This blog post originally appeared on trove-research.com in October 2022. MSCI acquired Trove Research — now known as MSCI Carbon Markets — in November 2023.
A large and expanding number of greenhouse-gas-reducing and removing activities can become a registered project that issues carbon credits. These range from reforestation in Uruguay, to distributing cookstoves in Malawi, to building a wind farm in Turkey. This diversity of project types is a core strength of the voluntary carbon market, which allows corporations to help finance these projects and in return claim the emissions reductions against their own commitments.
Against this breadth of project activity, buyers of carbon credits have differing needs. For example, nature-based solutions are desired for supporting natural ecosystems, and some buyers are keen to focus on projects that remove CO2 from the atmosphere rather than prevent it being released. Moreover, traders and index providers need to aggregate projects into broad categories to create standard contracts that can act as market reference prices.
All this requires a robust system for classifying carbon-credit projects. The Trove Research Carbon Industry Classification (TR CIC) has been developed over several years for this purpose. This blog post explains the most recent updates to the TR CIC.
Classification update
The updated TR CIC is shown in the exhibit at the end of the blog post. The classification is now applied to over 6,500 projects published on all Trove Intelligence dashboards and in all our analytical reports.
The main updates are as follows:
- Addition of a third level of project classification (e.g., energy demand reduction is now split into domestic demand and industrial/commercial demand reduction projects, and solar is split into large- and small-scale solar projects). The addition of this third-level classification also allows us to more accurately tag projects as reductions or removals.
- Broadening of our old carbon capture, utilization and storage (CCUS) category into carbon engineering, which now more clearly incorporates new and emerging carbon-removal technologies, such as direct air capture, biochar and enhanced rock weathering.
- Creation of new peatlands and blue- and coastal-carbon subtypes under the nature restoration project type, both of which have generated substantial interest this year.
Current market structure
Trove’s new project classification provides a comprehensive and granular picture of the entire voluntary carbon market by classifying circa 4,000 registered projects and 2,600 pipeline projects across the major crediting registries.
As shown in the following exhibit, in terms of project numbers, renewable energy and energy efficiency are the most common project types, each accounting for 31% of all projects. Renewable-energy projects make up 37% of all registered projects but only 23% of projects in the pipeline. Energy-efficiency projects instead saturate the pipeline, representing 41% of projects.
Trove’s Carbon Industry Classification
Only 1,019, or 16%, of all projects are nature-based (that is, our nature restoration and REDD+ project types). Just under half of these are pipeline projects, and half of those have only entered the registry pipelines in the last six months.
A different picture of which project types are most prevalent emerges when looking at issuance volumes instead of number of projects. As of Sept. 30, 2022, some 1,605 million tonnes (Mt) of credits had been issued across the four main registries since 2000. 43% of all these credits have come from nature-based projects (split roughly equally between REDD+ and nature restoration). Renewable-energy projects are the next most-prevalent project type, accounting for 32% (508 Mt). Energy-efficiency projects are much less prominent on an issuance-volume basis, having issued 132 Mt to date, only 8% of all credits issued to date.
Number of projects by type
When looking at just the four major crediting registries (Verra, Gold Standard, CAR and ACR), very few projects are focused on emerging removal technologies — only 14 of the 6,500 registered and pipeline projects. Currently, most of these project types are held on other, smaller registries. For example, PuroEarth, has 37 carbon-engineering projects, of which 24 are biochar. Given the high expectations for these newer removal technologies — and the reliance various bodies, such as the Science Based Targets initiative (SBTi), place on them in corporate net-zero strategies — we expect these numbers will increase.
Trove Research’s updated carbon industry classification
