Administration to Offer Carbon Credits for Scope 3 Emissions

New US Guidelines to Be Released Today
carbon credit
Carbon credits help finance carbon-reducing but non-lucrative initiatives such as planting trees. (Khanchit Khirisutchalual/Getty Images)

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The Biden administration is unveiling a framework for using carbon offsets to drive climate progress, with principles that it says are meant to help ensure the trading regimes deliver real emissions reductions — not a green mirage.

The documents being released May 28 by top Cabinet officials, including Treasury Secretary Janet Yellen, take the controversial step of recommending that companies be able to use carbon credits to offset a portion of their so-called Scope 3 emissions, those generated by their suppliers and customers.

In other respects, the guidelines largely align with those developed by prominent industry-led governance bodies. They amount to an endorsement of voluntary carbon markets’ potential to create economic opportunities for farmers and ranchers while helping reduce planet-warming pollution despite the controversies the systems have sparked in the past.

“Voluntary carbon markets can help unlock the power of private markets to reduce emissions, but that can only happen if we address significant existing challenges,” Yellen said.

Janet Yellen


The new U.S. guidelines, detailed in a 12-page joint policy statement and outline of principles, target the trading of credits that are meant to represent a ton of carbon dioxide reduced or removed from the atmosphere. Companies, not-for-profit groups and others can buy the credits — which help finance carbon-reducing but non-lucrative initiatives such as planting trees — as a way to compensate for their own emissions.

However, their use has been criticized because some crediting methodologies haven’t fulfilled carbon-cutting claims. Fixing that deficiency is seen as critical to assuring corporations seeking to trim their own emissions and meet sustainability goals.

The U.S. government principles “will give confidence to businesses that the rules of the carbon market promote best practice in the use and sourcing of high-integrity, project-based carbon credits,” said Chris Leeds, head of carbon markets development at Standard Chartered. “The guardrails that govern project-based carbon credits are moving closer towards being mandatory.”

The market for offsets could soar to $1 trillion by 2050, from about $2 billion currently, if standard-setters ease some rules and expand their use, BloombergNEF forecasts.


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“We need that finance, and we need those solutions,” said Nat Keohane, president of the Center for Climate and Energy Solutions. But “we only want that kind of scale if it represents real environmental integrity on both the supply and demand sides.”

Ensuring the offsets truly compensate for pollution is a particular challenge, since carbon dioxide pollution persists in the atmosphere for centuries. The activities that underpin most credits today often lack that same longevity. For instance, trees that suck carbon dioxide from the atmosphere can burn, die or be cut down. Other options — such as injecting carbon dioxide into deep underground rock formations — could offer longer-term promise.

The government envisions the finance sector offering a solution. Insurance mechanisms such as buffer pools and other financial tools can help address permanence shortcomings, said senior administration officials who spoke anonymously to provide key details ahead of the announcement. The government is looking to enable innovation, they said.

The government is recommending carbon credits simply meet their longevity claims, not a specific time frame. That’s a departure from standards developed by the Integrity Council for the Voluntary Carbon Market, which sets a minimum threshold of 40 years and could expand that to 100 years.

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While offsets frequently channel capital to nature-based projects today, under the U.S. vision, they would increasingly support more innovative carbon-removal ventures, such as direct air capture.

The U.S. framework insists credit buyers should prioritize making “measurable and feasible emission reductions within their own value chains” and that the offsets should be a complement, not a replacement, for that work. But in cases where it’s “unreasonable” to expect companies to be able to fully abate their supply chain emissions within a given time frame, the use of offsets should be considered, the U.S. says.

The United Nations-backed Science Based Targets initiative, the world’s leading arbiter of corporate net-zero plans, has drawn scrutiny for plans to relax restrictions and give companies greater leeway to use carbon credits to offset their Scope 3 emissions. The Voluntary Carbon Markets Integrity Initiative has proposed a similar approach.