How a New Global Carbon Market Could Exaggerate Climate Progress


Nations are poised to start building an international carbon market, after finally adopting the relevant rules 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 achieve greenhouse gas reduction commitments under the Paris climate agreement.

But some observers fear the rules include significant loopholes that could make nations appear to be making more progress on emissions than they actually are. Others warn that the deal may accelerate the creation of carbon credits within separate voluntary offset markets, which are also often criticized for overstating climate benefits.

Carbon credits, or offsets, are produced from projects that aim to avoid a ton of carbon dioxide emissions or remove the same amount from the atmosphere. They are typically awarded for practices such as stopping deforestation, planting trees, and adopting certain soil management techniques.

A new oversight body, which should start holding meetings next year, will develop final methods to validate, monitor and certify projects that seek to sell UN-accredited carbon credits. The Glasgow agreement will establish a separate process for countries to obtain credit for their Paris targets by cooperating with other nations on projects that reduce climate emissions, such as financing renewable power plants in another country.

Experts disagree on how big the UN-backed market will be, what some of the new rules will actually do, and how much the details may change as final methods are determined. But the process is “slowly, messily and painstakingly building the infrastructure for increased carbon trading as a commodity,” says Jessica Green, associate professor of political science at the University of Toronto, who focuses on climate governance and carbon markets.

The US and the European Union have stated that they do not intend to rely on carbon credits to achieve their emissions targets under the Paris agreement. But countries like 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 their Paris goal.

The majority watchers praise at least one key achievement in Glasgow: the rules will largely prevent double counting of climate progress. That means that two nations that trade in carbon credits cannot apply climate gains toward their Paris targets. Only the nation that buys a loan, or clings to one it generated, can do so.

Voluntary markets

But some experts fear there may still be ways for double counting to occur.

Offset project developers have been able to generate and sell carbon credits through voluntary programs, such as managed by records like Verra or Gold Standard. Oil and gas companies, airlines and tech giants are buying an increasing number of offsets through these types of programs as they strive to achieve net zero emissions targets.

The new UN rules take a hands-off approach to these markets, says Danny Cullenward, director of policy at CarbonPlan, a nonprofit that looks at the integrity of carbon removal efforts.

That suggests that project developers in, say, Brazil could make money from offsets sold through voluntary markets, while the nation itself could still apply those carbon gains toward its own emissions progress under the Paris agreements. That means there could still be double counting between a country and a company claiming that the same credits reduced their emissions, Cullenward says.

COP26 President Alok Sharma receives applause after delivering COP26 closing speech
COP26 President Alok Sharma receives applause after delivering the closing speech at the UN climate summit in Glasgow, Scotland.

JEFF J MITCHELL / GETTY IMAGES

An additional problem is that studies and research stories have found that voluntary compensation programs can exaggerate the reduced or eliminated carbon dioxide levels, due to a variety of accounting problems. But the failure of the UN to regulate these programs could provide market clarity that fuels increased demand for these offsets, spurring the development of more projects with questionable climate benefits.

“It’s a complete green light for the continued expansion of those markets,” says Cullenward.

Some observers think that many nations will choose not to apply credits sold in voluntary markets toward their Paris targets. Similarly, certain markets will probably distinguish Among the credits that countries have or have not used in this way, label the credits to indicate their relative quality and set the corresponding price.

“I would hope that as recognition grows [corresponding adjustments] they are needed to ensure the environmental integrity of voluntary offset claims, 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.

Inconsistent accounting

Lambert Schneider, research coordinator for international climate policy at the Oeko-Institut in Germany, pointed out another “big gap” in an analysis last month.

The rules allow different countries to use different accounting methods at different times for the carbon credits that are generated and sold, said Schneider, who was part of the European Union team that negotiated the carbon market rules. That could also lead to double counting. In a scenario he outlined, two nations could claim half of the emission reductions from a pool of carbon credits.

The results of any of the accounting methods could balance out over time, more or less, if all nations used the same one all the time. But instead, each country can select the most beneficial method each time they report progress, which is likely to distort the overall carbon math.

“It’s a selective problem,” says Schneider.

Questionable climate benefits

Another area of ​​concern is that the rules will allow nations to apply some credits from a previous UN program known as the Clean Development Mechanism, authorized under the Kyoto Protocol that came into effect in 2005.

That system issued Certified Emission Reductions to nations that financed clean energy projects in other countries, such as solar and wind farms, for the emissions they could have avoided. It was designed to create an incentive for the wealthiest nations finance sustainable development in the poorest. They produce credits continuously under the assumption that the electricity would otherwise have been generated by a climate-polluting facility, such as a coal or natural gas plant.

Under the rules passed in Glasgow, nations can continue to apply credits from such projects registered in 2013 or later towards their first set of emission reduction targets (which in most cases will mean by 2030).


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