Verra, the largest registry in the voluntary carbon market (VCM), has rejected 37 rice cultivation projects in China and, for the first time, sanctioned their project proponents and validation/verification bodies (VVBs).
In its announcement on 28 August 2024, Verra identified the following four VVBs as being in violation of the Verified Carbon Standard's (VCS) rules:
- China Classification Society Certification Company
- China Quality Certification Center
- Shenzhen CTI International Certification Co., Ltd
- TÜV Nord Cert GmbH
These VVBs face temporary suspension unless they demonstrate a suitable corrective action plan within 15 days of the announcement. Verra will be seeking compensation for over-crediting and failing to meet the rules of the VCS program.
The impacted projects used the United Nations Framework Convention on Climate Change (UNFCCC) Clean Development Mechanism (CDM) methodology, AMS-III.AU.: Methane emission reduction by adjusted water management practice in rice cultivation. It encouraged small communities and farmers to improve their irrigation methods and reduce their administrative burden. To receive the small-scale designation and be eligible for crediting, projects must reduce fewer than 60,000 tonnes of CO2 equivalent per year.
In February 2023, Verra paused the use of AMS-III.AU. and announced a review through Verra’s quality control process for registered projects under the VCS Registration and Issuance Process. The following month, a permanent inactivation of AMS-III.AU. was announced.
Following concerns about the credibility of the AMS-III.AU. methodology, Verra began developing a new rice methodology in late 2023. On 15 February 2024, Verra invited VVB proposals to review the draft of the Methodology for Improved Management in Rice Paddy Production Systems. Following the VVB reviews, a public consultation was opened on 11 June 2024, which closed after a month.
There was evidence that Shell sidestepped the small-scale requirement by breaking up hundreds of square kilometres of crediting land into smaller projects that fall just within the 60,000t CO2e threshold. The findings raised concerns about additionality, baseline calculations for these projects, and the accuracy of project data. Based on ClearBlue’s data, over 1.66M AMS-III.AU. credits were retired from June 2022 to June 2024, mostly by Shell and PetroChina. Our data also shows that 4.56M credits were issued to 25 projects under the methodology from November 2021 until the suspension.
In recent months, Verra has faced increasing pressure from market participants, regulators, and environmental groups to tighten its oversight and ensure that only high-quality credits are recognized. This has driven them to invest in digital measurement, reporting, and verification capabilities (dMRV). As a result, Verra supported its sanctions by utilizing remote sensing technology.
Verra's actions are expected to positively impact VCM sentiment, which has seen significant volatility in recent months; however, increased scrutiny and more stringent VCM policies have led to an overall improvement in sentiment. Using novel dMRV technologies should help Verra streamline crediting processes, provide more certainty on credit quality, and increase market transparency. The oversight demonstrated by Verra could increase buyer confidence since the announcement could meet buyers' expectations related to improving VCM oversight. This could contribute to a demand-driven upward pressure on prices as buyers gain confidence that each credit accurately represents one tonne of CO2 equivalent emissions reductions.
Our data shows over 2.9M credits are available from the affected rice projects, with 11.6M as the total number of available agriculture-based credits. Since a quarter of the available agriculture-based credits were impacted, there could be supply-driven impacts on ClearBlue’s Category 1 prices despite the over-supply of credits.
Overall, rejecting these rice projects signals to the market that Verra, and likely other registries, will continue to crack down on projects and develop more stringent rules. As these changes occur, reach out if you would like to discuss how this may impact you.