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Europe's voluntary carbon market risks being swamped by old offset credits
18 January 2021
The voluntary carbon emissions offset market risks being swamped
by the supply of 600 million-700 million tons of credits related to
existing offsetting projects, with some of those credits having
"dubious claims of environmental additionality," according to a
study by climate policy advisors Trove Research and academics at
University College London.
"Older projects that were registered in previous eras with
poorer quality controls have continued to issue credits, and the
volume of legacy credits in the system is now very sizable in
relation to demand," the report's authors state in the study
published in January, warning that the purchase of many of those
credits offer little benefit in reducing future emissions.
The report focuses in particular on credits for projects that
complied with the Clean Development Mechanism (CDM) that was
formulated by the Kyoto Protocol of 1997, the international
agreement to reduce emissions that came into force in 2005. CDMs
allow emissions-reducing projects in developing countries to earn
certified emission reduction (CER) credits. "If the vast quantity
of CDM credits created under the Kyoto Protocol remain valid for
country-level compliance, the intentions of governments to
genuinely reduce emissions under the [2015] Paris Agreement will be
greatly threatened," the report warns. "There is also an even
larger volume of credits in the CDM system that, in theory, could
back-issue credits up to 2020. The maximum theoretical volume that
could be used from the CDM registries could increase from 100
million tons to a maximum of 6,800 million tons of carbon dioxide
emissions. If this supply came to market it would swamp demand by
50 to 60 times," the report says.
CER March 2021 futures on ICE settled at 0.35 euro/mt on 14
January, 2021, lower than OPIS's weighted average assessments for
voluntary REDD+ credits under Verra at $6.583/mt for vintage 2020.
Meanwhile OPIS assessment for Carbon Offsetting and Reduction
Scheme for International Aviation (CORSIA) eligible offsets (CEOs)
was at $0.865/mt on Thursday, with CERs from renewable projects
under the CDM and verified carbon units from Verra setting the
price for CEOs so far, according to sources. Offset projects with
their first issuance date for credits from and after Jan. 1, 2016,
are eligible under CORSIA.
The researchers propose three measures to combat the potential
risk of old carbon credits undermining the goals of the voluntary
carbon offset market.
First, they say that the five registries of carbon offset
projects -- Verra, Gold Standard, American Carbon Registry, Climate
Action Reserve and Plan Vivo -- should "clean their registries of
low-quality legacy projects."
However, the authors say, "an obvious difficulty is that the
registries have contractual obligations to the developers who have
undergone the process of registering and validating their projects,
and paying for credits to be issued."
A second solution could come in the form of an independent body
that would oversee the integrity of the market, the report says.
"Part of this organization's role could be to decide on how to
restrict the use of legacy credits," the authors wrote. The
creation of such a body is being discussed by the Taskforce on
Scaling the Voluntary Carbon Markets that was launched last year by
former governor of the Bank of England, Mark Carney, who is now the
UN's special envoy for climate action.
Finally, the report argues that "a consumer-led approach" could
help to see "a drive to only buy high quality credits [with]
guidance [being] issued by independent organizations advising
buyers on the authenticity of the bought credits."
Article written by OPIS editors Anthony Lane and Nandita
Lal.