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How climate success rests on a carbon market crackdown

Cop27 is at (article) sixes and sevens over rules governing the trade of carbon credits.

By India Bourke

Do international talks on climate change make a difference? Such has been the question on many lips during Cop27, which has been marked by gas deals and stalled ambition. An optimist’s answer might be that nations making up around 90 per cent of the global economy now have pledges to achieve net-zero greenhouse gas emissions. Yet within this, only six out of 41 countries have targets that have the level of ambition, support and transparency needed to keep the critical 1.5°C global warming limit in reach. If governments continue to delay or fudge their way to this target then the entire process may collapse.

Similarly, in the private sector, where many companies have set voluntary net-zero goals, the gap between action and rhetoric is wide. The plans of some delay action till it’s too late, or rely too much on compensating for continued emissions through the purchase of carbon credits. Others play loose with how carbon neutrality or negativity is defined. “Carbon-negative vodka”, for example, may convert carbon dioxide into alcohol, but ignores the fact that as soon as the vodka is drunk the carbon is released; leaving a hangover with planetary impact.

Within this haze, carbon markets are a particular source of smog. Both regulated “compliance” markets and unregulated voluntary markets allow parties to offset their emissions by channelling money towards entities that have avoided carbon use or removed it from the atmosphere, via permits known as carbon credits. These markets are a distraction from emissions reductions and are beset by flaws. 

Many renewable energy projects are no longer seen as contributing additional emissions reductions, yet still account for credits. Projects that involve capturing carbon in natural sinks, such as forests or wetlands, are vulnerable to climate-change exacerbated disasters that undermine their ability to store carbon long-term, and some may not even represent new emissions saved. The projected reliance on offsets is also far greater than the planet can arguably sustain: around 60 per cent of the emissions reductions promised by the world’s largest corporations rely on offsetting projects, yet a recent Land Gap Report estimates that the current net-zero pledges of countries alone would require an area of land larger than the United States to be set aside for carbon removal. 

“Credits have become like if you cheat on your partner but you can buy a government certified monogamy credit from another bloke who says he will stop cheating (or worse, has never cheated, and says he will keep not cheating),” Greg Jericho, policy director at the Australia Institute think tank, tweeted this week.

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Of particular concern are fossil fuel companies claiming they’re working toward net-zero targets while continuing to pursue new coal, oil and gas reserves that will push the world far past the 1.5°C warming limit. So to help to ensure pledges from companies and local governments mean what they appear to, the UN’s greenwashing watchdog called last Tuesday for new “red lines” to be introduced. These include prioritising emissions cuts before 2030 (not 2050), and only leaning on carbon credits after deep cuts have been made to absolute emissions, including those released through the use of the companies’ products. Annual progress should be transparently reported, the watchdog added, and voluntary commitments from large corporate emitters should be regulated. “Using bogus net-zero pledges to cover up massive fossil fuel expansion is reprehensible,” António Guterres, the UN secretary-general, said.

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How far and by what means the above calls will be heeded by the private sector remains to be seen, yet preventing the abuse of carbon offsets could also be helped by negotiations over how countries themselves should engage with carbon markets. Details of the Paris Agreement’s Article 6 Rulebook are being thrashed out at the annual Cop summits. These should soon allow countries to trade credits either bilaterally (as something called “Internationally Transferred Mitigation Outcomes”) or as part of a new global carbon market overseen by a UN entity called the Supervisory Body.

Here, too, loopholes are a potential threat. At Cop26 in Glasgow last year there was an agreement that the Article 6 rules should prevent “double counting”, by which the same carbon savings count for both the seller and buyer – yet according to Carbon Market Watch’s Jonathan Crook “there’s still a risk of double counting via countries applying adjustments in a dodgy way”. Furthermore, the Supervisory Body’s suggested definition of what should count as a carbon removal project is still too general, Crook warns, since it includes processes that lead to removals, not just the overall emissions outcome (think carbon-negative vodka). In this light, he welcomes the likely delay in redrafting and accepting the definition till Cop28 next year.

A common global registry is essential so that units of removed carbon can be assigned and tracked with full transparency, says Kate Dooley, a research fellow at Melbourne University: “It is unacceptable for countries to ask for confidentiality clauses to apply to their mitigation actions.” As many campaigners and indigenous rights groups have emphasised, there also needs to be more protection for those who depend on forests and other carbon sinks for their homes and livelihoods, especially as carbon markets are looked at as a means of leveraging money to halt deforestation.

At time of writing, the latest draft agreements at Cop27 seemed unpromising on both transparency rules and whether carbon offsets should include “avoided” emissions (in which it is assumed that future emissions will be avoided rather than captured). For the authors of the Climate Social Science Network’s report on offsetting, such avoidance “cannot help achieve net-zero goals” since it does not contribute to bringing down the overall level of greenhouse gases in the atmosphere. 

With the Article 6 negotiations likely to influence the rules around voluntary carbon offsets, the integrity of carbon markets as a whole could be about to take a further plunge – and pull hopes of the Paris Agreement’s success down with it.

[See also: Cop27 leaders, hold your nerve and reinforce the need for urgent action]

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