Report: Fungibility Challenges in the Carbon Markets

Can carbon credits be ‘like-for-like’? This report offers an overview of the challenges related to carbon credit fungibility and the evolving solutions in the carbon markets. It emphasises the importance of ongoing assessment, refinement and collaboration in addressing these challenges and underscores the need for a balanced approach in order to achieve fungibility while maintaining integrity in the carbon markets. 

In this report we discuss:

• The role of insurance in risk management across the carbon markets and the flexibility and benefits of offering reimbursement of eligible claims in either cash or replacement carbon credits

• The definition of fungibility, the current lack of fungibility across carbon credits and the way in which factors including durability, location of project and co-benefits affect buyer/investor preference

• Considerations involved in developing a framework to assess fungibility in the carbon markets

• The way in which Kita addresses fungibility when paying claims in carbon, via our Best Match Method

• Thoughts about how the market can progress towards a more concrete definition while simultaneously recognising that the pursuit of immediate perfection runs the risk of creating fungibility metrics that are too static and not suited to responding to an evolving market. ​

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