The Role of Intermediaries in the VCM

Jul 15, 2024

In today’s post we are looking at a specific actor in the voluntary carbon market: Intermediaries. Simply put, intermediaries are entities that facilitate transactions between buyers and sellers of carbon credits. They have been playing a crucial role in ensuring the market functions smoothly and efficiently by bridging the gap between project developers and buyers. Most intermediaries cover multiple important parts of the market: as project developers, brokers and consultants. They are involved in the development, financing, trading and marketing of carbon offset projects.

How are intermediaries influencing the market?

What has been their role in the past years and how is their role changing right now?

One thing is certain: In the complex environment of voluntary carbon markets, intermediaries play a crucial role. They are an important guide for companies helping to navigate the market and execute offsetting strategies. But the are not only important on the demand side of the market. Intermediaries are also invest early in carbon credit projects and therefore provide critical funding to get project off the ground.

On the other hand they are criticized for their position to extract value from trading with carbon credits and are at risk to consult in a biased way.

Here’s how they help streamline the process and ensure effective carbon offsetting:

Market Access

Intermediaries provide access to a wide range of carbon credit projects, making it easier for companies to find and purchase high-quality credits. They bridge the gap between project developers and buyers.

Due Diligence

They perform rigorous due diligence on carbon credit projects, ensuring that the credits meet high standards for quality, additionality, and impact. This reduces the risk of investing in subpar credits.

Expert Guidance

Intermediaries offer expert advice on selecting the right carbon credits to align with a company’s sustainability strategy. Their insights help companies make informed decisions, maximizing the impact of their offsetting efforts.

Transaction Facilitation

They facilitate transactions, handling the logistics of buying and selling carbon credits. This includes negotiating prices, managing contracts, and ensuring compliance with market standards.

Transparency and Trust

By providing transparency and building trust through verified data and third-party assessments, intermediaries help companies feel confident in their offsetting investments.

It’s easy to see why intermediaries have been essential for navigating the voluntary carbon market, offering the expertise and resources needed to make carbon offsetting a strategic and effective part of any sustainability plan.

But despite their crucial role intermediaries often face criticism. Here are some of the most common criticisms:

Lack of Transparency

Opaque Pricing: The pricing of carbon credits can be opaque, making it difficult for buyers to understand the true cost and value of credits. Intermediaries are sometimes accused of not providing clear information about how prices are determined.

Complex Processes: The processes involved in project certification and credit trading can be complex and not easily understood by all market participants, leading to concerns about the transparency of intermediary operations.

High Transaction Costs

Fees and Commissions: Intermediaries often charge significant fees and commissions for their services. These costs reduce the financial benefits for project developers and increase the cost of carbon credits for buyers resulting in budgets largely spent on consulting instead of impact creation.

Quality and Integrity of Credits

Questionable Projects: There are concerns that some intermediaries may recommend projects that do not deliver real, additional, or permanent emission reductions. This undermines the credibility of the entire market.

Market Manipulation

Conflict of Interest: Intermediaries that engage in both trading and project development may face conflicts of interest, potentially leading to market manipulation or biased decision-making.

Speculative Trading: Some argue that intermediaries engage in speculative trading, driving up the prices of carbon credits without corresponding environmental benefits.

Limited Access for Some Projects

Preference for Large Projects: Intermediaries often favor larger projects that offer higher financial returns, potentially neglecting smaller, community-based initiatives that could have higher impact and significant local benefits.

Greenwashing Concerns

Promotion of Superficial Engagement: There are concerns that some intermediaries may promote superficial engagement with carbon offsetting, where companies purchase credits without making meaningful efforts to reduce their own emissions first.

Conclusion so far

While intermediaries are essential for the voluntary carbon market as they connect supply and demand, they also face significant criticism related to transparency, costs, credit quality and greenwashing.

Getting to the Numbers

From here, let’s dive into the data! We have been looking at retirements in the voluntary carbon market in the last 20 years.

Let’s start with a couple of general observations:

In the early years of the market until 2009 the share of retirements through intermediaries was much larger than in the following decade
Since 2021 there is a trend towards more intermediary activity
Since 2021 total retirement volumes are declining for companies retiring themselves whereas volumes from intermediaries increase
Still only about 15% of the total volume is retired by intermediaries

To get a better understanding of the different groups of companies that are active in the voluntary carbon market, we now look into different segments by retirement volume.

Segments

Focusing on the last five years of retirements we have created four segments based on the average retirement volume:

≥10.000 tonnes per year: high

1.000-9.999 tonnes per year: medium

100-999 tonnes per year: low

0-99 tonnes per year: very low

Here are the charts for each segment, looking at the last five years:

Please note that the two graphs showing the intermediary and non-intermediary overall volumes are including 2024 and therefore only the first six month of this year. The graph showing the share of intermediaries reflects the share of the 2024 numbers so far.

On the one hand, the overall intermediary volume is on a clear trajectory: it is constantly increasing over the past years in the medium, low and very low segments.

On the other hand, the high segment looks different without a clear upwards trend.

Interestingly, in all four segments the share of intermediary volume is very similar; between 15 and 20%. But it’s either stagnating or on a downwards trend in the medium, low and very low segments while on an upwards trend in the high segment.

Our Mission

We have been tapping into countless data sources to analyze how the market has been developing over the years. Based on all this, we are calculating our scores. Our Carbon Cockpit breaks all of this down to the project level. We belive everyone should have the necessary insights to make the best decisions: Invest in trusted projects that deliver real, lasting impact.