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UN rulebook for carbon trading leaves corporate woes unsolved
The guideline addresses carbon trading rules for governments, but not for companies.
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This photo shows the Leuser rainforest in Subulussalam, Aceh, on June 20 last year. (AFP/Chaideer Mahyuddin)
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ew United Nations (UN) guidelines for carbon trading, set at November's COP26 climate talks, are a step toward enlisting forests to help curb global warming, but robust rules are urgently needed for a fast-growing yet opaque voluntary corporate market, analysts say.
The Glasgow summit completed a "rule book" for governments under the 2015 Paris Agreement by adopting standards for international carbon trading and a new mechanism for rich nations to help poorer ones cut their greenhouse gas emissions by investing in everything from wind turbines to forests.
But the long-awaited deal on "Article 6" of the Paris pact has spotlighted the lack of rules for a murky, expanding voluntary carbon market, where companies are investing to safeguard tropical forests from the Amazon to the Congo Basin and claiming carbon credits to help reach their own net-zero emissions goals.
“There is a screaming need to have more regulation and rules around this,” said Anders Haug Larsen, head of policy at Rainforest Foundation Norway, which supports indigenous rights.
The Glasgow pact - which covers only government action - could inspire tougher rules in the voluntary market, he noted, but warned it “continues to leave the responsibility about what to do with the companies themselves”.
More than 2,000 firms worldwide, including Amazon, Royal Dutch Shell and Nestle, have set net-zero emissions goals.
Investing in forest protection to help meet those goals is attractive, both because customers like the idea and because trees naturally absorb carbon dioxide from the air as they grow.
Voluntary carbon markets are on track to exceed US$1 billion in trades for the first time in 2021, according to an annual report from Forest Trends' Ecosystem Marketplace.
Prices on a futures market for nature-based climate solutions covering forestry, agriculture and other land uses, known as N-GEO, have risen to more than $14 per ton of carbon this month, up from about $8 a ton in October.
The coming year looks set to be crucial in the push to develop tighter standards, observers say.
Among groups working to that end are the Voluntary Carbon Markets Integrity Initiative with participants from non-profits to governments, and a task force on scaling up voluntary carbon markets set up by former Bank of England governor Mark Carney.
Wheat from chaff
“The new sets of guidance are going to really help separate the wheat from the chaff,” Kelley Kizzier, previously the European Union's lead climate negotiator for markets, told the Thomson Reuters Foundation.
By the next UN climate summit in Egypt in November 2022, “we should have a clear idea of what 'good' looks like” in terms of carbon credits, said Kizzier, now vice president for global climate at the United States-based Environmental Defense Fund.
Responsible companies want strong rules to prove that they are safeguarding forests.
But less rigorous investors have often been accused of “green-washing” – making investments that look good in a glossy company brochure but with scant effect in reducing emissions.
Kizzier praised the progress made at COP26, noting that "a win for carbon markets is a win for forest carbon markets".
Breakthroughs in Glasgow included setting accounting rules, championed by developed nations, which prevent double-counting of emissions cuts when two nations co-operate on reductions under their climate action plans, known as Nationally Determined Contributions (NDCs).
The rules also allow emerging economies such as China, India and Brazil to carry over some credits for emissions reductions earned from 2013 to 2020, for things like building hydropower and solar plants, into the new Paris Agreement regime.
But, Kizzier noted, there was no COP26 bonanza for forest nations because the new carbon-market rules ban carrying over pre-2020 credits for planting trees and reforestation, which cannot be used to meet emissions targets set in the NDCs.
Hugh Sealy, an expert on voluntary carbon markets at the University of the West Indies in Barbados, said the Glasgow deal sent "a strong, strong signal that the world wants to use markets, but... with high integrity”.
“There’s no stick we can wave – the market must want this (integrity) to happen," he told an online briefing this month.
Corporate COP-out?
Under the rules set in Glasgow to prevent double-counting by governments, the US could pay to plant forests in Brazil to soak up 100 million tons of carbon emissions, and it would be recorded as a cut in US emissions - not Brazil's.
But the COP26 deal leaves the door open to a different system for “other international mitigation purposes”, such as those of private firms or investors rather than countries.
That means a US company investing to protect Brazilian forests could claim the carbon credits towards reducing its corporate emissions while Brazil also counts the reductions towards its national target under the Paris pact, Kizzier said.
Critics, such as environmental group Greenpeace, say this system will allow companies to avoid making deep cuts in their own emissions and instead merely pay others to act.
Backers, however, say it can boost investments in a more nimble, co-operative system to help lower emissions overall.
They argue it would not qualify as double-counting under the Paris Agreement as long as the emissions cuts are registered in only one country's NDC.
Verra, a body that helps set standards for certifying carbon credits, welcomed Glasgow's clarification that Article 6 “does not regulate the voluntary market”.
Verra said it would clearly label projects whose credits are traded on the voluntary market to show the carbon accounting methods used.
“Some countries may want to leverage the private finance provided by voluntary carbon markets to further their own climate action, which is something many buyers will want to contribute to,” it noted.
