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Some governments and companies may struggle to reduce their planet-warming greenhouse gas emissions to meet their climate targets. Carbon offset proponents believe that they are a crucial tool for achieving these objectives.
At the United Nations COP29 climate summit in Azerbaijan, nations will try to reach an agreement on guidelines for a global carbon offset credit trading system.
You should be aware of the following:
What are carbon offsets?
To reach their climate goals, some governments and businesses might find it difficult to cut back on their greenhouse gases. Carbon offset proponents believe that they are a crucial tool for achieving these objectives.
These offsets allow one nation or company to offset some of their emissions by paying for actions to cut emissions elsewhere. These actions might include rural solar panel installations or converting a fleet of petrol buses to electric.
Article 6: What is it?
The Paris Agreement’s Article 6 encourages nations to cooperate in lowering their carbon emissions. It sets out two options for countries and companies to trade offsets, helping them meet the goals they set to reduce planetary-warming gases in their climate action plans, known as nationally determined contributions (NDCs).
One allows two countries to set their own terms for a bilateral carbon trading agreement; this is known as Article 6.2. The second, known as Article 6.4, seeks to establish a central, UN-managed system for nations and businesses to start offsetting their carbon emissions and trading those offsets.
A carbon market established under the Paris Agreement might continue to function even if the United States, under Donald Trump, withdraws its support for the agreement. Article 6 is regarded as a crucial mechanism for providing climate finance to developing nations.
SO FAR, WHAT HAS BEEN DECIDED?
Negotiators came to a historic agreement at the COP26 climate summit in Glasgow that created a comprehensive set of rules to govern the trading of carbon credits.
However, following two weeks of negotiations at COP28 in Dubai, nations were unable to reach an agreement on the specifics needed to operationalise a central carbon trading system or to define guidelines for countries wishing to enter into bilateral agreements.
Without those clarifications, some nations, such as Indonesia and Japan, have chosen to move forward with bilateral agreements and are already getting ready to trade carbon credits, or “internationally transferable mitigation outcomes” (ITMOs). The UN says 91 agreements had been made between 56 countries as of October this year. Thailand and Switzerland completed the first sale in January, and the market for bilateral trade agreements is still quite small.
Some buyers are concerned that there are insufficient regulations to prevent nations from altering or rescinding agreements, and that there is not a strong mechanism to guarantee that credits purchased and sold are not counted by both the purchasing and selling nations.
COP29: WHAT WILL BE DECIDED?
At this year’s climate conference, officials are eager to get an early “win” on Article 6.
Market observers are optimistic that a deal can be reached to operationalise the UN-backed central marketplace and establish guidelines for the bilateral agreements.
To ensure that nations are purchasing and selling real emissions reductions, safeguards include checks and balances. For instance, some nations want the methods used by other countries to create credits to be examined globally.
Countries will also discuss whether the UN central registry should only be used for accounting or if it can hold credits that can be retired and transacted.
An expert group selected in compliance with UN regulations has already hammered out a framework for the multilateral trading system to ensure credits meet basic quality standards. At COP29, countries can choose to embrace, reject, or continue the conversation about this standard.
The technical expert group will reconvene following COP29 to decide which methods of producing carbon credits—such as reforestation or cookstove projects—can be credited into the new Paris Aligned system.
The system might go live as early as 2025 if the main issues are settled this year.
FOR THE VOLUNTARY CARBON MARKET WHAT DOES THIS MEAN?
Certain businesses that are not legally required to reduce their emissions have set voluntary goals that they can partially achieve by purchasing credits on a voluntary carbon market. The global voluntary market was estimated to be worth $2 billion in 2022. However, following a string of scandals, the market value dropped to $723 million last year.
Connecting the Paris Agreement system to carbon projects that are presently on the voluntary market could increase trust.
Developers can apply to sell their credits under the UN system, which means that if accepted, they can sell in the UN system or on the voluntary market. Examples of such projects include mangrove restoration and regenerative agriculture. Experts predict that UN-approved credits will cost more.