Corporate polluters might be encouraged to bring about adaptation finance when they buy carbon offsets, under proposals to enhance the integrity of carbon trading.
The Integrity Council from the Voluntary Carbon Market, 1 of 2 bodies set up to address greenwashing concerns, launched a 60-day consultation on Wednesday to define “core carbon principles” for high quality carbon credits.
One of the proposed principles would be to align using the Paris Agreement, including by levying a share from the proceeds of selling carbon credits to assist vulnerable communities adapt to the impacts of global warming. Others seek to ensure robust carbon accounting and human rights safeguards. Buyers could burnish their climate credentials by selecting credits that meet these standards.
Ousmane Fall Sarr, a carbon market negotiator for Senegal who heads the West African Alliance on Carbon Markets, told Climate Home News it might be “a really big step forward” for the proposals to be endorsed by market stakeholders. “A really clear signal hasn't yet been sent to developing countries when it comes to mobilising adaptation funding,” he said.
Money for climate vulnerable nations to cope with intensifying impacts persistently lags behind finance for cutting emissions, only accounting for around another of international climate finance.
The value of the voluntary carbon market exceeded $1 billion in 2023 and is projected to grow to $30-50bn in 2030, as big businesses increasingly look to offsets to satisfy net zero targets. On that basis, a 5% levy on all transactions could deliver as much as $2.5bn a year for adaptation by the end of the decade.
There is really a precedent. Probably the most predictable causes of adaptation finance used to be a 2% levy on revenues from the Clean Development Mechanism (CDM), the UN’s offsetting scheme established under the Kyoto Protocol to allow rich countries to meet their climate obligations by funding carbon-cutting projects in developing ones.
While the CDM market crashed this year and the Kyoto Protocol was superseded through the Paris Agreement in 2023, this levy still constitutes a significant contribution towards the Adaptation Fund. By June 2023, 19% from the resources pledged to the fund, or even more than $200m, originated from the sale of CDM credits, based on its latest financial report.
Efforts by developing countries to duplicate this adaptation levy underneath the new carbon market rules of the Paris Agreement were partly successful.
Countries agreed that the 5% share of proceeds from transactions under a new centralised carbon market would go to the Adaptation Fund, but the same doesn’t make an application for bilateral trading. The African Group, which strongly pushed for additional more predictable causes of adaptation finance, needed to accept assurances of voluntary contributions.
“It would be very relevant if the voluntary carbon market can be used as an automobile for collecting this share of proceeds which will contribute a lot of financing to adaptation,” said Sarr.
The proposal within the consultation doesn’t specify the proportion of revenues that could be earmarked for the Adaptation Fund.
Developing countries had lobbied the council to incorporate the proposal in the consultation document, arguing the 5% levy for that new Paris carbon market was “a hard-fought win“.
It “allows the voluntary carbon sell to provide adaptation benefits within an equitable manner… which may not only benefit our countries, but additionally put the [market] in the vanguard of progressive instruments to tackle the climate emergency,” Abul Kalam Azad, Bangladesh’s special envoy for that Climate Vulnerable Forum, Madeleine Diouf Sarr, of Senegal, chair from the least developed countries group and Sarr of the West African Alliance on Carbon Markets wrote inside a letter towards the council’s board.
The move was backed by the Alliance of Small Island States. “The voluntary carbon marketplace is a substantial and growing supply of climate finance,” said Conrod Hunte, of Antigua and Barbuda, chair from the Alliance of Small Island Developing States.
“We need to see the standards the world's governments set for international carbon markets in Glasgow become widely and consistently applied, including in the voluntary carbon market. For people representing the earth's most vulnerable populations, the elevated mitigation ambition and funding for adaptation this will generate is completely vital.”
