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Future role for voluntary carbon markets in the Paris era

Photo by Pedro Kummel on Unsplash

Background and Objectives

The beginning of the year 2021 marks a fundamental change in the global governance of greenhouse gas emissions, with the Paris Agreement providing a new framework for international climate policy. The new context of the Paris Agreement has also important implications for the voluntary carbon market, i.e. the voluntary purchasing and retiring of carbon credits. Historically, carbon credits have mostly been generated from activities implemented in countries that did not have mitigation targets. Consequently, the carbon credit's emission reductions were only used by the buyer to achieve a climate change mitigation target or goal, and not by the country hosting the mitigation project.. The Paris Agreement, however, requires all countries to formulate Nationally Determined Contributions (NDCs). This new context poses important challenges for the role that voluntary offsetting can play in the future. 

Understanding future models for the voluntary carbon market is particularly relevant as an increasing number of organisations and individuals take voluntary action to reduce their emissions and to offset those that remain. Against this backdrop, the German Environment Agency (UBA) commissioned a research project undertaken by NewClimate Institute and Lambert Schneider.

Implementation

In order to examine the future role of the voluntary carbon market, the research team first explored the current status of the market as well as the new circumstances and challenges presented by the Paris Agreement. A critical focus of the work was to assess whether and how ‘double counting’ of emission reductions - using the same emission reduction for voluntary offsetting and to achieve a country's target under the Paris Agreement – is avoided. The project team analysed and compared different models for the voluntary carbon market after 2020 proposed by market participants and wider stakeholders. The selection was based on both a review of literature as well as stakeholder interviews. Selected models were compared across key features and evaluated against a number of criteria, including considerations of climate impact, practical implementation and potential acceptance of the models by the market.

Results and outlook

Initial findings were discussed with stakeholders at a workshop held in Berlin in November 2019 and relevant feedback was incorporated into the final report of the project, which is now publicly available. The report finds that of the five models analysed, three emerge as potentially viable options in the Paris era: the “contribution claim”, “NDC crediting” and “non-NDC crediting” approaches, each with their own respective strengths and weaknesses. The project team further finds that the relative attractiveness of the models is likely to change over time as country NDCs are scaled up. In order to maximise the climate impact of voluntary market activities and safeguard against some of the risks presented by features of the models, the authors recommend the market to focus on activities representing challenging mitigation options as well as activities hosted by countries with ambitious NDC targets.

Future role for voluntary carbon markets in the Paris era

Role of BMU: Research funding

Lifecycle: 2019-2020

Implementation: NewClimate Institute 

Other Organisations Involved: Lambert Schneider

Further information from the Environment Agency: UBA Website

Contact: Harry Fearnehough, h.fearnehough@newclimate.org

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