London — The global market for carbon offset credits is facing a "watershed moment" as countries gear up to agree the rules for international emissions trading under the Paris Agreement, carbon offsetting standards group Gold Standard said July 22.
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The calls for alignment with Paris come as corporate demand for carbon offset credits increases, with a growing number of companies setting targets to reduce their emissions to net-zero.
"It is essential that Paris succeeds and that markets fully integrate and align," said Gold Standard's Chief Technical Officer Owen Hewlett in a webinar.
Gold Standard intends to align its standards for carbon offsets as necessary with the 2015 Paris Agreement on climate change and the United Nations Sustainable Development Goals, he said.
"With an increase in power comes an increase in responsibility. That alone makes it a watershed moment -- the increase in demand [for carbon offsets]," said Hewlett.
"Consumer pressure on corporate behavior means we must give clarity to corporates. Gold Standard will actively support SBTI and others to develop a comprehensive corporate claims framework," he said.
The Science Based Targets Initiative is a collaboration between companies and NGO groups seeking to set voluntary targets to reduce emissions in line with prevailing climate science, with 930 companies signed up to take action as of 2020.
Carbon offsets are credits awarded to projects that reduce any of a basket of greenhouse gas emissions, under various standards programs. Those can include a wide swathe of project types including reforestation programs, landfill methane reduction projects, solar cook stove projects and innovative renewable energy programs.
"The markets will fragment by geography, sector and purpose," said Hewlett.
"By aligning with Paris, driving consistency in all our units and offering both issuance and labelling, Gold Standard will be able to participate widely in the fragmented market," he said.
Governments are seeking to agree the rules for international emissions trading at the UN's COP26 climate summit, delayed by a year until November 2021 due to the coronavirus pandemic. As those efforts continue, companies want clarity on standards for voluntary offset credits and how they will interact at the national level under the Paris Agreement.
An ongoing challenge for carbon offsets markets is the issue of "double claiming" -- the risk that a country selling an emissions reduction credit claims the underlying reduction for itself, while at the same time the country buying the credit also claims the same emissions reduction, undermining the environmental integrity of the credit.
"There will be double claiming between VCM [Voluntary Carbon Market] credits and NDCs," Hewlett said, in reference to countries' Nationally Determined Contributions to the Paris Agreement.
Gold Standard says it has no control over this process and cannot guarantee the policy approach that governments will take on offset credits.
One way to avoid double claiming is for a project's host country to make a so-called corresponding adjustment -- to account for the sale of the credits by making a deduction in its national emissions account.
"A corresponding adjustment resolves the double claiming issue 100% of the time," said Hewlett.
"Units will necessarily be differentiated between those that have corresponding adjustments and those that do not," said Hewlett.
"Those with adjustments will be defined as suitable for 'offsetting' while those without represent a claim to have 'financed' [an emissions reduction]," he said.
For example, this applies to the International Civil Aviation Organization's Carbon Offsetting and Reduction Scheme for International Aviation -- the world's first global sector-specific emissions offsetting system.
CORSIA requires airlines to offset any CO2 emissions over and above a 2019 baseline, and will require participating governments to make corresponding adjustments linked to its offset credits after 2020, he said, maintaining a high degree of environmental integrity in the system.
Gold Standard is running a consultation on its proposed carbon offsets policy, seeking input from stakeholders until August 17.
The group also plans to create an online "good practice resource" to keep stakeholders, experts and practitioners up to date, build capacity, and manage a clear transition to new emissions trading rules and requirements, with a launch expected in 2021.