What’s Going on with the Carbon Credit Market?

Jun 29, 2022 | written by:

When the carbon credit market was introduced, hopes were high that this initiative would be a game changer for environmental protection. By attaching a credit system to carbon dioxide emissions, organizations both, big and small, would be financially incentivized to lower their emissions — or incur a financial impact if they exceeded the established limits. 

But as with any global effort, rolling out a consistent, clear, and enforceable system is a complex undertaking. And the carbon credit market has failed to deliver on some of its big promises because of these complexities. 

At the 2021 COP26, the United Nations Climate Change Conference, discussions were held to tackle some of these issues within the carbon credit market and decide what was needed to move forward. They identified the following issues standing in the way of meaningful progress and proposed targeted actions to overcome them so we can reach our common goal of limiting global warming to 1.5 C above pre-industrial levels. 

A lack of global unity on rules and standards

Before now, countries were largely left to themselves to determine their own rules and standards when it came to their national climate action plans. In the absence of a common system that set out clear guidelines, it became very difficult to assess the quality of information reported from individual countries and make meaningful comparisons between them. This led to instances of greenwashing and, understandably, diminishing trust between nations. 

To address the need for an authoritative framework that everyone follows, a document known as the “Paris Agreement Rulebook” was finalized during the COP26. This rulebook established some much-needed consistency, rigor, and accountability for how countries meet their climate action commitments. 

Particular focus was given to developing countries who, in the past, weren’t required to adhere to stringent reporting guidelines. The Paris rulebook addressed this issue by clarifying reporting standards to include greater frequency, scope, and depth, while also committing to supporting parties who need help applying these updated guidelines. 

Inconsistent emissions accounting practices 

As much as the COP26 did to move the needle, global consistency isn’t the only issue affecting the progress of the carbon credit market — there are also blurry definitions about which climate actions actually reduce carbon emissions and which ones just look good on paper. 

The concept of additionality is a crucial one here. In order for the carbon credit market to make real gains, it has to motivate new, additional changes that reduce greenhouse gas emissions. But up until (and including) now, parties could get carbon credits for investments in mitigation strategies that would have happened either way, regardless of whether or not they would earn credits for it. 

A good example of this is California’s forest carbon offset credits, a program that awards large volumes of offset credits to forest projects with carbon stocks that exceed regional averages. As a long-standing natural resource, the forest would have stored carbon with or without the carbon credit market in place. But by adding the forests’ carbon credits to the balance sheet, it looked as though real gains were being made when really, the status quo hadn’t changed one bit. The same issue is at play when organizations earn credits for existing initiatives, such as wind and solar farms, that would have gone ahead even without the implementation of the carbon credit market. 

The point of carbon credits is to spur change that wouldn’t have happened otherwise. Categorizing existing carbon-saving measures within the market framework gives the appearance of progress without any real environmental benefit. Lambert Schneider, a German research coordinator for climate policy, noted that the COP26 failed to meaningfully address this gap, as the conference confirmed it will permit credits from projects registered as early as 2013 to count toward the credit system. 

The bottom line

As the need to address climate change grows ever more urgent, the role of the carbon credit market will play an increasingly greater role in meeting our collective climate goals. As the outcomes of the COP26 made clear, the way forward has to include transparency, accountability, and meaningful oversight. But more fine-tuning and faster action is needed to bring our goals within reach. 



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