carbon Markets in motion

carbon Markets in motion

Carbon markets have evolved significantly due to changes in international climate policy, economic conditions and the growing recognition of the need to tackle climate change. From the Kyoto Protocol and the Paris Agreement to the present. FairClimateFund will pay more attention to this in a series of four new articles.

Blog 1: From Kyoto to Paris and beyond

In blog 1 we provide a global overview of the most important developments. You can read a summary of the most important events here:

1997 the Kyoto Protocolstrong,
This treaty allowed developed countries (so-called Annex I countries) to achieve their emission reduction targets by investing in emission reduction activities at home, in other Annex I countries or through the Clean Development Mechanism (CDM). The CDM enabled projects that reduced emissions in non-Annex I, or developing, countries to generate Certified Emission Reductions (CERs).

2015 Paris Agreementstrong
Major changes in international climate policy compared to the Kyoto Protocol:

  • The scope of the carbon markets extends not only to Annex I countries, but to all countries.
  • Nationally Determined Contributions (NDCs) were introduced.
  • Article 6 of the Paris Agreement introduced the idea of ​​’cooperative approaches’, which also includes international carbon markets.

2021 COP26strong
During the 2021 COP26, the Glasgow Agreement was reached. It established rules and guidelines for international carbon markets, addressing issues such as registration, reporting, the CDM transition under the Kyoto Protocol, double counting, environmental integrity and governance.

Blog 2: Climate neutral or not

In blog 2 you can read about the claim “climate neutral” and how it is now under discussion. You can read a summary of the most important developments surrounding the term here:

  • In the Paris Agreement, the concept of ‘climate neutral’ has been replaced by ‘net zero’, which is to be achieved by 2050. CO2 emissions must be halved by 2030.
  • New rules, such as ‘corresponding adjustments’ from COP26, have been drawn up to prevent double counting. If an emissions project has not yet been implemented, a company can no longer claim to be climate neutral, only to have contributed to emission reductions.
  • A new standard for claims is being developed through the Voluntary Carbon Market Integrity Initiative (VCMI).
  • Many sustainable claims cannot be sufficiently substantiated by companies in practice. Companies often only look at their direct emissions (scope 1) and not also at indirect emissions (scope 2 and 3).
  • Finally, there is growing doubt about the reliability of measuring emission reductions in compensation projects. This may concern the so-called ‘additionality’ of the project, which means that the project would not take place without the financing of carbon credits sold. But it can also involve the quantification of emission reductions through the chosen standard and methodology and in the application of the methodology.

Blog 3: Criticism of compensation projects

In blog 3 you can read about the quality of climate mitigation projects. You can read a summary of the blog here:

  • The voluntary carbon market trades certificates for emission reductions from various projects, including forest protection and cleaner cooking methods. In addition to different types of projects, there are also different standards that establish rules and guidelines for the certification of CO2 reduction in these projects. The largest standard in terms of turnover is Verra, with Gold Standard in second place.
  • Climate mitigation projects aim to combat climate change. In addition, the projects must contribute to sustainable development. The criticism that flared up in 2023 is mainly about the quantification of emission reductions. Other issues that arise with climate mitigation projects are additionality (for all project types) and permanence. The quality of a project in terms of sustainable development is a completely different dimension, and clearly not proportional to the quality of a project in terms of emission reductions.
  • Following the transition from the Kyoto Protocol to the Paris Agreement, the rules for regulated carbon markets are being redefined. This also includes drawing up new rules for the quality of projects. The voluntary market has its own rules, but the new rules for emission reductions that can be traded under Article 6.4 serve as a useful reference. Various initiatives have been taken since 2020 to evaluate the quality of existing projects and to safeguard that of new projects.