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Deep Dive

ReFi Deep Dive: Verra

Phaedrus

• 7 min read
ReFi Deep Dive: Verra

Today we take a Deep Dive with Verra, a key player in the voluntary carbon market.

TL;DR

Founded in 2007, Verra is a key player in the global voluntary carbon market (VCM). The non-profit organization primarily functions as a standard setter and searchable registry for tradable carbon credits.

With a May 25, 2022 announcement, Verra effectively halted all on-chain bridging activity related to credits in their registry while they explore the most appropriate mechanism and safeguards to address their concerns with tokenized VCS credits. Verra have indicated a commitment to engaging with stakeholders on the future of tokenized VCS credits, and recently launched a two-month consultation process that will run until October 2nd, 2022.

Background

Carbon tonnes meeting Verra’s Verified Carbon Standard (VCS) account for the majority of the current off-chain VCM trading volume. Other key players with competing standards include Gold Standard, and the American Carbon Registry.

While Verra and other carbon registries are key players, the VCM also relies on brokers, buyers and most importantly, developers of emissions-reducing or withdrawing projects to be functional and successful.

Verra’s VCS credits have been the single largest origin of on-chain carbon credits, tokenized by infrastructure providers like Toucan Protocol. To date, Toucan and others have bridged over 20 million or nearly 5% of Verra’s credits in circulation, as a burgeoning on-chain VCM has started to take shape.

The Challenge

At the heart of the cascading crises of climate, biodiversity loss and ecosystem collapse, lies an ever-increasing concentration of atmospheric greenhouse gasses (GHGs), named for the way they trap solar radiation and raise the temperature here on earth. While GHGs have been emitted by natural processes long before any human life walked this planet, human-caused or anthropogenic GHGs in the atmosphere have far outpaced and overshadowed any underlying patterns, and are the primary driver of global warming trends being experienced today.

Crucially, our economic systems and measures of progress like Gross Domestic Product (GDP) have historically ignored and failed to account for any negative consequences of anthropogenic GHGs, making negative impacts on our climate and environment economic ‘externalities’. For decades now, those looking to slow or reverse atmospheric GHGs have looked for ways to correct this economic oversight and put our planet on a more sustainable path.

Why Carbon Credits

A carbon credit is a fundamental tool, designed to support a shift away from our predominant destructive economics, toward a sustainable and regenerative future. Developers of projects that protect and restore our atmosphere are able to seek credit for the work they’ve done, while other well-intentioned organizations or individuals that have emissions they have not yet been able to eliminate are given an opportunity to purchase these credits to compensate or offset their residual emissions. One carbon credit typically equates to one metric tonne of GHGs.

Broadly speaking, carbon credits can be thought of as falling into one of two categories:

  • Carbon avoidance / reduction: projects that either introduce a new technology or other intervention that results in less or no carbon being emitted when compared to what would have happened in the absence of the project. Examples here could be projects that protect land from being deforested or solutions that capture methane from pipelines or industrial facilities; or
  • Carbon removal / sequestration: projects that one way or another remove GHGs already in the atmosphere and return the associated carbon to a more stable, inert state. Projects fitting this description can range from reforestation to the deployment of newer technologies like direct carbon capture (DCC).

Carbon credits allow developers of these projects to receive financial benefit when buyers seek to purchase these credits to offset their own residual emissions. This financial mechanism then further incentivizes similar projects to launch or scale up, ideally creating a virtuous cycle of ‘positive externalities’ and reversing the current financial structures that incentivize and reward the destruction of our natural environment.

Verra’s Role and Offerings

A developer who has a project that either prevents or removes GHGs from the atmosphere will need to turn to a registry like Verra in order to have their project approved and begin receiving carbon credits for the work carried out. However, the work carried out by Verra goes beyond establishing and maintaining a registry of approved projects. This work can be broken down into the following pillars.

  • Setting Standards: Verra sets out guiding principles and high-level requirements, along with specific processes to follow before a project will be awarded with credits;
  • Oversight: Verra determines accounting methodologies and monitoring requirements for projects;
  • Independent Assessment: Verra trains and accredits third-party independent auditors to carry out the monitoring requirements they have established.
  • Registry Maintenance and Management: With its public registry, Verra lists program information for all projects that have been approved and received credits. The registry ensures transparency and helps avoid double-counting of credits/offsets.

As illustrated above, the three other primary activities carried out by Verra serve to support and protect the integrity of their standards. Currently, Verra manages the following standards and programs:

  • VCS Program. Launched in 2006, Verra’s flagship program turns greenhouse gas (GHG) emission reductions and removals into tradable carbon credits. VCS projects include dozens of technologies and measures which result in GHG emission reductions and removals, including forest and wetland conservation and restoration, agricultural land management, transport efficiency improvements, and many others.
  • VCS Jurisdictional and Nested REDD+ (JNR) Framework. The JNR Framework is practical framework that provides guidance to national and subnational governments to support development of their REDD+ programs and help nest REDD+ projects within these programs, ensuring environmental integrity and jurisdictional sovereignty.
  • Climate, Community & Biodiversity (CCB) Program. The CCB Program is a framework for assessing land management projects that create net-positive benefits for climate change mitigation, local communities and biodiversity. The CCB Program can be used in conjunction with a GHG-crediting program, such as the VCS Program, and carbon credits can be labeled with the co-benefits certified under the CCB Program.
  • Sustainable Development Verified Impact Standard (SD VISta). SD VISta enables projects to link their social and environmental impacts to the United Nations Sustainable Development Goals (SDGs) through certified claims or tradable assets such as health or water credits. The standard enables donors and investors to identify, support and help drive finance to activities that generate measurable sustainable development outcomes.
  • Verra California Offset Project Registry (OPR). The California OPR helps the California Air Resources Board (CARB) administer the Compliance Offset Program component of its cap-and-trade system. The OPR facilitates the listing and verification of GHG offset projects that were developed using CARB Offset Protocols and that issue Registry Offset Credits (ROCs).
  • The Plastic Waste Reduction Program (Plastic Program). The Plastic Program supports and scales up activities that increase plastic waste recycling and/or recovery from the environment. The program covers a broad range of impactful activities, such as waste recovery from the environment, including by waste pickers, creation of waste collection infrastructure and development of new recycling processes.

The VCM

Carbon credits aligned with Verra’s VCS make up the majority of the voluntary carbon market (VCM), with roughly 235 million credits in circulation at the end of 2020 according to their annual report. Meanwhile a 2021 industry report from Ecosystem Marketplace attributes 69% of all 2020 VCM traded credits to VCS, or 85% through the first 8 months of 2021.  

Alongside others issued in compliance with standards and registries such as Gold Standard, American Carbon Registry and others, carbon credits from Verra’s registry are typically sourced and traded by independent brokers, who connect with organizations looking to:

  • Hold the credits as a hedge against projected carbon prices;
  • Trade the credits with secondary or smaller scale credit buyers looking for similar credits and willing to pay a premium; or
  • Offset their own emissions by retiring specific types and tonnage of carbon credits.


In order for an individual or organization to fairly claim an offset of their own residual emissions, the carbon credit must be retired from Verra’s registry so that it is no longer in circulation.

Verra has seen significant growth in both VCS credit issuances and retirements in recent years, which correlates well with the overall trends expected for both voluntary and compliance carbon markets by industry observers like McKinsey.

It is worth noting that the voluntary carbon market that Verra deals in stands in contrast to compliance or regulatory carbon markets, such as the EU emissions trading system (ETS) or any other national or sub-national regimes that might operationalize Article 6 of the Paris Agreement.

Current Status of On-Chain VCM

With their May 25, 2022 announcement, Verra put an immediate stop to all on-chain bridging activity related to credits in their registry. Verra's 'cautious to cool' stance on the growing on-chain VCM had been expressed as early as November, 2021, so the May announcement was not entirely a surprise. Nonetheless, the halt in bridging has sent many current ReFi projects working with tokenized carbon credits scrambling to engage with Verra while simultaneously exploring and building their future in the absence of Verra's credits (Toucan Protocol's response; KlimaDAO's response). Meanwhile, other upcoming projects such as Flowcarbon have announced delays to their planned token launch schedule.

Verra have indicated a commitment to engaging with stakeholders on the future of tokenized VCS credits, and recently launched a two-month consultation process that will run until October 2nd, 2022 as they explore the most appropriate mechanism and safeguards to address their concerns with tokenized VCS credits.

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