Reducing and removing greenhouse gas emissions to reverse climate change requires unprecedented cooperation on a global scale. One of the successes at COP26 was the rulebook on Article 6 of the Paris Agreement, which governs international carbon markets. But what do the new rules mean for the voluntary carbon market and for carbon removal specifically?
Elba Horta, our Head of Communications, sat down with Eve Tamme, Senior Advisor on Climate Policy and independent board member of Puro.earth, to discuss the implications and opportunities.
Elba: What do the new carbon market rules agreed at COP26 mean for the voluntary carbon removal market?
Eve: The Article 6 rulebook adopted at COP26 finally brings long-awaited clarity to the carbon market participants. This includes voluntary markets where stakeholders had developed very different interpretations of how the Article 6 rules could impact them over the last years.
The big question between the voluntary and compliance markets has been how to address “double claiming”. It’s a situation where the same emission reduction or removal is claimed twice: once by the host country for its climate target and for the second time by the company in a different country to achieve its carbon neutrality goal.
The agreed Article 6 texts leave it open for governments to decide whether to authorise voluntary market credits generated in their country used for claims in other countries or not. In the latter case, the credits would still exist but not have the authorisation. The authorisation mechanism includes countries adjusting their emission portfolio downwards through a “corresponding adjustment” to address double claiming. This situation leads to two types of credits being available in the future – authorised credits and non-authorised credits.
The voluntary market participants are still analysing the final texts of the Article 6 rulebook and reflecting on what it means in practice for different types of standards, projects, innovative carbon removal approaches etc. The same goes for policymakers in the governments – we need more time to see how countries will decide to go about it.
Elba: What would a sustainability manager need to understand about the new carbon market rules when he or she is procuring carbon removal from the voluntary market?
Eve: It will depend on what kind of claim the sustainability manager is looking to fulfil. There are two types of claims corporates can make – an offsetting claim and a contribution claim. An example of an offsetting claim is using carbon removal credits to achieve a corporate carbon neutrality goal. A contribution claim is not used towards carbon neutrality or a similar target but instead to deliver a particular type of impact. It can include financing removal projects that help countries achieve their climate targets or supporting co-benefits of different carbon crediting projects, including increasing biodiversity or decreasing water scarcity.
The new carbon market rules have the most relevance to offsetting claims. Here, the corporation will need to decide what types of removal credits to use, including whether to use authorised or non-authorised credits.
One crucial question for the carbon removal community is how countries will approach innovative carbon removal projects for which national greenhouse gas accounting rules do not (yet) exist. Some governments, notably the Saint Jose Principles Coalition, have announced that they will apply corresponding adjustments to support voluntary corporate climate commitments. Whether all innovative carbon dioxide removal approaches will be included is not clear at this moment.
Elba: Is there advocacy to include carbon dioxide removal (CDR) in regulation? What is the possibility of CDR projects becoming part of mandatory schemes?
Eve: The Paris Agreement sets the goal “to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century”. The language on greenhouse gas removals by sinks includes CDR. Hence, CDR is already firmly part of the global climate mitigation goal and, through this, in compliance markets that are used to deliver this goal. Historically, CDR approaches like afforestation and reforestation have also been part of the predecessor of the Paris Agreement, the Kyoto Protocol. With this, we can establish that certain types of CDR have been part of mandatory schemes for decades.
I know many stakeholders keen to include different CDR approaches in the compliance market. A good example here is the EU Emissions Trading System (EU ETS) which is currently being revised, and the EU’s upcoming framework for Carbon Removal Certification, which may foresee a certain level of fungibility with the EU ETS.
Whether certain types of CDR projects become part of the compliance market depends on how the regulation evolves. Eventually, there will be interest by governments to account for all types of removals and use these to balance out the residual emissions. I’ve shared on many occasions that whilst in the next couple of decades, the focus will be on steep emission reduction, and after that, removals will become the main driver of climate ambition. This means that removals will receive an increasing amount of attention, and there will be more and more motivation to include removals in compliance markets.
Elba: How do the regulated carbon markets and the voluntary carbon markets influence each other?
Eve: We have slow and large compliance markets and fast-paced and small voluntary markets. Voluntary markets play two important roles. The first is bridging the gap – the gap between announced climate targets and the 1.5 degree temperature goal. The second role is that of piloting and informing. Voluntary markets are apt in quickly setting up new methodologies for new types of climate mitigation projects that can in the future be taken up in the compliance markets.
Today, voluntary and compliance markets are already to some extent interlinked. CORSIA, the offsetting scheme for international aviation, accepts certain voluntary market credits. Credits from Clean Development Mechanism under Kyoto Protocol have been widely used to meet corporate climate targets. And carbon taxes in countries like Columbia and South Africa also accept certain voluntary market credits. Looking at the pathway up until now, and the policies currently being prepared, I expect the voluntary and compliance markets to become increasingly interlinked.
Elba: How do other sustainability areas such as waste and the circular economy work with carbon removal?
Eve: The most obvious link between the two is the potential to deliver carbon removal from waste-to-energy plants that capture and store their CO2 emissions. Countries with a large waste incineration capacity are bound to start considering it as cheaper climate mitigation solutions get exhausted. A good example is Fortum Oslo Varme’s CO2 capture project in Norway that is currently in preparation phase. Once operating, it can capture and store 400 000 tons of CO2 annually.
Overall, there is an abundance of synergies between circular economy and climate change mitigation.