Why COP26’s endorsement of carbon credit markets is a positive move

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COP26 negotiations surfaced both praise for and criticism of the role carbon markets can play in achieving the Paris Agreement climate objectives. Some environmental advocates at the recent meeting, including Greenpeace, made clear their strong disapproval of carbon credits and warned that these markets could undermine global climate goals. Such positions can result in either/or assumptions—either carbon markets or carbon reductions. However, such framing presents a false dichotomy and risks abandoning a powerful emissions mitigation tool at a time when we must be maximizing all options in the ‘climate change toolbox.’ The evidence shows that carbon markets have the potential to significantly accelerate and reduce the costs of global emissions reductions. That understanding led negotiators in Glasgow to finalize rules to enable international trading of carbon credits. Despite the challenges facing carbon credit markets, we believe that, properly implemented, they are a critical component of any credible climate strategy that’s committed to achieving global net zero emissions. This blog outlines the value that carbon credits and markets have for reaching that goal.

Carbon Credits Will Be Necessary to Achieve Net Zero Emissions

Avoiding the worst impacts of climate change will require that, after maximizing emissions reductions, all residual emissions must be balanced with carbon removals annually by 2050. The SBTi Net-Zero Standard has made clear that corporates setting net zero targets must also commit to neutralizing residual emissions with carbon removals. In short, reducing emissions alone won’t get us to the ultimate goal. Naturally, ensuring adequate neutralization of remaining emissions will require scientifically rigorous methodologies for quantifying and verifying removals, which will build off of existing carbon credit frameworks.

Carbon Credits Must Complement a Strategy to Reduce Absolute Emissions

Just as emissions reductions alone won’t achieve the net zero goal, neither will carbon credits. Environmental NGOs, including Greenpeace, governments, and other members of civil society are right to be skeptical of organizations using carbon credits to avoid aggressively reducing their internal emissions. A credible and adequate net zero strategy must prioritize operational and value chain emissions reductions before pursuing external emissions reductions. Purchasing carbon credits to address unabated emissions is not on its own a climate strategy, for countries or corporates. Investments in external emissions reductions projects must always be part of a larger strategy that prioritizes internal emissions reduction.

Carbon Credits Align Corporate Strategies with Global Climate Needs

Conversations ahead of and during COP26 emphasized that achieving global net zero requires scaling up financing to support nature-based emissions reductions and developing carbon removal technologies. The release of SBTi’s Net-Zero Standard in the lead-up to COP26 clarified the pivotal role that private companies should play in providing this finance by investing in “beyond value chain emissions reductions,” including in the form of carbon credits. It makes clear that corporate climate leadership means seeking opportunities to invest in mitigation beyond an organization’s own carbon footprint. The standard states: 

Decarbonizing a company’s value chain in line with science and reaching net-zero emissions by 2050 is increasingly becoming the minimum societal expectation on companies. Businesses can play a critical role in accelerating the net-zero transition and in addressing the ecological crisis by investing in mitigation actions beyond their value chains.

These investments absolutely cannot replace or delay setting and pursuing deep emissions cuts, but they do ensure that corporate strategies support the global objective of net zero.

Credible, Transparent Accounting Is Critical to Carbon Markets’ Success

The Article 6 negotiations at COP26 laid the groundwork for robust accounting associated with international carbon trading. Any country that exports an emission reduction must “correspondingly adjust” its own emissions inventory to ensure no double-counting of emissions reductions. A “Supervisory Body” has been designated the responsible party for approving carbon credit methodologies, and it must create a high standard for which projects will be allowed in the market. These details are critical to addressing the criticism that carbon markets do not deliver the stated emission reductions due to inadequate accounting regimes. 

The voluntary carbon market is also on track to continue its trend of consistent improvements in credit quality and accounting. Scientific advances around greenhouse gas quantification allow project developers to consistently improve the monitoring, reporting, and verification of credits. Stakeholder demands for more transparency in the use of carbon credits to achieve climate targets also encourages companies to publicize the details of their carbon investments. Transparent climate strategies send long-term demand signals for high-quality credits, which builds market certainty and allows project developers to make the necessary investments to bring high-quality credits to market.

Both/And Solutions Offer Near-Term and Long-Term Benefits

COP26 negotiations made clear that carbon credits will play a role in achieving our global climate objectives. While carbon removals are needed to meet net zero, the robust quantification methodologies offered by carbon credit standards are essential to ensuring that emissions are adequately neutralized around the globe. Well-designed carbon markets can leverage near-term governmental and private sector climate targets to support long-term emissions reductions in hard-to-abate sectors, particularly over the coming decades. These investments must be within a comprehensive strategy that is underpinned by robust accounting and complemented by public reporting on progress toward internal reductions.