How a new global carbon market could exaggerate climate progress

Nations are set to start building an international carbon market, having finally adopted the relevant rules at the United Nations climate conference in Glasgow earlier this month.

As part of the COP26 agreement, countries should soon be able to buy and sell UN-certified carbon credits to each other, and use them as a means to meet carbon reduction commitments. greenhouse gases under the Paris climate agreement.

But some observers fear the rules have major loopholes that could make nations appear to be making more progress on emissions than they actually are. Others warn that the deal could speed up the creation of carbon credits within separate voluntary offsets, which are also often criticized for overestimating climate benefits.

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

A new watchdog, which is expected to start holding meetings next year, will develop definitive methods to validate, monitor and certify projects seeking to sell UN-accredited carbon credits. The Glasgow agreement will establish a separate process for countries to obtain credits for their Paris goals by cooperating with other countries on projects that reduce climate emissions, such as financing renewable power plants in another country. .

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

The United States and the European Union have said they do not intend to depend on carbon credits to meet 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 funding projects in Peru, Ghana and Thailand in the hope of counting these initiatives towards its Paris target.

Most observers praise at least one key achievement in Glasgow: The rules will largely prevent the double counting of climate progress. This means that two nations that trade carbon credits cannot both apply climate gains to their Paris goals. Only the nation that purchases credit, or retains credit that it has generated, can do so.

Voluntary markets

But some experts fear that there may still be ways of double counting.

Developers of offset projects have long had the ability to generate and sell carbon credits through voluntary programs, such as those run by registries such as Verra or Gold Standard. Oil and gas companies, airlines and tech giants are all purchasing a growing number of offsets through these types of programs as they strive to meet net zero emissions targets.

The new UN rules take a hands-off approach to these markets, notes Danny Cullenward, policy director of CarbonPlan, a nonprofit that analyzes the integrity of elimination efforts. carbon.

This suggests that project developers in Brazil, for example, could make money for offsets sold in voluntary markets, while the nation itself could still apply those carbon gains to its own carbon gains. issues under the Paris agreements. This means there could still be double counting between a country and a company both claiming the same credits reduced their emissions, Cullenward says.

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

JEFF J MITCHELL / GETTY IMAGES

Another problem is that studies and investigative articles have found that voluntary offset programs can overestimate reduced or removed carbon dioxide levels, due to various accounting issues. But the fact that the UN does not regulate these programs could provide market clarity that stimulates greater demand for these offsets, spurring the development of more projects with questionable climate benefits.

“It’s a complete green light for the further expansion of these markets,” Cullenward said.

Some observers believe that many countries will choose not to apply credits sold in voluntary markets to their Paris targets. Likewise, some markets are likely to distinguish between credits that countries have used and have not used in this way, labeling the credits to indicate their relative quality and pricing them accordingly.

“I would expect as the recognition grows, [corresponding adjustments] are necessary to ensure the environmental integrity of voluntary offset claims, then the market will move in that direction, ”Matthew Brander, senior lecturer in carbon accounting at the University of Edinburgh Business School, wrote 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 earlier last month.

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

The results of either accounting method 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 whenever it reports progress, which likely skews the overall carbon calculation.

“It’s a selection issue,” says Schneider.

Questionable climate benefits

Another area of ​​concern is that the rules will allow countries to apply certain credits from a previous United Nations program known as the Clean Development Mechanism, authorized under the Kyoto Protocol which entered into force in 2005. .

This system delivered certified emission reductions to countries that funded clean energy projects in other countries, such as solar and wind farms, for emissions they could have avoided. It was designed to encourage the richest countries to finance the sustainable development of the poorest countries. They produce credits on an ongoing basis assuming that the electricity would otherwise have been produced by a climate polluting facility, such as a coal or natural gas power plant.

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


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