After finally adopting the relevant rules at the UN Climate Conference in Glasgow earlier this month, countries are ready to begin building an international carbon market.
Under the COP26 agreement, countries should soon be able to buy and sell UN-certified carbon credits from each other and use them as a means of achieving greenhouse gas reduction commitments under the Paris Climate Agreement.
But some observers fear that there are large loopholes in the rules that could make it appear that countries are actually making more progress in emissions. Others warn that the deal could accelerate the creation of carbon credits in individual voluntary offset markets, which are often criticized for exaggerating climate benefits.
Carbon credits, or offsets, are produced from projects that claim to prevent one ton of carbon dioxide emissions or to emit the same amount from the atmosphere. They are usually rewarded for practicing deforestation, planting trees, and adopting specific soil management techniques.
A new oversight body, which is due to meet next year, will develop final procedures for verifying, monitoring and certifying projects seeking to sell UN-recognized carbon credits. The Glasgow Agreement would set up a separate mechanism for countries to obtain loans for their Paris goals, which include cooperating with other countries on projects that reduce climate emissions, such as financing renewable power plants in other countries.
Experts disagree on how big the UN-backed market will be, what the new rules will actually do, and how the details may change as the final procedure is determined. But the process is “slowly, haphazardly, building the infrastructure for more carbon trading as a product,” said Jessica Green, an associate professor of political science at the University of Toronto, who focuses on climate governance and the carbon market.
The United States and the European Union have said they do not want to rely on carbon credits to achieve their emissions targets under the Paris Agreement. But countries including Canada, Japan, New Zealand, Norway, South Korea and Switzerland have said they will apply carbon credits, according to Carbon Brief. In fact, Switzerland is already financing projects in Peru, Ghana and Thailand, hoping to count those initiatives towards the Paris target.
Most observers praise at least one key achievement in Glasgow: the rules will essentially prevent double counting of climate progress. This means that both countries cannot apply climate gain to their Paris goals by trading carbon credits. Only the nation that buys a credit, or retains the one it generates, can.
But some experts fear that there could still be a way for double counting to happen.
Offset project developers have long been able to create and sell carbon credits through voluntary programs, such as those run by registries such as Vera or Gold Standard. Oil and gas companies, airlines and tech giants are increasingly buying offsets through this type of program to achieve net-zero emission targets.
New UN rules take a hands-off approach in these marketplaces, noted Danny Cullenward, policy director at CarbonPlan, a nonprofit that analyzes the integrity of carbon removal efforts.
This suggests that the project’s developers say Brazil could raise money for offsets sold through the voluntary market যদিও although the nation itself could apply those carbon gains toward its own emissions progress under the Paris Agreement. This means that there could still be double counting between a country and a company, both claiming that the same credit reduced their emissions, Cullenward said.
An additional problem is that studies and investigative stories have found that voluntary offset programs can exacerbate the reduction or removal of carbon dioxide levels due to a variety of accounting problems. But the fact that the UN is not going to regulate these programs could provide market transparency that drives greater demand for these offsets, encouraging the development of more projects with questionable climate benefits.
“It’s a complete green light for continuous scaling of the market,” Cullenward said.
Some observers feel that many nations would not like to apply credits sold in the voluntary market for their Paris goals. Similarly, some marketplaces will probably distinguish between credits that countries have used or not used in this way, labeling the credits to indicate their relative quality and pricing accordingly.
“I hope the recognition grows [corresponding adjustments] If voluntary offset demand is needed to ensure environmental integrity, then the market will move in that direction, “wrote Matthew Brander, senior lecturer in carbon accounting at the University of Edinburgh Business School, in an email.
Lambert Snyder, research coordinator for international climate policy at the Oko-Institute in Germany, pointed out another “major flaw” in an analysis earlier this month.
The rules allow different countries to use different accounting methods at different times that create and sell carbon credits, said Snyder, who was part of the European Union’s team discussing carbon market rules. It can also be a double count. In one scene he sketches out, two countries could claim half the emissions reduction from a set of carbon credits.
The results of any accounting method can be balanced over time, more or less, if all nations use the same at all times. But instead, each country can select the most beneficial method whenever they are reporting progress, perhaps distorting the overall carbon mathematics.
“It’s a cherry-picking problem,” Snyder said.
Climate benefits in question
Another area of concern is that the rules would allow some credits to be applied from a UN program known as the Clean Development Mechanism, which was approved in the Kyoto Protocol in 2005.
The system has reduced certified emissions to countries that have funded clean energy projects in other countries, such as solar and wind farms, to prevent emissions. It was designed to create an incentive for rich countries to finance sustainable development among the poor. They build credit on an ongoing basis on the assumption that electricity would otherwise be generated by a climate-polluting facility, such as a coal or natural gas plant.
Under the rules approved in Glasgow, nations may continue to apply credit for the first set of their emissions reduction targets from such projects registered in 2013 or later (which in most cases refers to 2030).