Carbon offsets and credits
[3][4][5][6] Carbon offset and credit programs provide a mechanism for countries to meet their Nationally Determined Contributions (NDC) commitments to achieve the goals of the Paris Agreement.
[11] These include claims of overestimated carbon sequestration, double-counting of credits, and the failure of projects to provide additional environmental benefits beyond what would have occurred naturally.
[23] At COP27, negotiators agreed to define offsets and credits issued under Article 6 of the Paris Agreement as "mitigation contributions" in order to discourage carbon neutrality claims by buyers.
[24] Certification organizations such as the Gold Standard also have detailed guidance on what descriptive terms are appropriate for buyers of offsets and credits.
[36] One mechanism was the Clean Development Mechanism (CDM), which expanded the concept of carbon emissions trading to a global scale, focusing on the major greenhouse gases that cause climate change:[37] carbon dioxide (CO2), methane, nitrous oxide (N2O), perfluorocarbons, hydrofluorocarbons, and sulfur hexafluoride.
[39] In November 2024, after years of deadlock, governments attending the COP29 conference in Baku, Azerbaijan agreed to rules on creating, trading and registering emission reductions and removals as carbon credits that higher-emission countries can buy, thus providing funding for low-emission technologies.
[43] Offset and credit programs have been identified as a way for countries to meet their NDC commitments and achieve the goals of the Paris agreement at a lower cost.
[44] There is a diverse range of sources of supply and demand as well as trading frameworks that drive offset and credit markets.
[45] Demand for offsets and credits derives from a range of compliance obligations, arising from international agreements, national laws, as well as voluntary commitments that companies and governments have adopted.
[61] Article 6 of the Paris Agreement continues to support offset and credit programs between countries, including CDM projects from the Kyoto Protocol.
Programs now occur to help achieve emission reduction targets set out in each country's nationally determined contribution (NDC).
REDD+ initiatives typically compensate developing countries or their regional administrations for reducing their emissions from deforestation and forest degradation.
It consists of several stages: One, achieving REDD+ readiness; two, formalizing an agreement for financing; three, measuring, reporting, and verifying results; and four, receiving results-based payments.
It aims to allow credits and offsets for emissions that cannot be reduced by technology and operational improvements or sustainable aviation fuels.
[72] Many companies now engage in emissions abatement, offsetting, and sequestration programs, which generate credits that can be sold on an exchange.
[84] However, there is evidence that large companies are becoming more reluctant to use VCM offsets and credits because of a complex web of standards, despite an increased focus on net zero emissions goals.
[85] In 2022 voluntary carbon market (VCM) prices ranged from $8 to $30 per tonne of CO2e for the most common types of offset projects.
[90] Demand for VCM offsets is expected to increase five to ten-fold over the next decade as more companies adopt Net Zero climate commitments.
If carbon offset prices remain significantly below these forecast levels, companies could be open to criticisms of greenwashing.
These technologies include reducing deforestation, forest restoration, CCS, BECCs and renewables in least developed countries.
[91] In addition, as the cost of using offsets and credits rises, investments in reducing supply chain emissions will become more attractive.
These types of projects help societies move from electricity and heating based on fossil fuels towards forms of energy that are less carbon-intensive.
Examples include the combustion or containment of methane generated by farm animals by use of an anaerobic digester,[104] in landfills,[105] or from other industrial waste.
[108] Industrial pollutants such as hydrofluorocarbons (HFCs) and perfluorocarbons (PFCs) have a much greater potential for global warming than carbon dioxide by volume.
[112] Carbon offsets allow firms to avoid deforestation by paying directly for forest preservation or providing substitutes for forest-based products.
[125][126] Research from The Australia Institute has suggested that at least 25% of carbon offsets may lack integrity, describing them as "hot air.
"[127][128] Additionally, some reports have raised concerns that carbon offsets could be used to justify the continuation or expansion of fossil fuel projects, potentially delaying direct efforts to reduce emissions.
[130] Pope Francis noted in his 2015 encyclical letter Laudato si' the risk that countries and sectors may use carbon credits as "a ploy which permits maintaining [their] excessive consumption".
[140] Several certification standards exist, with different ways of measuring emissions baseline, reductions, additionality, and other key criteria.
[10] For example, carbon credits issued by the California Air Resources Board were found to use a formula that established fixed boundaries around forest regions.
