Countries are poised to begin building an international carbon market after finalizing regulations at the UN climate conference in Glasgow earlier this month.
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 way to meet their greenhouse gas emission reduction commitments under the Paris Climate Agreement.
But some observers fear there are serious loopholes in regulations that might make it seem like countries are making more progress on emissions than they actually are. Others warn that the agreement could speed up the creation of carbon credits through separate voluntary offset markets, which are also often criticized for overstating the climate benefits.
Carbon credits, or offsets, are generated by projects that claim to prevent a ton of carbon dioxide from being emitted or get the same amount out of the atmosphere. They are usually awarded for actions such as stopping deforestation, planting trees, and implementing certain soil management practices.
The new oversight body, which is due to start meeting next year, will develop final verification, monitoring and certification methods for projects selling UN-accredited carbon credits. The Glasgow agreement will establish a separate process for countries to earn loans to meet their Paris goals by collaborating with other countries on projects that reduce emissions, such as financing renewable power plants in another country.
Experts disagree on how big the UN-backed market will become, what some of the new rules will actually do, and how much details might change as final methods are determined. But the process is “slowly, chaotically, persistently building the infrastructure to increase the trade of carbon as a commodity,” says Jessica Greene, an assistant professor of political science at the University of Toronto, who specializes in climate management and carbon markets…
The US and the European Union have said they do not intend to rely on international carbon credits to meet 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 to Carbon Brief. In fact, Switzerland already financing projects in Peru, Ghana and Thailand in the hope that these initiatives will achieve their goal in Paris.
Most observers praise at least one key achievement in Glasgow: the rules will largely prevent double counting of climate progress. This means that the two carbon trading countries cannot both leverage climate gains to meet their Paris goals. Only a nation that buys credit or holds the one it created can.
But some experts fear that double counting could still occur.
Offset developers have long been able to generate and sell carbon credits through voluntary programs such as managed by registries for example Verra or Gold Standard. Oil and gas companies, airlines and tech giants are increasingly buying compensation through programs of this kind in an effort to achieve zero-emission targets.
“The new UN regulation is about non-interference with these markets,” says Danny Callenward, director of policy at the non-profit organization CarbonPlan, which reviews the integrity of carbon removal efforts.
This suggests that project developers in, say, Brazil can make money from offsets sold through voluntary markets, while the nation itself can use these carbon revenues to make its own emissions progress under the Paris Agreements. This means there could still be double counting between a country and a company that claim the same loans have reduced their emissions, Kallenward says.
An additional problem is that learning and investigative stories found that voluntary offset programs can inflate levels of reduced or removed carbon dioxide due to a variety of accounting problems. But the fact that the UN is not going to regulate these programs could provide market clarity, leading to increased demand for these compensations, which will stimulate the development of more projects with questionable climate benefits.
“This is a complete green light for further scaling these markets,” says Callenward.
Some observers believe that many countries will choose not to use loans sold on voluntary markets to achieve their goals in Paris. Likewise, some marketplaces will probably distinguish between loans that countries have used or did not use in this way, labeling loans to indicate their relative quality and setting prices accordingly.
“I expected that as recognition grew [corresponding adjustments] necessary to ensure the environmental integrity of voluntary offset requirements, 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 Schneider, coordinator of international climate policy research at the Oeko-Institut in Germany, pointed to another “big loophole” in analysis in the previous month.
“The rules allow different countries to use different accounting methods at different times for generated and sold carbon credits,” said Schneider, who was part of the European Union’s team negotiating carbon market rules. It could also lead to double counting. In one of the scenarios he described, half of the emission reductions from a set of carbon credits could be claimed by two countries.
The results of any accounting method can more or less balance over time if all countries use the same method at all times. But instead, each country can choose the most beneficial method each time they report progress, which is likely to skew the overall carbon math.
“It’s a cherry picking problem,” says Schneider.
Dubious climate benefits
Another issue of concern is that the rules will allow countries to draw on some of the loans from an earlier UN program known as the Clean Development Mechanism, mandated under the Kyoto Protocol, which entered into force in 2005.
This system awarded Certified Emission Reductions to countries that financed clean energy projects in other countries, such as solar and wind farms, for emissions they could prevent. It was designed to induce wealthier countries finance sustainable development in the poorer. They provide loans on an ongoing basis on the assumption that electricity would otherwise be generated in a climate-polluting facility such as a coal or gas plant.
Under the rules approved in Glasgow, countries can continue to use loans from such projects registered in 2013 or later to meet their first set of emission reduction targets (which in most cases would mean until 2030).