
voluntary carbon markets.

Full list of involved individuals and institutions can be found on the TSVCM website: https://www.iif.com/tsvcm

1. 53 Taskforce member institutions and 211 Consultation group member institutions

2
The report was developed with … and a broad public
extensive Member involvement… consultation
TSVCM Membership involvement Feedback Respondent
membership along Phase II received1 groups [%]1
Taskforce-wide

430+ 4 plenaries
130 9
5
42 1
2 24

responses, of
TSVCM
members 5 Advisory Board
meetings which: 9

11 22

250+ 4 Governance Working

Group meetings
58 Open
letters 14

Legal principles and Suppliers

organizations
represented 4 contracts Working Group
meetings
Completed
Market intermediaries
Buyers

4
Credit-level integrity
72 survey
responses
NGOs
Other2

~100
Working Group
meetings Standard setters & Validation /
Verification Bodies (VVBs)

Members Multilateral and international organizations

Subgroup or one-to-one
from the
Global South
100+ meetings with all
Members who requested
them on deep-dive topics
All responses are accessible at
Academia
Members of the public
Member of a community
https://www.iif.com/tsvcm
impacted by carbon projects
Regulators/Government
1. Some respondents submitted both survey responses and letters, and/or identified with multiple respondent groups 3
2. e.g. industry associations, alliances
The report is structured across four chapters
x Detailed next

A Objectives and B C Legal principles D

focus of the TSVCM Governance and contracts Credit-level integrity

Ambition Public awareness of the climate A future umbrella body with a Standardizing legal framework Core Carbon Principle threshold
and co-benefits that Voluntary mandate to implement, host and underpinning credit issuance and standard that does not exclude
Carbon Markets can drive as an curate a set of Core Carbon trading contracts with common credits from the market but marks
important complement to own-firm Principles, provide oversight over language on liability, ownership, out those that satisfy a high quality
emissions reductions standard setters and coordinate delivery etc. standard
interlinkages between
individual bodies

Taskforce Engagement with key stakeholders Blueprint for a future governance Defined use cases to drive Draft assessment Framework for
contribution to drive demand and supply in body specifying its mandate, awareness of potential ways to Standards
VCMs organizational structure, sources use the market Analysis of credit eligibility criteria
of funding and a process for its Developed operational
setup Proposal for a taxonomy of
requirements for Standards’ additional attributes
Terms of Use
Developed general trading
terms clauses

4
B | High-level view on the mandate of the new
umbrella governance body Mandate of the governance
umbrella body
Governance Umbrella Existing governance Existing bodies with a need to
role fulfilled by governance body bodies strengthen and / or expand their role i Mitigate & accelerate
Ensure that the VCM serves its primary
purpose of reducing and removing
Supply Market intermediaries Demand greenhouse gas emissions to mitigate
Governance roles
climate change and to accelerate the
Credit- CCPs and defi- transition to net zero
level nition of additional ii.a
Strengthen validation Umbrella governance body
integrity attributes Establish, host & curate
& verification ii
Adherence to a) CCP eligibility guidelines and
CCPs Suppliers VVBs Standard setters additional attributes

Expert bodies
b) CCP assessment framework for
Partici- Setting participant Umbrella standard setters
pant-level eligibility principles Umbrella Standard setters for corporate
ii.c ii.b gover-
integrity governance body claims c) Eligibility principles for suppliers and
nance body
VVBs
Participant i Accreditation Umbrella Oversee
oversight Standard bodies gover-
Need to give clear iii
setters iii guidance on
iv nance body corporate claims Provide oversight over standard setting
Expert
Regulators
bodies
organizations on adherence to CCPs
Process- Market Need to and participant eligibility / oversight
level functioning strengthen Standard setters Need to oversee
oversight of meta-registries
integrity
suppliers iv Coordinate & foster
and VVBs
Legal Legal a) Coordinate work of and manage
Standard contract hosts
and interlinkages between individual
Need to update
accoun- standard contract governance bodies
ting rules Accounting Financial accounting firms documentation
b) Serve as the steward for the
Voluntary Carbon Market and endeavor
Carbon accounting firms to foster its responsible growth by
defining a roadmap for success
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B | Organizational design: Board of Directors takes decisions based on
recommendations from Expert Panel / Secretariat and input from members

Board of Directors
Expert Panel Makes recommendations for key Founding Sponsor Independent Member
decisions on CCPs for approval by representatives Board Members consultation group
Develops Board of Directors representatives
recommendations on
CCPs Accepts / rejects recommendations on CCPs and
strategic decisions

Sub-panels: Makes recommendations for strategic decisions for

CCP Methodo- approval by Board of Directors
principle 1 logy type 1
Provides operational support and Nominate
document drafting Executive Secretariat three repre-
CCP Methodo-
principle 2 logy type 2 Carries out operational tasks. Manages interlinkages sentatives
between bodies

Provides input to expert reviews and Provides input on coordination between individual
recommendations on CCPs bodies, strategic roadmap and emerging market trends

Member consultation group

Represents member perspective

Funders
Provide funding and will be recognized for their contribution,
but will not obtain any rights or decision power associated with their donation
6
The new governance body will contain a balanced mixture of different
stakeholders Active market participants allowed Active market participants not allowed

 Makes recommendations  Takes key decisions on CCPs and strategic roadmap

Board of Directors
for key decisions on
CCPs
Board of  Aiming for 9-11 Directors (uneven number to enable decision making)
All acting in personal capacity  Diversity across geographies and expertise
 Including sub-panels led Directors
(Founding Sponsors
Founding Sponsor  Provide public endorsement, legitimacy and authority
by Coordinators representatives and
Accepts
representatives 3
/ rejects  Each organization (e.g., industry association, NGO, investor alliance) has one
 Individuals from all independent members)
Expert Panel representative
organizations eligible recommendations on  Board seat for first 3 year term only
All acting in (e.g., NGO, academic,
personal capacity multilateral / international CCPs and strategic
 Act in the global interest and provide expert knowledge and legitimacy
organization, market decisions
Independent Board
Chair and Deputy participant1)  Experts / academics, former market participants, representatives from
members4 multilateral and international organizations Majority5
Standing obser-  20-22 (min. 40%
vers on the Board commitment during setup, (Overall in the majority on the Board)
10-20% steady state)
 5-10 serve for 3-year Member consultation group  Represent opinions and interests from member consultation group on the Board
term. 10-17 serve ad-hoc representatives  Current market participants, one seat each for suppliers, intermediaries, buyers
3 Direc-
as required
(Three members representing the member consultation group) tors

 Carries out operational tasks, supports Expert Panel and manages

Secretariat hosted by one Executive Secretariat interlinkages between individual bodies
Executive Secretariat Host Secretary-General and Deputy Nominate
(not a Founding Sponsor)2  Secretary-General & Deputy from Secretariat Host organization
Standing observers on the Board  17 to 25 (setup) or 15 to 22 (steady state) full-time employees

Member consultation group Represent perspective from all stakeholders (e.g., market participants, industry associations, NGOs, experts, etc.)

Corporates, philanthropic institutions, public funders provide funding and will be recognized for their contribution, but will not obtain any rights or decision power associated
Funders with their donation

The governance body will ensure diverse expertise and representation from all geographies across the body and within each group (e.g., Board, Expert Panel, member consultation group)
1. Active market participants overall in minority on Expert Panel; experts need to declare absence of commercial or financial interest; 2.BoD may establish / appoint another independent entity at a later stage; 3. Guardrails for Founding
Sponsor representatives: need to outline how to minimize conflicts of interest resulting from market activities and declare absence of commercial or financial interest; 4. Guardrails for Independent Board Members: At least 2 years since last
employment for organization generating revenues in VCMs, no current employees of buyers / investors; need to outline how to minimize conflicts of interest resulting from market activities and declare absence of commercial or financial
interest; 5. The Board needs to ensure a majority of independent Directors overall. Some Founding Sponsor representatives may also be classified as independent by the Advisory Board in the recommendation process if they do not have
material conflicts of interest. This could be the case for representatives of organizations that are not active market participants (i.e., developing, financing or trading carbon credits) or that do not directly represent interests of market participants 7
(e.g., industry associations of buyers)
B | TSVCM is calling for expressions of interest until
August 9th to take on a role in the new governance body

In September, the TSVCM

Advisory Board will
Type of organization / Role within Governance recommend
individual Requirements body
 Founding Sponsors,
Founding NGOs, investor alliances Diversity of expertise and Provide public endorsement,
Sponsors and industry associations geographical representation within legitimacy and authority  Independent Board
the group of Founding Sponsors Representatives serve on the Members,
Funding contributions in cash or in Board during the initial phase
kind preferred (not mandatory) (first 4 year term)  Executive Secretariat Host
Independent Experts, academics, Trusted individuals and leading Act in the global interest and and
Board Members representatives from voices with experience in carbon provide expert input and
international / multilateral and / or financial markets legitimacy  Expert Panel Members
organizations and former No conflicts of interest as direct
market participants market participants1
TSVCM members will elect
Member Current market participants Need to agree with the mission Represent opinions and member consultation group
consultation (suppliers, intermediaries, and mandate of the governance interests from members on the representatives in September
group buyers) body Board
representatives

Expert Panel Experts (e.g., academics, Deep expertise in carbon markets Develop recommendations for
Members market participants, and project methodologies key decisions on CCPs for If you are interested in
independents) approval by the BoD
playing a role please see
Executive NGO, investor alliance or Not a Founding Sponsor (to avoid Host the Executive Secretariat2, expression of interest
industry association conflicts of interest) which carries out operational
Secretariat Host
tasks of the governance body and
forms on
Funding contributions in cash or in
manages interlinkages https://www.iif.com/tsvcm
kind preferred (not mandatory)
1. At least 2 years since last employment for organization generating revenues in VCM, no current employees of buyers / investors
2. During the setup phase (first 3 years); In the steady state, the Board of Directors can establish or appoint another legally independent institution to run the Executive Secretariat.
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TSVCM welcomes further
recommendations on five key topics
TSVCM has agreed on ToR, but 5 topics need further
detailing ahead of establishment of the new body How can you contribute

1 Modalities and procedures for the Board of Directors • To support an accelerated implementation of the
Develop details on the decision process of the Board (e.g., governance body, TSVCM welcomes proposals
transparency, opportunity for rebuttal or appeal)
for recommendations on these five topics from
2 Transparency mechanism
Operationalize a transparency mechanism on a procedural and
members and the public ideally before August 9th
transactional level and define what type of information needs to be (please provide input at [email protected]).
made transparent to who and in which form (e.g., real time).
Grievance mechanism
• After the establishment of the new governance
3
Operationalize a mechanism that ensures that grievances and their body, the TSVCM Operating Team will facilitate
resolution feed directly into the decision making of the Governance sharing the proposed recommendations with the
Body. Executive Secretariat and Board of Directors.
4 Transversal approach
Ensure integrity across the value chain. Considerations include:
• The Board of Directors of the new body will
 Approach to manage interlinkages between bodies operating in the decide on acceptance or rejection of the proposed
governance of voluntary carbon markets recommendations.
 Potential to – in the mid-term – extend the mandate of Governance
body to provide more direct oversight over integrated governance of
carbon markets as a whole (e.g. including demand side)
5 KPIs and definition of success
Determine how to measure the effectiveness of a voluntary carbon
market and the governance body in reducing GHG emissions and
accelerating the transition to net zero
9
C | The Legal Working Group’s recommendations target parties at
different stages of the value chain
Detailed next
Content of the recommendations Parties concerned

Use cases Examples of how CCP credits can be traded based on different All users
I and needs and contract mechanics (Suppliers, Verifiers, Standards, Buyers, Intermediaries, etc.)
underlying (Note: the use cases do not intend to recommend specific
contract approaches over others)
mechanics

Operational Provisions which Standards will have to integrate in their Terms Standards – Suppliers Standards – Buyers
II requirements of Use (i.e. the terms and conditions under which they offer
for their services to Users) in order to be able to issue CCP
Standards’ credits
Terms of Use The provisions will be detailed out and regularly updated by the
Governance Body, accounting for innovation and relevant
developments in the market

Key general Standard terms which Parties may integrate in their trading Suppliers – Buyers Buyers – Buyers
III trading terms contracts to avoid “re-inventing the wheel”, reducing legal
expenses and streamlining processes
Apply primarily to OTC contracts, Exchanges may leverage
them to build on their existing trading rules

(Note: Parties remain fully free to draw their own ad hoc trading
contracts; the key general trading terms are optional)

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C.II | Operational requirements for Standards’ Terms of Use to help
address key pain points downstream
Elements proposed to be harmonized
Key pain points to address key pain points

Standards Exchange Buyer Uniform onboarding procedures

The Exchange trades a single The Buyer receives Force Majeure

Standard CCP credit
contract type with credits from credits from one or more
A Limitation of liability A different Standards of the Standards and is Limitation of liability
Dispute resolution A bound by their different
… Reference contract terms and conditions Prohibited practices &
suspension of service
Standard CCP credit
Standard CCP credit Limitation of liability A Limitation of liability Cybersecurity
A Dispute resolution A
B Limitation of liability B A, B, C
…
Dispute resolution B Termination
Dispute resolution
… Standard CCP credit

B
Limitation of liability B A, B, C Dispute resolution
Dispute resolution B
…
…
Standard CCP credit Auditable logs
Standard CCP credit
C Limitation of liability C Limitation of liability C
C Tax compliance
Dispute resolution C Dispute resolution C
…
…

Lack of standardization between the certification and registration services of Harmonized Terms of Use across Standards
Standards results in uncertainty for buyers and may lead to reluctance to trade enhance clarity for buyers over what conditions
they are bound by when trading CCPs with
different origins, making credits more fungible
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C.III | General trading terms can help address key pain points in the legal
environment of VCMs
How general trading terms address key
Key pain points pain points
Clarity and Heterogenous Different laws and legal underpinnings apply in each
certainty treatment of country
about the carbon credits Definition of the products
nature of the
products Unclear liabilities In most contracts the legal liability sits with the verifier,
which can make it an unattractive business model
Complexity Highly fragmented The VCM landscape has heterogenous supply chain
and legal landscape with small players, multiple trading venues, and Limitation of
expenses different contracts Change in law
liability
Complexity from New services, in particular DLT (e.g. applied through a
emerging services meta-registry or trading network), add further Dispute
Indemnification
(e.g. DLT) complexity to the legal underpinnings resolution

Access to Access to financing is a key supplier pain-point and Failure to Settlement and
financing there can be a significant lag between a project deliver delivery
receiving financing and credits being produced
Benchmark
Limited access to High volume of small suppliers make it costly and Force Majeure
price / source
exchange for complex to interface with an exchange
suppliers
Avoidance of Tax
Bad actors in Risks of fraud Potential for money-laundering, tax fraud (e.g. EU ETS double counting / compliance
the market related incidents), consumer fraud, double-counting claiming / use

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D | Setting Core Carbon Principles is key to driving the Taskforce’s dual
ambition

High-integrity carbon ...Traded in robust,

credits... transparent and
liquid markets
Develop core carbon principle threshold
standard for what constitutes a high-integrity Dual ambition for
Catalyze market players to develop
credit and ensure robust governance for the TSVCM infrastructure and solutions that promote
overseeing it data transparency, funding availability,
Allowing companies to pursue corporate ease of access and price transparency
claims that require specific credit types e.g.
removals
The Taskforce will not exclude any credits
from the market and simply label high-quality
CCP credits

Companies’ internal decarbonization and emissions reporting remain the

priority with offsetting playing an important but complementary role
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D | In the January Report, the Taskforce defined a set of high-level CCPs
with both credit-level and operational principles
Taskforce
dimensions dimensions dimensions

Credit-level principles1 Operational principles

Core Carbon
Principles (CCPs) Real Program governance
are high level Principles
Based on realistic and credible Program transparency and public
principles of credit baselines
integrity that participation provisions
become tangible Monitored, reported and verified
through an Clear and transparent requirements for
Assessment Permanent independent third-party verification
Framework for Additional
Standards and a set Legal underpinning
of credit-eligibility Leakage accounted for and
criteria minimized Publicly accessible registry

They were defined Only counted once Registry operation

to be comparable to
ICROA and CORSIA Do no net harm
dimensions
Specific Earliest project start date 20162 Inclusion of Clean Development
rules Mechanism
Only jurisdictional or nested REDD

Detailed definitions of the CCPs in the Assessment Framework for Standards

1. The Taskforce also recognizes that there are other initiatives ongoing (eg, World Bank, WWF/EDF/Oko-Institut, etc.)
2. Under CORSIA, current vintage rules refer to credits issued due to activities that started their first crediting period from 1 January 2016 and in respect of emissions reductions that occurred through 31
December 2020
14
Source: ICROA, CORSIA, WWF/EDF/Oeko Institut
D | Suggested implementation mechanics for the Core Carbon Principles
Role of each body in the implementation of the CCPs Focus of the TSVCM, detailed next
x Detailed next

Future governance
body Standards VVBs
I Standard- Assesses which Standards may issue
level CCPs CCP credits
Standard Assessment Framework
Standard 1
Standard 2

II Credit-level Assesses which methodology types  Design individual methodology  Evaluate specific projects to
CCPs may issue CCP credits protocols determine whether they fulfil the
 Evaluate and identify which individual Standard’s methodology protocol
Credit eligibility guidelines
methodologies comply with the
Methodology type 1 Only vintages governance body’s credit eligibility
Methodology type 2 after x year
guidelines

III Additional Defines the additional attributes that  Provide the registry infrastructure to  Evaluate specific projects to
attributes CCP credits must be tagged with accommodate for additional attributes determine whether they fulfil
Standard taxonomy of Additional
 Identify which additional attributes are requirements to be tagged with
applicable to each individual additional attributes
Attributes
Attribute 1 Attribute 3
methodology (e.g. nature-based capture)
Attribute 2 ...

The governance body will need to fine tune the scope of the CCPs (i.e. granularity of the guidelines for methodology types should
cover the material parameters) and the degree of oversight desirable (i.e. frequency of spot checks)
15
D.I | The Assessment Framework details out
operational considerations to the credit-level CCPs
identified in Phase I
Example detail for an The following proposal
Phase I CCPs Operational considerations operational consideration
is a first draft that the
Real No ex ante crediting Financial additionality
Additional Financial additionality future governance body
[For Project-based approaches]
Jurisdictional additionality
Defined as ensuring the CO2eq
will refine and take to
Monitored, reported and verified Accuracy of measurement
Conservative measurements
avoidance/reduction/removal for which credits the next level of detail
have been issued would not have taken place
Accredited VVBs without revenue from carbon credits.
Oversight of VVBs
Financial additionality may be demonstrated
MRV frequency and reporting content by passing either of the following tests.
Permanent Long term permanence
▪ Negative profitability without credit
Buffer requirement and reversal compensation revenue
Risk assessment and mitigation measures
Notification of loss event ▪ Sufficiently low return on capital without
credit revenue compared to equivalent
Safeguards after crediting period
investments available to the developer so
Leakage accounted for Leakage assessment and mitigation measures as to preclude the investment decision or
an minimized Leakage deduction otherwise constitute a barrier to funding.
Leakage monitoring This may be demonstrated in a variety of
Do no net harm Prior and ongoing impact assessment ways (e.g. business case).
Ongoing stakeholder consultation And, for avoidance/reduction credits:
Safeguards
Grievance mechanisms ▪ Activity penetration of project activity
below an appropriate threshold to
Based on realistic & credible Baseline-setting approach demonstrate low availability
baselines Revision frequency and adjustments

Further Standard-level operational principles (e.g. program governance)

16
D.III | The Credit-level integrity Working Group proposes a
first standard taxonomy of additional attributes Preliminary proposal for the future
governance body to refine into a Standard
Taxonomy of Additional Attributes
Attribute type Attribute options Rationale
Whether a CCP represents a ton of
Type  Removal CO2e avoided/reduced or removed Distinguishing removal credits enables claims that only
is an integral characteristic of the
 Avoidance /reduction or mixed CCP that must be labelled by allow removal credits (e.g. SBTi Net Zero)
Standards on all CCPs.
Removal/reduction  Nature-based Standards are expected to There is buyer demand for credits from nature-based
increasingly tag credits within a
method  Tech-based methodology into removal and
and tech-based methodology types
avoidance/reduction
Storage method  Biological Where not possible, credits would Different storage methods carry different levels of
 Geological automatically belong to the
“avoidance/reduction or mixed”
reversal risk that buyers should be able to select for
 Products (e.g. building materials) category
The combination of removal/reduction method and
 No storage This is an umbrella attribute for storage method creates broad categories that describe
existing, credible ESG and social the type of credit without introducing a new structure of
benefits certifications can be tagged
in this attribute, for example, methodology types that would add complexity and limit
GoldStandard allows for up to 6 liquidity
SDGs to be certified, VERRA tags
its credits with a CCB standard
Co-benefits  Co-benefits associated (e.g. one or based on benefits to Climate, Standards already distinguish credits with SDG benefits
Community and Biodiversity and
more of: tech catalyst benefits, there are independent standards and there is demand for both ESG-tagged credits and
SDGs, CBB or other accredited like the W+ Standard for women’s credits that boost innovation in climate technology
empowerment. Credits with these
label etc.) attributes could be tagged with an
 None ESG label to allow reference
contracts that group them. As the
Corresponding  Letter of Authorization market scales, more granular
attributes must be considered
Buyers may in the future require credits with associated
Adjustments  CAs associated CAs or letters of Authorization
Preliminary pending guidance from
 None COP

Standards already include the first crediting period start date / issuance date in credit data – but the Taskforce will
recommend that it be included also as an attribute so that buyers can select credits based on the project’s first
crediting period 17
 ACKNOWLEDGEMENTS
We would like to thank all Taskforce, Consultation Group, Working Group and Advisory
Board members who contributed their time, insights and perspectives. We would like
to express our special thanks to the philanthropic entities who have supported this project
as donors. High Tide Foundation has served as the lead donor, with Quadrature Climate
Foundation, Bloomberg Philanthropies, and Conservation International serving as
supporting donors. The work of the Taskforce would not have been possible without the
generous support and thoughtful engagement of all of these supporting institutions.

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