Key highlights:

• • • Tax credit transferability survived intact— The OBBBA preserved Section 6418 transferability rules despite earlier proposals to sunset or repeal them.

    • AI-driven data center boom may revive renewable energy tax credits— With data centers projected to consume 12% of all US energy by 2028, large operators have strong incentives to advocate for preserving and expanding renewable tax credits to meet massive energy demands through solar, geothermal, and battery storage solutions.

    • 2026 market conditions favor buyers due to supply-demand imbalance—Increased supply of tax credits (particularly Section 45Z clean fuel production credits) combined with reduced buyer competition from provisions like Section 174 and bonus depreciation has created advantageous pricing.

At the start of the current Trump administration, green energy tax credits were expected to be slashed or disappear altogether. In reality, significant changes emerged instead of ceasing to exist. More specifically, the One Big Beautiful Bill Act (OBBBA), passed in July 2025, kept the transferability rules around green energy tax credits intact.

As a result, the market for these credits remains robust in 2026 and 2027, says , an energy tax authority and principal at accounting firm CliftonLarsonAllen (CLA). In addition, multiple credits still have runway, and near-term dynamics in 2026 may favor buyers.

OBBBA’s changes result in shifts in marketplace conditions

When the OBBBA bill passed, the specifics revealed a more optimistic picture than many understand. According to Hill, specific examples include:

• • Wind and solar projects — Developers that begin construction by July 4, 2026, still have a four-year window to complete their projects and still claim credits. Even projects that miss this construction deadline can qualify if they’re placed in service by December 31, 2027.
  • Clean fuel production credits — Clean fuel production credits, detailed in OBBBA’s Section 45Z, received an extended runway through 2029.
  • Tax credit transferability — The tax credit transferability aspect under Section 6418 remained whole, despite previous versions of the bill proposing either a sunset date or outright repeal of transferability. This fact provides a level of marketplace certainty that can act as critical liquidity for developers that typically lack the tax liability to use credits themselves.

In addition, the legislation altered the buyer and seller environment. Provisions including OBBBA’s Section 174 and bonus depreciation generated additional deductions for certain companies, and as a result, reduced those companies’ 2025 corporate tax liability. Simultaneously, Section 45Z clean fuel production tax credits came into force and created a supply-demand imbalance that favors buyers.

Overall, in the latter half of 2025, Hill describes the marketplace as favorable for buyers because of an increased supply of tax credits that were for sale previously with fewer buyers. Into 2026 and beyond, both developers and corporate buyers still have significant opportunities to participate in the tax credit marketplace, explains Hill.

AI-related data center demand may spur new proposals for renewables tax credits

The explosive proliferation of data centers because of the growing AI demand across the United States may become the unexpected champion for renewable energy tax credits. Hundreds of facilities are currently under construction, and the energy demand implications are staggering. In fact, the projects that by 2028, data centers will consume 12% of all US energy.

Renewable energy technologies are emerging as essential solutions to meet these demands. Solar power, as a tried-and-true technology, offers ideal supplementation for data center operations; and geothermal heating and cooling systems directly address the massive temperature control challenges these facilities face. Perhaps most significantly, battery storage is rapidly becoming standard operating procedure, with both grid-based and solar-array-tied battery systems providing critical backup power.

These developments carry substantial policy implications. In fact, large data center operators have incentives to become vocal advocates for preserving and expanding renewable tax credits, says , a leader in federal tax strategies at CLA. “We want our AI, we want our cloud-based services. To do that… we need massive data centers and massive computing demands,” DePrima explains. “And that in turn requires massive amounts of energy consumption, which renewables can certainly supplement.” This, in turn, creates the potential for a renewable energy tax credit “comeback” within two to three years, he adds.

Guidance for buyers and sellers

Looking ahead to 2026 and beyond, both buyers and sellers of renewable energy tax credits should recognize that significant opportunities remain despite regulatory changes. More specifically:

For buyers — Buyers should act now to capitalize on favorable market conditions. With increased credit supply and reduced buyer competition due to provisions like Section 174 and bonus depreciation, pricing has become more advantageous. Buyers of renewable energy tax credits should consider structuring 2026 transactions to directly offset estimated tax payments throughout the year, thereby improving cash flow by making payments to sellers rather than the IRS. Financial institutions remain particularly well-positioned as buyers, as many have explored tax credit carryback opportunities to increase their tax savings even further.

For sellers and developers — Renewable energy tax credits sellers and energy project developers can use tax-credit monetization as a critical component of project financing because the ability to convert credits into immediate cash proceeds is essential for paying down debt and funding new projects. Despite initial concerns, substantial opportunities remain with credits outlined in Sections 45Z, 45X, 48E, and 45Y which are transferable and viable through 2029 and beyond.

In either case, tax credit transferability under Section 6418 offers key opportunities in the marketplace. Whether buyers are looking to reduce their corporate tax burden while supporting clean energy goals, or developers are seeking to monetize renewable projects — tax credits offer incentives to move forward.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by CliftonLarsonAllen LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader’s specific circumstances or needs, and may require consideration of nontax and other tax factors if any action is to be contemplated. The reader should contact his or her CliftonLarsonAllen LLP or other tax professional prior to taking any action based upon this information. CliftonLarsonAllen LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

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Key highlights:

• • • Stricter foreign entity requirements and sourcing rules — The OBBBA imposes stricter requirements for foreign entity and sourcing, especially targeting Chinese involvement, which significantly impacts clean energy project eligibility for tax credits.

    • New compliance requirements for buyers — Developers and tax credit buyers must carefully comply with new documentation, supply chain, and ownership requirements to avoid disqualification or recapture of credits.

    • Early planning is essential — Accelerated deadlines for wind and solar projects, along with ongoing uncertainty about compliance standards, make early and thorough planning essential for success.

The (OBBBA), which passed in early July, represents a major shift from the industrial and energy policies set out in 2022’s Inflation Reduction Act (IRA). For example, the OBBBA makes significant changes to the tax credits available for eligible clean energy components and facilities, while increasing support for fossil fuels.

The legislation also introduced tougher foreign entities of concern (FEOC) requirements that, while also applicable to Russia, North Korea, and Iran, will primarily restrict the participation in the US clean energy sector (whether as owner, investor, lender, or supplier) by companies owned or controlled by the Chinese government or its citizens and residents. These restrictions present significant challenges for developers given China’s dominance in the clean energy supply chain.

OBBBA’s changes to clean energy credits

The OBBBA introduces several important revisions to federal clean energy tax credits, which, as part of the IRA, had been reshaping the landscape for developers and investors in the clean energy sector. The OBBBA’s revisions include:

Stricter FEOC requirements — Clean energy tax credits are not available to any project owned by a specified foreign entity (SFE) or a foreign-influenced entity (FIE), over which an SFE has effective control, or, in some cases, that receives material assistance from an SFE or FIE. The material assistance requirement is intended to limit sourcing of equipment, components, and critical minerals from China and applies to credits under Sections 45X, 45Y, and 48E of the IRA.

Accelerated deadlines for project credit qualification — The OBBBA shortened the deadlines for several types of clean energy projects, but especially for wind and solar projects, which must begin construction by July 4, 2026, or failing that, be placed in service by December 31, 2027. These tight deadlines — coupled with potential changes to the requirements for beginning construction that are expected after an issued on July 7, 2025 — raised significant planning issues for project developers and investors in the US clean energy sector.

No changes in other areas of clean energy — The tax credits for other clean energy technologies — such as battery storage, geothermal, and nuclear — were largely left unchanged. But these projects are also subject to the more stringent FEOC regulations.

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Continuation of key IRA innovations

The IRA introduced two new provisions that have had a material impact on clean energy project development. Bonus credits increased the amount of tax credit available to qualifying projects by 10% or 20%. This includes an energy community bonus for locating a project in communities affected by coal mine or coal plant closures.

The other was the ability to sell tax credits to unrelated parties for cash (known as transferability), which gave project owners a new and less expensive method to monetize their clean energy tax credits than traditional tax equity.

The OBBBA didn’t alter the bonus credits and producers of clean energy projects can still qualify for bonus credits if they fulfill certain conditions. It did, however, extend the energy community bonus to advanced nuclear energy facilities located in certain communities.

Transferability remains, but with FEOC restrictions. Projects subject to the new FEOC restrictions are disqualified from receiving tax credits, potentially limiting the supply of tax credits in the market. The new material assistance requirements also add a layer of complexity that buyers of tax credits subject to these requirements must consider.

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Guidance for project developers

Going forward, project developers will need to navigate complex new laws and regulations regarding FEOCs and what it means to begin construction for wind and solar projects. To avoid credit disqualification and manage compliance risk, project developers should keep detailed records to demonstrate compliance with the FEOC ownership and establish effective control requirements.

Project developers also should audit their supply contracts and carefully track the source and costs of their equipment and other inputs to ensure compliance with applicable material-assistance caps. Similarly, they need to insert robust FEOC provisions in their supply, operation & maintenance, and construction agreements to ensure continued compliance with these requirements.

Regarding their wind and solar projects, project developers need to check their project development pipelines to determine whether they can meet the new deadlines. Unfortunately, developers are in a tough spot at the moment because they are not able to determine with any certainty the activities that may be sufficient to meet this requirement until the new guidance around beginning construction is issued. In the interim, developers should make sure that any actions they take toward construction are meaningful and not intended to manipulate this requirement, although there is no guarantee that action will prove sufficient.

Guidance for tax credit buyers

Buyers of tax credits must take action — such as conducting more extensive due diligence — to ensure the purchased credits are not disqualified or, in certain cases, recaptured, and that the credits deliver on the intended financial benefit. Buyers also should obtain detailed documentation from tax credit sellers to verify there is no direct or indirect ownership or effective control by FEOCs and to confirm that the project or component underlying the credit has not received material assistance from FEOCs in excess of the permitted caps.

Tax credit buyers should also consider inserting FEOC-specific provisions in their tax credit transfer agreements, including:

• • • adding specific representations around FEOC compliance, sourcing of materials, and eligibility under the OBBBA;
    • expanding the seller’s indemnification provisions to include losses incurred if the purchased credits are later disallowed due to FEOC or sourcing violations; and
    • requiring sellers to promptly notify them of any changes in the sellers’ FEOC status or supply chain arrangements that could affect credit eligibility. More expansive tax credit insurance policies may also be obtained to mitigate the additional risks the FEOC restrictions present.

Clearly, the OBBBA brings new challenges and opportunities for clean energy developers and investors; and careful planning and strict compliance will be essential for success in this changing landscape.

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Key provisions:

• • Permanent and expanded deductions — OBBBA makes the QBI deduction permanent, creates deductions for tips and overtime, and increases expensing limits for businesses.

  • New caps and phaseouts — The OBBBA also imposes new limits and phaseouts on itemized deductions, the SALT deduction, and charitable giving, especially affecting high-income individuals.

  • Accelerated sunset for green incentives — Many energy-related tax credits and deductions will end sooner, so taxpayers should act quickly to benefit.

The recently passed One Big Beautiful Bill Act (OBBBA) carries a lot of questions for tax professionals, especially around new tax regulations, deductions, tax credits, and planning strategies. Here are some of the most Frequently Asked Questions (FAQs), to address the most pressing questions and provide clear, concise answers to help tax professionals navigate the OBBBA and its implications.

1. How do the new rules for deducting tips and overtime interact with traditional wage and self-employment income, and what substantiation is required for each?

Because the OBBBA provides a deduction for these items, rather than an exclusion from income, tips and overtime pay will initially be lumped in with traditional wage and self-employment income. Taxpayers will then be able to deduct up to $25,000 of reported qualified tips and up to $12,500 ($25,000 for joint filers) of qualified overtime pay. However, both deductions are subject to phaseout rules.

For substantiation purposes, employers must report the amount of qualified tips and/or overtime pay on the worker’s Form W-2 (for employees) or Form 1099 (for contractors). For qualified tips, the worker’s occupation also must be reported. In addition, a work-eligible Social Security Number is required for both deductions.

Note that these two deductions do not affect Social Security and Medicare taxes.

2. What are the permanent changes to the Qualified Business Income (QBI) deduction, and how should tax practitioners advise clients with pass-through businesses on long-term planning?

Thanks to the OBBBA, the QBI deduction is now permanent, which offers more stability when planning for QBI optimization. On top of that, starting in 2026, the OBBBA provides a $400 minimum deduction for businesses with at least $1,000 of QBI and increases the phase-in limitation range from $100,000 to $150,000 for joint filers (from $50,000 to $75,000 for other filers).

Tax professionals should continue to monitor wage and property limitations and the specified service trade or business phaseouts. For taxpayers with taxable income near or slightly over the threshold amounts, traditional planning techniques such as bunching income, making deductible retirement plan contributions or Health Saving Account contributions, or contributing to donor-advised funds should be considered to get under the threshold (or at least into the phaseout range).

3. Which changes to the Excess Business Loss limitation most significantly impact owner-operators and professional partnerships, particularly regarding carryforward treatment and bankruptcy?

The OBBBA makes the excess business loss limitation permanent. (Previously, it was set to expire after 2028.) Owner-operators and professional partnerships will now face a permanent cap on business losses; however, excess losses may be carried forward as a net operating loss (NOL), which will retain its character in a bankruptcy setting. Therefore, if a debtor excludes cancellation of debt income under the bankruptcy exception, their tax attributes will have to be reduced, including any NOL carryforwards.

4. How does the increased $15 million estate and gift tax exclusion, effective 2026, transform wealth transfer strategies and generation-skipping plans?

The larger exclusion allows for more tax-free transfers during life or at death. Tax professionals should explore estate planning strategies such as shifting future appreciation of assets through gifting, creating irrevocable trusts, and taking advantage of portability for married couples.

5. What are the new phase-out thresholds, floors, and limitations for itemized deductions and alternative minimum tax (AMT) exemption under the OBBBA, and how will this affect high-net-worth individuals?

For taxpayers in (or approaching) the 37% tax bracket, the OBBBA caps the value of each dollar of itemized deductions at $0.35. Also, itemizers can only deduct charitable contributions exceeding 0.5% of taxable income.

In addition, the OBBBA has permanently extended the increased AMT exemption amounts and phaseout thresholds. Starting in 2026, exemption phaseout thresholds will equal the 2018 levels of $500,000 (for single filers) and $1 million (joint filers), with those amounts being indexed for inflation beginning in 2027. In addition, the phaseout rate for higher-income taxpayers in 2026 increases to 50% from 25%.

High-net-worth individuals will see a reduced benefit from itemized deductions and higher AMT exposure if their income exceeds the applicable threshold. Tax professionals should consider bunching deductions while carefully managing AMT triggers.

6. How should planning change for clients impacted by the temporary State and Local Tax (SALT) deduction cap increase (from 2025 to 2029), and how does the phaseout for higher earners function?

The OBBBA increases the SALT cap to $40,000 ($20,000 for married filing separately) for 2025 and $40,400 for 2026. For tax years beginning after 2026 and before 2030, the cap will be increased by 1% per year. For tax years beginning in 2030, the cap will revert back to $10,000 ($5,000 for married filing separately).

The increased SALT cap is subject to a phasedown once modified adjusted gross income (MAGI) exceeds $500,000 for 2025 and $505,000 for 2026. For years after 2026, the MAGI threshold increases by 1%. Taxpayers who are fully phased down will be capped at $10,000.

Although this is a welcomed change, tax professionals may need to advise some clients to accelerate payments of state and local taxes into years with the higher cap. Also, despite the higher cap, pass-through businesses may still want to make a pass-through entity tax election. This may lower a partner’s share of self-employment income or allow the business owner to take advantage of the even higher standard deduction under the OBBBA ($31,500 for joint filers in 2025).

7. How do the new charitable deduction provisions for both itemizers and non-itemizers alter year-end giving strategies, and what new floors or caps apply?

Under the OBBBA, itemizers can only deduct charitable contributions exceeding 0.5% of taxable income. Also, the 60% adjusted gross income (AGI) limit for cash gifts to qualified charities applies. However, the OBBBA provides a permanent charitable deduction of up to $1,000 ($2,000 for joint filers) for non-itemizers who donate cash to public charities.

Itemizers should consider bunching gifts to exceed the 0.5% floor. However, tax professionals should determine if the standard deduction plus the new charitable deduction for non-itemizers would be more beneficial than itemizing.

8. For business clients, what are the implications of permanent expensing for capital investments and research & development expenditures on future expansion or M&A plans?

The OBBBA makes permanent 100% bonus depreciation for property acquired and placed in service after January 19, 2025. Also, the Section 179 expensing limit has been increased to $2.5 million (with a $4 million phaseout threshold) starting in 2025. With respect to domestic research & development expenditures, the OBBBA permanently reinstates full expensing for tax years beginning after 2024. The bill also provides special transition rules for small businesses to expense research expenditures for tax years beginning after 2021.

Because many businesses will be able to immediately deduct the full cost of qualifying investments, their after-tax cash flow and return on investment will improve. Also, businesses should consider moving any foreign research activities to the United States so they can take advantage of immediate expensing of related costs. This will encourage investment in equipment, technology, and innovation into the US.

9. Which credits and incentives for green energy and vehicles are sunsetting, and what timing strategies should clients consider to maximize remaining benefits?

Among others, the following popular energy-related credits are scheduled to sunset quicker under the OBBBA:

• • • The clean vehicle credit and the previously-owned clean vehicle credit for vehicles acquired after September 30, 2025.
    • The alternative fuel vehicle refueling property credit, for property placed in service after June 30, 2026.
    • The energy-efficient home improvement credit terminates after December 31, 2025.
    • The residential clean energy credit expires for expenditures after December 31, 2025.
    • The energy-efficient commercial buildings deduction expires for property construction beginning after June 30, 2026.

For clients interested in taking advantage of these energy-related incentives, acquisition and installation of the qualified property should be accelerated before the relevant cut-off dates.

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On his second day in office, Trump ordered “all federal agencies to immediately under the IRA” and through his executive orders, the president issued a directive to cease financial support for the development of electric vehicle charging infrastructure and other policies that favor electric vehicles.

For companies not involved in car manufacturing, the ambiguity surrounding the IRA continues, and this is causing some discomfort for developers of clean energy projects and buyers of tax credits. While a complete repeal of the IRA is unlikely, the new administration is likely to take a strategic approach to curtailing current energy incentives, according to and , experts in energy tax services at .

“We haven’t seen any kind of fine print or any formal legislative proposals,” but that “it seems unlikely that the government is going to take a sledgehammer to the whole Act,” says Smith. Indeed, any repeal could have far-reaching implications to local employment in communities in many states whose electoral college votes went for the current president.

Distilling the ambiguity of corporate players

Developers of renewable energy projects currently face a significant dilemma with the beginning of construction safe harbor provisions under the IRS code. Generally, these provisions allow projects to qualify for tax credits if construction begins by a certain date.

However, with potential modifications to the IRA and without specificity in the time frame, developers risk starting projects that may not qualify for credits if legislative changes occur. This uncertainty is exacerbated by discussions of significant reductions or even repeal of these tax credits, which could drastically impact the financial viability of renewable energy projects. Without these incentives, many projects may become economically unfeasible.

This lack of certainty surrounding potential changes to the IRA also creates a challenging environment because it forces companies to navigate the risk of investing substantial capital into projects that may not receive the expected financial benefits.

Equally, there are concerns among some corporate purchasers of IRA tax credits amid the anticipation of changes. One of the innovations of the IRA was the creation of tax credit transferability, which allows developers to sell their tax credits to corporate buyers at a discount. This provides immediate cash flow to fund projects while enabling corporate tax credit buyers to reduce their own tax liability. This mechanism benefits developers by monetizing credits they cannot use due to limited tax liabilities and also benefits corporate buyers by offering a straightforward method to lower their taxes.

The potential impact of changes in IRA tax credit policies could significantly affect pricing and availability, Hill notes. If transferability is restricted or removed, a pool of fewer credits could lead companies to reassess their tax planning strategies.

Further, any abrupt changes could significantly affect the renewable energy market. Investor confidence may waver, and the tax credit transfer market could compress, with fewer credits available and at higher prices, which could push smaller investors out of the market. “The IRA is very much a private-public sector partnership in a lot of ways,” Smith explains. “There’s still an amount of trust that needs to be built between the private sector and the US government, and yanking the rug out from underneath renewable energy credits doesn’t create a lot of trust.”

Any changes to the IRA, especially if the transferability provisions are eliminated, will likely push companies back towards traditional tax equity structures. This could exclude some smaller investors who entered the market due to transferability’s relative simplicity.

Guidance for companies

Hill and Smith say they are trying to help businesses understand the evolving landscape and make informed decisions amid the lack of specific changes in the IRA. They both stress that complete repeal is unlikely, but targeted adjustments are possible. At the same time, changes to the tax credit provisions seem probable, and effective dates and grandfathering of existing projects will be important to monitor.

While the Trump administration’s approach has introduced uncertainty, it is crucial for stakeholders to remain adaptive. And to navigate the upcoming changes, companies need to foster collaboration and trust with their tax advisors to remain informed about policy developments so they can position themselves well with the ability to adapt their cash flow and tax strategies if necessary.

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In fact, current projections indicate that yearly mitigation funding must exceed US $8.4 trillion from 2023 to 2030, escalating to US $10.4 trillion annually in the subsequent 20 years. This stands in stark contrast to the .

Voluntary carbon markets were seen as a key mechanism for companies to mitigate their carbon emissions, but recent controversies continue to stall efforts to restore integrity to these markets. Earlier this year SBTi advocated for companies to assign a specific internal carbon price per ton of carbon to its operations and supply and then funnel the total amount into a mechanism that would be used to remove carbon from the atmosphere by using technology or investing in natural carbon mitigation efforts, such as tree-planting.

Determining an accurate carbon price

While it sounds good, determining an accurate internal carbon price (ICP) is a challenge. ICP is a voluntary strategy that involves assigning a monetary value to carbon emissions, whereas carbon accounting is systematic way to measure and monitor how much carbon dioxide equivalent (CO2e) an entity emits. (In 2023, the U.S. Environmental Protection Agency (EPA) estimated that is $190 per metric ton.)

Overall, two categories of methodologies exist to pay for the social costs — taxation and ICP — and each mechanism to ; and because the total cost estimates are based on models, they do not account for variations of carbon emissions across sectors. This is why ICP might be a better option.

Today, there are three well-known methods to conduct internal carbon pricing:

Using an external benchmark — Commonly called shadow pricing, this method involves the organization setting a monetary value on its greenhouse gas emissions on a per ton basis. Sometimes an organization will get this value from an external source, such as the EPA; or they will base it on an industry estimate. This method helps companies assess the potential costs and benefits of various methods to reduce emissions. While no actual money is exchanged, using this approach in capital planning can help effective decision-making in long-term investment decisions. Typically, finance and strategy professionals are involved in these decisions.

Setting an internally calculated price — This method involves assigning an internal carbon fee associated with each metric ton of emissions produced. The pricing is then applied at the business unit level based on specific emissions-generating activities or consumption. In this system, a company imposes a fee on itself for each ton of emissions produced. ICP consolidates these values into a standardized metric, such as carbon costs or benefits. This approach allows financial decision-makers, including corporate chief financial officers, to bring these low-carbon metrics into the organization’s rational, economic decision-making processes. The details of this method are usually determined through collaboration among internal operations, accounting, finance, and sustainability teams.

Calculating a spend-based approach — Finally, companies can calculate an implicit carbon price based on what the organization spends on emissions reduction targets. In many cases, commitments by companies to reduce emissions already exist, but multiple carbon prices also may exist under this method. This methodology can be problematic because it is not actually accounting for the social cost of carbon.

While use of ICP methods by companies has increased, too few companies are using ICP, whatever the method they pursue, and there is still a long way to go, report. Looking at the top 100 companies by revenue in each sector, nine sectors show an average increase of 10% or more in ICP usage, between 2019 and 2021, the report showed. In the energy and materials sectors — which together account for approximately 60% of global CO₂ emissions — ICP take-up is highest but still is used only half or less of those companies.

Varying use by region

An analysis of market-based pricing mechanisms in the McKinsey report showed that the use of internal carbon charges also varies widely by region. In the Europe Union, where ICP is most prevalent, 40% of large companies use this approach to promote sustainability. The EU Emissions Trading System (ETS) also has higher prices than other regions, although only 40% of European companies that use ICP have internal charges exceeding the current ETS price of $87 per metric ton. By contrast, only 26% of Asian companies and 17% of US companies have implemented ICP.

This is where corporate finance professionals can contribute their expertise to determine their own internal prices for carbon, based on the company’s unique operating model, its geographic dispersion, and its own supply chain.

To get started, the following actions:

• • • • determine why creating an ICP strategy and a specific objective would be important to your organization;
      • define how government-supervised pricing can affect your organization;
      • calculate an internal price;
      • run a pilot exercise; and
      • develop a plan to scale the process across the organization.

One added benefit of using ICP is the ability to integrate sustainability into core business operations. In fact, the best practice approaches to ICP are those that contribute to a journey of bringing a company’s business strategy in line with its transition to a low-carbon economy. By using these best practice approaches to ICP, companies can embed the trajectory of a low-carbon transition into their daily decision-making, determine the most effective strategy in changing market environments, and stay ahead of the curve.

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The majority of approaches to carbon offsets have earned a reputation as being fluff and to achieve net zero emissions around the world. according to experts at Oxford. Further, recent controversies around carbon projects and markets have not helped. Last year, a major carbon credit provider that resulted in phantom sales to the major multinational companies that were the buyers. This and other reports of other dubious practices have tainted the reputation of voluntary carbon markets in the minds of many.

Actions to restore of trust underway

That said, major efforts to restore trust in carbon removal projects and voluntary markets are underway. In fact, the Voluntary Carbon Markets Integrity Initiative (VCMI) late last year aimed at establishing high-integrity pathways for companies to support stronger climate action while making progress toward their own net zero goals. In addition, expectations in how companies are using carbon credits in the achievement of their net zero targets might be changing as well. Some companies had been using carbon credits about their progress towards net zero without any efforts to actually remove carbon from their operations.

In the last few months, however, expectations could be shifting, in part because of increasing greenwashing accusations. Indeed, companies may be penalized reputationally by using the purchase of carbon credits to state that they are moving toward achieving net zero targets without making enough investment in the removal of GHGs from their own activities.

Additionally, companies increasingly are expected to report publicly the actions that they are taking to decarbonize. For example, Science-Based Targets initiative (SBTi) and the United Nations have highlighted that purchasing carbon credits is a value-add and can only be leveraged once a company has met its entity-level decarbonization targets. Moreover, Bain & Co. earlier this year committed to after its annual targets are achieved for net zero emissions using VCMI’s new claims code.

Growing trend of partnership could help

To help rebuild credibility in carbon credits, partnerships between suppliers and buyers is a growing trend. In fact, , a 123-year-old sustainable forestry and wood products company, the largest private owner of timberlands in the United States, and supplier of carbon credits based on owned forestland in Maine, has committed to a high-integrity carbon market by only selling its credits to buyers that are dedicated to making a climate impact. “We want to do business with customers who value the role of high-quality, high-integrity credits,” said , the company’s vice president of portfolio analytics and business development, adding that the company looks for buyers that “already have strong net-zero targets with a plan to first reduce their emissions, and then second, mitigate their remaining emissions through the use of carbon credits.”

Major players in carbon markets are also seeing this trend with market experts observing how some companies are approaching carbon projects through collaboration. Companies, their vendors and suppliers, and other industry players are teaming up on carbon projects to ensure these investments in carbon removal are credible. Taking a more hands-on approach by engaging directly with owners of carbon projects also safeguards that these projects are aboveboard.

Market proponents praise these new developments, noting that buyers’ efforts to vet suppliers of carbon credits is a departure from the recent past in which the carbon markets were the primary entity responsible for checking the credibility of the project.

The need for rules and regulatory measures

While steps are being taken to rebuild a credible reputation, many still see the need for regulation to guide the market towards high-quality credits and offsetting strategies that uphold integrity. Unfortunately, the current global ecosystem remains .

Stills, steps toward regulations are beginning to emerge. For example, the U.S. Commodity Futures Trading Commission late last year with the aim of enhancing the standardization of derivative contracts based on voluntary carbon credits. This proposal is designed to promote transparency and liquidity in the market, ensure precise pricing, and uphold the integrity of the market. Likewise, a framework aimed at preventing greenwashing and has been put forward by the governments of the Netherlands, Belgium, Germany, France, Spain, Finland, and Austria. In addition, the International Organization of Securities Commissions launched a in December 2023 “to promote the integrity and orderly functioning of voluntary carbon markets.” And in late May, the US government moved to take the first step towards codifying high-integrity voluntary carbon markets with the introduction of . The joint statement was signed by the secretaries of the U.S. Treasury and U.S. Energy departments.

With increasing efforts from companies, market initiatives, and government regulators to enhance the integrity, standardization, and transparency in voluntary carbon markets, there are signs that the Wild West days may be giving way to a more credible and impactful era for leveraging these markets to drive meaningful climate action and global progress towards net zero goals.

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“With the EU deforestation regulation, a lot of groups are coming to us to and asking for a demonstration,” explains Dr. Sassan Saatchi, senior scientist at NASA and chief executive of California-based non-profit CTrees. “Because if you are buying cacao for chocolate from Colombia, they need to know if those farms are associated with deforestation — and Land Use Change Alerts (LUCA) can show them that.” Dr. Saatchi’s comment came at COP28 in December, held in Dubai.

The EU regulation came into effect in June and covers seven commodities (cattle, cocoa, coffee, oil palm, rubber, soya, and wood), as well as products derived from those commodities (including meat products, leather, chocolate, coffee, palm oil derivatives, glycerol, natural rubber products, soybeans, wood products, and paper).

From December 30, 2024, corporations will be banned from selling products in the EU, or exporting them, unless they are deforestation-free. Dr. Saatchi said he had also given a presentation to US groups before heading to COP28, because those groups were thinking of emulating the EU regulation.

Governments are also interested in the technology as a way of tracking their progress on climate commitments. Some 140 countries signed the deforestation pledge in Glasgow at COP26, promising to reverse or halt deforestation by 2030. However, they are not collectively on course to meet this target. According to CTrees data, deforestation across the tropics increased by about 5% in 2022, and globally, deforestation added more than 4.5 gigatons of carbon dioxide emissions into the atmosphere.

Enhancing trust in voluntary carbon markets

CTrees launched a separate platform, Jurisdictional MRV, in late-2023 to help with the reporting, monitoring, and accounting of carbon emissions. This allows users to see the emissions from deforestation, degradation, fire, and also to see carbon being removed and sequestered as a result of carbon credit projects, says Dr. Saatchi, adding that this process will enable the checking of carbon claims in voluntary carbon markets in near-real time. VERRA, a carbon credit verifier and registry, uses CTrees data to monitor projects.

 Banks and other financial institutions… will also have to monitor emissions, as will investment managers and asset owners, to ensure firms are on course to meet their commitments and avoid the risk of greenwashing.

Some 155 governments have signed the methane pledge which commits them to reducing methane emissions by 30% by 2030; and 50 governments have developed, or are developing, national methane reduction plans.

Methane has a warming potential 86-times that of CO2. As a result, cutting methane emissions will help slow global warming. The energy sector is responsible for around 40% of methane emissions caused by human activity, according to the International Energy Association, with emissions mostly caused by flaring and venting in coal, oil, and gas production.

 on the EU Methane Regulation was reached last month, and among other things, the regulation will place limits on methane emissions for oil and gas companies that import into the EU beginning in 2030. At COP28, 50 oil and gas firms, including Shell and BP, signed an agreement to end routine flaring.

Further, banks and other financial institutions that lend to the sector will also have to monitor emissions, as will investment managers and asset owners, to ensure firms are on course to meet their commitments and avoid the risk of greenwashing.

David Waskow, international climate director at the World Resources Institute, a non-profit in Washington, D.C., said the world now has a toolkit to hold countries and companies accountable.

Now, two satellite tracking systems can help track efforts to reduce methane being released into the atmosphere. The International Methane Emission Observatory announced the , a satellite-based system to detect methane emissions, at COP27 in Sharm El-Sheikh. It is piloting detection of emissions from the energy sector and will expand in time to cover emissions from the waste and livestock sectors. And a separate initiative by Environmental Defense Fund, a US-based non-profit, will launch  next year. It will allow free monitoring of methane data by location and aims to cover 80% of the world’s oil and gas companies.

Technology in 2024 plays a vital role in both monitoring and actively reducing deforestation and methane emissions. The integration of these technologies into various sectors is crucial to achieving global environmental goals and mitigating the impacts of climate change.

Many carbon market observers have called for government regulation as a solution to engender the trust necessary to attract reputable participants in the marketplace. Two key players central to improving trust in the carbon market are the , an international non-profit organization with a mission to enable high-integrity voluntary carbon markets, and the , an independent governance body for the voluntary carbon market that sets standards and rules for better oversight.

Others see an urgent need for improved frameworks, oversight, and governance in the carbon market. One of them is , vice president of portfolio analytics and business development at , a 123-year-old sustainable forestry and wood products company and the largest private owner of timberlands in the United States. Robbins also holds a PhD in forest economics.

Forests serve as a source of carbon removal

Timberlands provide one of the best natural ways of removing carbon from the atmosphere and can play an important role in mitigating climate change, Robbins explains. “Forests have been around for almost as long as the planet,” she says. “They are a proven method of sequestering carbon, and there is no expensive, complicated, or undeveloped technology required to reduce carbon emissions through forests.”

Forests reduce carbon emissions by absorbing carbon dioxide (CO2), the most prevalent greenhouse gas. Using the energy of the sun and through the process of photosynthesis, trees take water and CO2 and convert them into the energy that enables them to grow. As they grow, trees become carbon vaults and release oxygen in the process.

Recently, Weyerhaeuser began offering verified carbon credits through its first forest carbon project in Maine, which spans approximately 50,000 acres of forest land. To secure approval for the project, Weyerhaeuser had to demonstrate to third-party auditors that its forest management plan would result in more carbon being stored within the project’s boundaries than under business-as-usual operations. This concept of additionality is an important indicator of quality and an essential component to any forest carbon project.

A carbon credit contract, which usually lasts 40 years, requires the company to hold the timberland for that period of time, with the credit issuance allowed during the first 20 years of that period. Over the course of the Maine project’s lifetime, Weyerhaeuser expects to issue 475,000 credits, with one credit equaling one metric ton of carbon removal.

Active forest management and third-party verification are critical

Carbon credits are used to help companies reduce their carbon footprints. As such, trust is an essential element for the growth and use of carbon markets. It is established, in part, through third-party verification, and in the case of Weyerhaeuser, active management of projects by forestry companies.

For example, Weyerhaeuser’s project in Maine is on land the company already owned and managed, and the company took a conservative approach in the development of its project to ensure a trusted baseline that ensures additionality, and in dealing with issues like leakage and permanence. Indeed, Weyerhaeuser’s 100-plus years of experience sustainably managing forests includes strong inventory, planning, and governance systems, which enable the company to provide conservative, trustworthy estimates of well-managed projects that provide real carbon emission removals and reductions over time, according to Robbins.

Further, Weyerhaeuser actively manages the impacts of balancing the commercial supply and demand of timber to minimize leakage and the long-term ability of a carbon sequestration project to maintain its carbon storage benefits over the term of the contract — a practice known as permanence, she adds.

Weyerhaeuser developed its project in Maine using of , which is one of four major carbon credit registries in the world. The project is audited by an approved third party, which reviews Weyerhaeuser’s practices, modeling, and inventory specifications against the methodology and registry requirements. If validated by the auditor and approved by the registry, carbon credits are then made available and can be sold through a carbon credit market. In addition, the third-party auditor is required to revisit the forest every five years to verify that the number of credits issued matches the actual timber inventory on the ground.

To demonstrate its commitment to scaling a high-integrity market, Robbins says Weyerhaeuser is focused on selling to organizations with strong commitments to making a climate impact. “We want to do business with customers who value the role of high-quality, high-integrity credits,” she says, adding that the company “already have strong net-zero targets with a plan to first reduce their emissions, and then second, mitigate their remaining emissions through the use of carbon credits.”

Robbins notes that because of the scrutiny in the voluntary carbon market, buyers increasingly are focused on differentiating credits and understanding what goes into them. “We are most interested in these types of buyers because we think we have a different type of carbon credit to offer,” she explains.

Active operators of timberland with a strong history of management and governance are important to the supply of high-quality credits, especially in the US where there is no centralized voluntary carbon market regulator in place.