US announces new carbon policy, will guide voluntary carbon market setup.

The Huitong Network foreign exchange analysisU.S. government unveiled its policy on the use of voluntary carbon credits on Tuesday, aiming to establish "guardrails" for this emerging market to boost confidence, as some high-profile carbon offset projects have failed to meet promised emission reduction targets.

Heads of the Treasury Department, Department of Energy, and Department of Agriculture, along with President Joe Biden’s chief climate and economic advisers, jointly released a statement of policy and principles. This is intended to guide participation in the voluntary carbon market as part of broader efforts to encourage its development.

Treasury Secretary Janet Yellen stated, “Voluntary carbon markets can unlock the potential of private markets to reduce emissions, but this can only be achieved if we address the significant existing challenges.”

“The principles released today are an important step in building a high-integrity voluntary carbon market.”

Many companies purchase voluntary carbon credits to offset their own greenhouse gas emissions, with these credits representing emissions that have been avoided or removed through projects primarily located in developing countries.

However, a series of high-profile controversies have shaken confidence in the carbon offset market, with recent studies finding that some large forest protection projects failed to achieve their promised emission reduction targets, leading several major companies that buy carbon credits to exit the market.

Last year, the voluntary carbon market shrank for the first time in at least seven years.

The principles for “responsible engagement” in the offset market outlined by U.S. officials on Tuesday include strict standards to ensure projects achieve real and quantifiable emission reductions, monitoring to ensure projects do not harm local communities, and prioritizing decarbonizing their own supply chains before purchasing credits.

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