What to Know About Voluntary Carbon Markets

By Neeshad Shafi, +SocialGood Advisor

Photo by Lewis Meyers on Unsplash

At recent climate meetings, one of the most anticipated and discussed topics was the voluntary carbon market under Article 6 of the Paris Agreement. As countries focus on implementing their Nationally Determined Contribution (NDCs), this will be a crucial policy tool to drive decarbonization, achieve the short-term emissions reductions we need, and support the longer term transition to net-zero. Now that Article 6 has finally been approved at the UN Climate Change Conference in Glasgow (COP26), forecasts indicate that financing from carbon markets could exceed $1 trillion by 2050.

But, what are voluntary carbon markets? And how do they work? Here’s what you need to know.

In 2015, 190 countries signed up to the Paris Agreement and set emissions reduction targets. Under Article 6 of the climate pact, they agreed to establish a voluntary global carbon market. The idea is this: companies are not always able to immediately reduce their internal carbon emissions, so one way for them to achieve their climate goals is through the voluntary carbon market. This allows carbon emitters — including companies, NGOs, governments, and individuals — to offset emissions by investing in projects targeted at removing or reducing greenhouse gases (GHG) from the atmosphere. Each credit corresponds to one metric ton of reduced, avoided, or removed CO2 (or equivalent GHG), and can be used to compensate for the emission of one ton of CO2 or equivalent gases. This is called an “offset.”

2. They also help fund often overlooked mitigation projects.

One positive aspect of voluntary carbon markets is that they can help identify and fund low-cost mitigation actions that governments may overlook. This includes innovative technologies such as more energy-efficient combustion engines or more energy-efficient air cooling and heating equipment that help reduce greenhouse gas emissions. For example, through the credits, the voluntary market could pay farmers to adopt practices that sequester more carbon or otherwise reduce CO2 or methane emissions. Another example is the use of cleaner cookstove projects — a carbon credit can be generated when one ton of carbon is avoided through reduced wood consumption. Using economic incentives to kick-start innovation is more likely to be effective than expecting a mass moral or behavioral shift.

3. Some critics may look at the voluntary carbon markets as ‘greenwashing.

Many critics, including environmental activists, see voluntary carbon markets as a green light for corporations to continue polluting within their own supply chains. This is a reasonable concern as many companies have worked against responsible climate and environmental policies, but that tide is turning. What we need is to promote transparency and more scrutiny in the carbon market as it provides an effective mechanism to enable the flow of vital funds to environmental projects around the world. Crediting mechanisms form an integral part of the Paris Agreement and can be a strong and flexible ally in reducing emissions at the least cost. They play an essential part in driving the large-scale transition required to avoid catastrophic climate change.

4. COP27 in Egypt is an opportunity to strengthen the voluntary carbon market system.

At COP26 in Glasgow, following several years of inconclusive negotiations, countries agreed on a package of rules to govern and implement international carbon market mechanisms under the United Nations Framework Convention on Climate Change (UNFCCC). The goal is to continue this work at COP27 in Egypt, and continue building a robust framework in which organizations can use collaborative approaches and a market-based mechanism to promote climate and sustainable development goals. A high-integrity voluntary carbon market is a key complementary tool to reduce and remove emissions above and beyond what would otherwise be possible and to channel finance towards climate-resilient development.

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