Carbon trading rules under negotiation at Cop27 climate talks could open the door to corporate greenwashing, experts have warned.
As a growing number of companies set net zero goals, the UN is trying to establish standards and best practices. Which means cutting their very own emissions with minimal reliance upon carbon offsets, a taskforce led by Catherine McKenna recommends.
But as talks in Sharm el-Sheikh entered their final scheduled day, the latest draft text allowed for double claiming under the Paris Agreement. That means a company can buy credit for an emission reduction that's also being counted by a country towards its climate goals. It would support US climate envoy John Kerry’s push for corporations to plug gaps in climate finance.
A broad coalition of developed and developing countries oppose the proposal. “This is really bad. It must go,” one negotiator told Climate Home News.
“This really is largely about whether the claims companies are making are truthful or not,” Gilles Dufrasne of Carbon Market Watch, told Climate Home.
Negotiators outlined a broad framework for establishing a new global carbon trading scheme at Cop26 this past year. Now they are filling out the details.
In Glasgow, countries agreed there'd be no double counting: if a person country buys an emission credit from another to use towards its target, the host country needs to make an accounting adjustment. This also applies to international compliance markets such as aviation's trading scheme Corsia.
Two-tier system
But the Sharm el-Sheikh talks could create a second-tier market for carbon credits. Called “mitigation contributions”, these would be used by private companies towards their climate goals, with no accounting tweak.
In that position, both the host country in which the carbon-cutting project is located and also the company paying for it could claim exactly the same emission reduction.
Matt Williams, climate and land lead at the London-based Energy and Climate Intelligence Unit, told Climate Home these were “junk credits that create a sub-prime carbon market”.
“Calling these credits a ‘contribution’ is “an important signal,” said Williams. It implies they ought to not be utilized by companies to count towards a target only in an effort to fund climate action.
If they are used through the private sector as offsets, “we might kid ourselves we’ve achieved net zero whenever we haven’t by stretch,” he explained.
Country opposition
Small island developing states as well as an alliance of Latin American and Caribbean nations are among those pushing for tighter rules.
Switzerland, that is counting on the carbon market set up under the Paris Agreement to meet its 2030 climate targets, has called for restricting the use of these “mitigation contributions” so they cannot be used as offsets by private companies.
The European nation proposed to rename them “unadjusted contributions” to ensure they are unattractive for businesses to purchase.
What a business can claim if this buys an carbon credit is a key question for that credibility of the market.
Allowing a business to claim an offset already getting used with a country is “corporate greenwashing,” Argentinian campaigner Catalina Gonda, from the Environment and Natural Resources Foundation (Farn), told Climate Home.
The Voluntary Carbon Market Integrity (VCMI) initiative is due to publish recommendations on this at the end of 2023/early 2023.
An outcome which rules out double claiming would send the voluntary market a strong signal, Gonda said.
Hugh Salway, head of environmental markets at Defacto standard which verifies carbon credits, told Climate Home there's a role looking for credits which don’t carry a cpa adjustment. “But the way they are used may be the major problem,” he explained.
These credits could be bought by companies to adhere to a domestic carbon trading scheme to accelerate national emission cuts, for example. But Defacto standard advises companies against claiming offsets that are already being used by a country.
Confidentiality
Separately, countries including European nations have raised concerned that a proposal to have an oversight mechanism for countries bilaterally trading credits lacks enforcement capabilities and transparency.
The draft text includes a clause that allows countries to designate as “confidential” any information about the credit they're trading, making it more difficult to reveal irregularities.
Gonda said the current proposal would render any oversight “toothless” and impede accountability. “It will be the wild west,” she said.
