How a new global carbon market could exaggerate climate advances

Nations are ready to begin building an international carbon market after they finally passed the relevant rules at the UN Climate Change Conference in Glasgow earlier this month.

As part of the COP26 agreement, countries should soon be able to buy and sell UN-certified CO2 certificates from one another and thus be able to meet the obligations to reduce greenhouse gases under the Paris Climate Agreement.

However, some observers fear that there are large loopholes in the rules that could create the appearance that nations are making more progress on emissions than they actually are. Others warn that the deal could accelerate the creation of carbon credits within separate voluntary offset markets, which are often criticized for also overestimating the climate benefit.

Carbon credits or offsets are made from projects that claim to prevent or remove a ton of carbon dioxide emissions from the atmosphere. They are usually awarded for practices like stopping deforestation, planting trees, and introducing certain soil management techniques.

A new oversight body, due to begin meeting next year, will develop final methods of validation, monitoring and certification of projects aiming at the sale of UN-accredited emission allowances. The Glasgow Accords will establish a separate process for countries to obtain credit for their Paris goals by working with other nations on projects that reduce climate emissions, such as: B. the financing of renewable power plants in another country.

Experts disagree on how large the United Nations-supported marketplace will get, what some of the new rules will actually do, and how much the details can change once the final methods are established. But the process is “slowly, messy, and laboriously building the infrastructure to trade more carbon as a commodity,” says Jessica Green, associate professor of political science at the University of Toronto, who focuses on climate policy and carbon markets.

The US and the European Union have stated that they do not want to rely on international emissions certificates to meet their emissions targets under the Paris Agreement. But countries like Canada, Japan, New Zealand, Norway, South Korea and Switzerland have announced that they will apply CO2 credits, according to the Carbon Brief. In fact, Switzerland is already funding projects in Peru, Ghana and Thailand in the hope of being able to count these initiatives towards their Paris goal.

Most observers in Glasgow praise at least one important achievement: the rules will largely prevent climate advances from being double counted. This means that two nations that trade in carbon credits cannot both apply the climate gains to their Paris targets. Only the nation that buys a loan or keeps one it generates can do so.

Voluntary Markets

However, some experts fear that double counting could still occur.

Offset project developers have long been able to generate and sell carbon credits through voluntary programs such as those managed by registers such as Verra or Gold Standard. Oil and gas companies, airlines, and technology giants are buying more and more offsetting through these types of programs in order to meet their net zero emissions goals.

The UN’s new rules take a hands-on approach to these marketplaces, notes Danny Cullenward, policy director at CarbonPlan, a nonprofit that analyzes the integrity of its carbon elimination efforts.

This suggests that project developers in Brazil, for example, could make money for the compensation payments sold in voluntary markets – while the country itself could still use those carbon gains for its own emissions advances under the Paris Accords. That means there could still be double counting between a country and a company who both claim the same credits cut their emissions, says Cullenward.

COP26 President Alok Sharma receives applause after his closing speech at the UN Climate Change Conference in Glasgow, Scotland.


An additional problem is that studies and research reports have shown that voluntary offsetting programs can overestimate the amount of reduced or removed carbon dioxide due to a variety of accounting issues. But the fact that the UN will not regulate these programs could create market clarity that will fuel greater demand for these compensations and the development of more projects with questionable climate benefits.

“It’s a completely green light to continue scaling these markets,” says Cullenward.

Some observers believe that many nations will choose not to use loans sold in voluntary markets towards their Parisian goals. Similarly, certain marketplaces are likely to differentiate between credits that countries have or have not used in this way by labeling the credits to signal their relative quality and pricing them accordingly.

“I would expect that with growing recognition [corresponding adjustments] required to ensure the environmental integrity of voluntary offsets, then the market will move in that direction, ”wrote Matthew Brander, Senior Lecturer on Carbon Accounting at the University of Edinburgh Business School, in an email.

Inconsistent accounting

Lambert Schneider, research coordinator for international climate policy at the Öko-Institut in Germany, pointed out another “big loophole” in an analysis earlier this month.

The rules allow different countries to use different accounting methods for the carbon credits generated and sold at different times, noted Schneider, who was part of the European Union team that negotiated the rules for the carbon market. This can also lead to double counting. In a scenario outlined by him, half of the emission reductions from a series of emission certificates could be claimed by two nations.

The results of both accounting methods could more or less balance each other out over time if all nations always use the same method. But instead, each country can choose the cheapest method each time it reports progress, which is likely to skew all of the CO2 math.

“This is a cherry-picking problem,” says Schneider.

Questionable climate benefits

Another area of ​​concern is that the rules will allow nations to apply some credits from an earlier UN program called the Clean Development Mechanism, approved under the Kyoto Protocol, which came into force in 2005.

This system has issued certified emission reductions to nations that have funded clean energy projects in other countries such as solar and wind parks for the emissions they may have prevented. It should create an incentive for richer nations to fund sustainable development in poorer ones. They continuously issue credits on the assumption that the electricity would otherwise have been generated by a climate-damaging system such as a coal or natural gas power plant.

According to the rules approved in Glasgow, countries can still apply credits from projects registered in 2013 or later to their first emission reduction targets (which in most cases means 2030).

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