Building integrity: Government consultation on voluntary carbon and nature markets

On 17 April 2025, the Department for Energy Security & Net Zero published its highly anticipated consultation on voluntary carbon and nature markets (available here) (the “Consultation”). The consultation follows the publication of Government’s six principles for voluntary carbon and nature market integrity published in November 2024, and aims to respond to calls from business, finance, farming and environmental stakeholders for clarity on the Government’s approach to voluntary environmental markets. 

This should be of interest to any company on a net-zero or nature positive journey, as well as to the variety of stakeholders involved in the operation of voluntary carbon and nature markets. The Consultation appears to be a genuine attempt by the Government to grapple with the myriad complexities within voluntary carbon and nature markets, all of which would benefit from the views of a wide range of stakeholders.  

VCMs and VNMs

The consultation covers both voluntary carbon markets (“VCMs”) and voluntary nature markets (“VNMs”), defined as follows: 

1. VCMs – “generate credits representing a tonne of CO2 (or other Greenhouse Gas in CO2 equivalent (e)) reduced (for example through energy efficient technology) or removed (for example by engineered or nature-based greenhouse gas removals) from the atmosphere”; and
2. VNMs – “encompass payments for activities that deliver environmental outcomes through nature-based activities, including biodiversity, and ecosystem services, such as nutrient mitigation and nature-based carbon sequestration. Each credit represents a measured increase in biodiversity or ecosystem service.”

The Consultation is wide ranging, covering integrity of credits, reporting of credits and their use in transition planning, governance, links with the international carbon market, and even the legal status of carbon credits. 

A summary of each the six principles, and other questions raised in the Consultation, is provided below. The Consultation is open for responses until 10 July 2025. 

Principle 1: Use credits in addition to ambitious actions within value chain

To ensure voluntary credits are only used by companies alongside making every reasonable effort to minimise their own impacts on the climate and nature, as well as the impacts in their supply chain, the Government is proposing (and inviting views on): 

• Recognising the Voluntary Carbon Market Integrity Initiative Claims Code of Practice (the “VCMI Code”) (which sets out guidance on how organisations can credibly use carbon credits as part of their climate commitments) as best practice; and
• Taking steps to ensure the VCMI Code interacts with and / or is appropriately embedded within Government principles and guidance. 

The Consultation also invites views on the approach to: 

• ‘Insetting’, defined as “interventions within an organisation’s value chain that reduce and remove (sequester) Scope 3 greenhouse gas emissions whilst creating positive benefits and improving the resilience of communities, landscapes and ecosystems”;
• The VCMI’s Beta Scope 3 Claim; and
• The use of an interim standard for those companies not able / ready to meet the high standards of the VCMI’s Framework. 

Principle 2: Use high integrity credits 

The Consultation invites views on the adoption of the Integrity Council for Voluntary Carbon Market (“ICVCM”) principles and frameworks. While the VCMI focusses on users/purchasers of carbon credits, the ICVCM focusses on the supply side of carbon credits. The ICVCM has published ‘Core Carbon Principles’ and an ‘Assessment Framework’, which aim to ensure all types of voluntary carbon credits issued globally meet minimum standards for integrity.  

The Consultation also invites views on (i) how the VNMs can be used to deliver international nature finance targets, and (ii) on the BSI’s UK Nature Investment Standards. BSI’s overarching ‘Principles Standard’ (BSI Flex 701) is the first standard ready for nature market adoption, but will be followed by successive standards (which are at various stages of development) to set additional requirements applying to UK nature markets. 

Principle 3: Measure and disclose the planned use of credits as part of the sustainability reporting 

The consultation describes the various reporting frameworks, best practice guidance, and carbon registries, through which users of voluntary carbon credits can disclose information about their use. It seeks views on incorporating VCMI’s disclosure elements and whether any additional information should be disclosed. It also asks whether similar requirements should apply to voluntary disclosures of nature credits, and if not, what should be included on nature credit reporting. 

Principle 4: Plan ahead 

The Consultation reiterates the government’s commitment to consult on views on mandating UK-regulated financial institutions and FTSE 100 companies to develop and implement credible transition plans that align with the primary objective of the Paris Agreement to limit global warming to 1.5°C above pre-industrial levels (the “Transition Plan Consultation”). The Transition Plan Consultation is also expected to set out how nature credits could be used to support climate and nature transition.  

Within Principle 4, the Government is seeking views on the role that voluntary credits could play in transition plans and transition plan disclosures. It also raises the question of whether additional guidance is needed on how organisations could use credits on their transition to net zero, to support compliance with any transition plan requirements, or to support voluntary transition planning by a wider range of organisations that won’t fall within the scope of any mandatory rules that follow the Transition Plan Consultation. 

Principle 5: Making accurate green claims using appropriate terminology 

The Consultation asks for views on steps that could help bring clarity to claims made on the use of carbon credits, in order for buyers of credits to be able to make claims with confidence. It proposes two options: 

• Develop official definitions for key terminology – definitions developed by independent international initiatives could be adopted in regulation and guidelines, and form the basis for regulators to challenge unsubstantiated claims; or
• Commission the development of a UK standard for claims and require those claims to be assured. 

Principle 6: Co-operate with others to support the growth of high integrity markets 

The Consultation seeks views on what could be done to enhance alignment with international and domestic initiatives in VCNMs, as well as better clarity on the regulatory regimes in the UK and Devolved Administrations. It recognises the current complexity in VCNMs, including the large number of different stakeholders, the diversity of market infrastructure and the need for effective governance. It focusses in particular on: 

• Co-ordination of capacity building initiatives 
• Support for interoperable market infrastructure 
• Clarity and consistency around the legal and tax treatment of carbon and nature credits.

It also sets out, and invites views on, five ‘functional requirements’ for high integrity UK market governance framework: standards, assurance, accreditation and regulatory oversight, as well as questions on appropriate accounting for carbon credits and whether more needs to be done to ensure the legal status of credits is sufficiently clear.  

Cross-cutting enablers 

The final section of the Consultation invites views on potential steps which could support increased access to VCNMs and growth of the UK VCNM sector. It discusses potential links with:

• The Land Use Consultation;
• The NIS Programme, which is developing a voluntary “community engagement and benefit sharing” standard which will set out guidance on how local communities can proportionately engage with carbon and nature markets; 
• Potential roles for Local Nature Recovery Strategies Responsible Authorities;
• International carbon markets through Article 6 of the Paris Agreement; and 
• Stacking policy, looking at how to incentivise optimisation of land use to allow sellers of nature credits to sell different types of credits from the same activity.

Comment 

The Consultation appears to be a genuine attempt by the Government to grapple with the myriad complexities within VCNMs: the number of stakeholders involved, the wide range of initiatives and best practice guidance available domestically and internationally, the need for integrity and good governance, and the subtle differences between the requirements of VCMs and VNMs. 

There are a number of reasons why corporates and other organisations might wish to purchase credits from the VCM and VNM and this includes as part of an integral transition plan, which may become mandatory for some companies in due course. It is not clear from the Consultation how the VCM and VNM are expected to link with existing compliance activities such as Biodiversity Net-gain. If the intention is to keep them separate, then this would seem odd since many of the same issues apply to such compliance activities.    

The Government has already said that it has begun work on the recommendations from the ’Corry Review’ (the independent review of Defra’s regulatory landscape) for a new industry-funded ‘Nature Market Accelerator’, to bring “coherence to nature markets, booting investment into our natural habitats and driving growth”. Quite what the term ‘Accelerator’ means is at present unclear, and we look forward to further clarification.

In the meantime the UK Nature Markets Dialogue, which brings together a coalition of experts from the finance, business, farming and environment sectors to support nature market development (and for which Penny Simpson, Partner at Freeths who heads up the Environmental Law Team, is a recent addition to the Steering Group) has recently consulted on different approaches to the key parameters for effective nature market governance. Outcomes from the consultation will inform the development of a specific proposal for a nature markets governance model to be presented shortly to Ministers at a Roundtable. It is hoped that the proposed governance model will be considered favourably by Ministers and may be integrated into the “Accelerator” initiative.  

For proponents of environmental markets, these are reassuring steps, especially in light of concerns raised following the publication of the Planning and Infrastructure Bill which has been suggested could undermine existing environmental markets with the proposed introduction of a state-run Nature Restoration Fund. Stakeholders need consistency and clarity from Government if they are to invest in the future of nature markets.

The complexity and range of issues explored by the Consultation would benefit from the views of a wide range of stakeholders. Only when such views are considered, will we be able to take proper steps to move forward to build thriving markets, benefitting the economy, nature and local communities.