Verra has launched a pilot to test new approaches for managing durability risks in Agriculture, Forestry and Other Land Use (AFOLU) and Geological Carbon Storage (GCS) projects registered under its Verified Carbon Standard (VCS) Programme.
Under the existing framework, nature-based projects are required to contribute a risk-based share of credits to a pooled buffer account to manage the risk of carbon reversals. In response to stakeholder feedback, Verra will now trial a three-year process that allows eligible projects to use either insurance or a fund-based mechanism as an alternative to the pooled buffer.
Under the insurance option, project proponents would be required to purchase an insurance policy that is triggered in the event of a confirmed reversal. The policy must provide minimum liability coverage equal to the total number or value of Verified Carbon Units (VCUs) issued while the policy is in force.
The fund-based approach would allow project developers to sell VCUs while setting aside a portion of the proceeds in a dedicated fund to cover potential reversals. The fund could be managed by individual project proponents, groups of projects, or other market participants.
Verra said the alternative approaches could reduce upfront costs for projects and broaden options for managing reversal risk, potentially increasing demand from buyers familiar with similar mechanisms in other financial markets and supporting higher levels of carbon finance.
VCUs issued under the pilot will carry an “Innovation” label to disclose the use of the new durability approaches. In the event of a reversal during the pilot phase, affected VCUs will be marked as reversed until replacement units are provided through the insurance or fund-based mechanism. If replacement does not occur, the units will remain marked as reversed.
In its recent Continuous Improvement Work Programme on permanence, the Integrity Council for the Voluntary Carbon Market indicated that such approaches could be considered consistent with the Core Carbon Principles. Verra said it will use the pilot period to gather evidence, refine the framework and engage with stakeholders before deciding on any permanent changes to the VCS Programme.
