Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Carbon Offsets Have an Integrity Problem. COP26 May Help Fix It

GlobalNov 17, 2021 06:02
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters.

(Bloomberg) -- The global agreement reached at the United Nations’ COP26 summit in Glasgow last weekend may help solve one of the trickiest problems in climate policy: how to boost confidence in the voluntary market for carbon credits.  

Such credits, or offsets, allow companies to pollute at home in exchange for investing in greener projects elsewhere. Voluntary markets are currently something of a Wild West, with no unified standards or governance -- and experts say at least some of the credits they generate do little or nothing to curb climate change. 

“The voluntary market is really booming, but at the same time you have this integrity problem,” said Lambert Schneider, research coordinator on international carbon policy at the Oeko-Institut think tank in Germany. Although the COP26 agreement doesn’t directly affect voluntary markets, its rules may “spill over into the system, setting the bar higher.”

In Glasgow, after a six-year deadlock, negotiators agreed rules on international emissions trading and established a UN-controlled marketplace. The new offset program will run in parallel to the existing voluntary markets. 

Soaring Demand

Demand for offsets is soaring. More credits were traded in the first eight months of this year than in all of 2020, according to BloombergNEF, as companies and governments spend billions of dollars to meet net-zero emissions targets and burnish their green credentials. 

The offset market could be worth $100 billion by the end of the decade, up from about $300 million in 2018, according to projections by Mark Carney, a former Bank of England governor, and Bill Winters, the chief executive of Standard Chartered (OTC:SCBFF) Plc. The two financial veterans last year created a task force including hundreds of business leaders, bankers, scientists and others to set up unified rules for voluntary markets.

But there are concerns. With little oversight in voluntary markets, there is room for abuse. Low-quality offsets, or emissions reductions counted twice, do little for the planet -- and can even hinder the fight against climate change.

“The voluntary carbon market has a quality problem on the supply side,” said Schneider, who is also a co-chair of the expert panel on the task force. “There are some good projects, but there are also some projects that do not deliver actual emissions reductions.” He said there should also be “more transparency” surrounding demand for offsets. 

‘Powerful Boost’

The COP26 deal on carbon markets last weekend was a “powerful boost” in confidence for private investors, according to the International Emissions Trading Association. The challenge now is in the interpretation of the agreement and what it could mean for voluntary carbon markets. 

For example, the Glasgow decision allows -- but does not oblige -- countries that host offset-generating projects to authorize credits for use toward climate targets abroad. Such authorization would ensure that the same emissions-reduction unit won’t be claimed twice: by the nation where the offsets were generated and by the company that bought them. 

Credits that will be used for international programs, such as the offsetting system for airlines, will need authorization. Such a procedure isn’t currently required in voluntary markets.

Andrea Bonzanni, IETA’s international policy director, believes it will still be possible for a company to issue credits claiming emission cuts without authorization. Yet buyers may prefer authorized credits, which then can be used toward climate pledges.

“There are different views on where the market will head to, and this is normal,” Bonzanni said. The Glasgow deal “is a starting point for the private sector to keep delivering high-quality credits and functioning market.”  

In the coming years, the UN credits could become a kind of global benchmark, with other voluntary carbon credit prices trading in relation, according to Henrik Hasselknippe, who’s in charge of carbon exchanges at Xpansiv, where more than 100 million metric tons of the credits have traded this year. 

“Markets can handle multiple standards,” Hasselknippe said. “That’s something that we see in many markets.”

©2021 Bloomberg L.P.

Carbon Offsets Have an Integrity Problem. COP26 May Help Fix It
 

Related Articles

COP Scorecard: Here’s What You Need to Know
COP Scorecard: Here’s What You Need to Know By Bloomberg - Nov 15, 2021

(Bloomberg) -- COP26 took fourteen days and some long nights of negotiations. It produced breakthrough pledges, a set of rules on carbon trading and some big aspirations that will...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email