To learn more, please read our report “Voluntary compensation of greenhouse gas emissions. International guidance and initiatives“.
Mitigation outcomes cover both greenhouse gas emission reductions and removals of carbon dioxide from the atmosphere. Carbon credits refer to tradable units that are issued into carbon registries by carbon crediting programmes, based on mitigation outcomes that meet relevant criteria.
Under the Dialogue, voluntary compensation was used in to mean the voluntary use of carbon credits for offsetting (see below) and national mitigation contributions (see below). However, sometimes voluntary compensation is used as a synonym for offsetting. To avoid confusion, the final report of the Nordic Dialogue on Voluntary Compensation refers to the “voluntary use of carbon credits” instead of “voluntary compensation”. The voluntary use of carbon credits enables allows actors to support additional mitigation achieved outside of their boundaries or value chains, for example by activities that promote renewable energy, reforestation or waste management. The voluntary use of carbon credits should not be used as a substitute for reducing own emission – own emission reductions should always be prioritised.
Under the Dialogue, offsetting refers to the voluntary use of high-integrity carbon credits exclusively for counterbalancing an equivalent amount of emissions attributed to an actor, product or service within its boundary or value chain, such that that the combined contribution of these carbon credits and emissions to global net GHG emissions is zero. Mitigation used for offsetting is not counted towards any other purpose, such as national mitigation targets. Carbon credits that are based on mitigation that counts towards national targets can be voluntarily uses for national mitigation contributions.
There is wide agreement that mitigation outcomes based on emission reductions or removals from a broad range of activities can be legitimate for generating carbon credits, provided that they meet relevant quality criteria. Widely accepted quality criteria include demonstration of additionality, application of robust baselines and monitoring methodologies, ex-ante third-party validation of the activity design and ex-post third-party verification of mitigation outcomes by independent third parties, addressing the risks of non-permanence and leakage, doing no harm and avoiding double counting.
Various carbon crediting programmes have emerged to issue carbon credits for mitigation outcomes that are deemed to meet relevant criteria. The largest carbon crediting programmes currently catering for the voluntary use of carbon credits are the Verified Carbon Standard (VCS), Gold Standard for the Global Goals (GS4GG) and the Clean Development Mechanism (CDM). There are also several other programmes that cater for voluntary carbon markets. Some of these standards are also approved for generating carbon credits for compliance use. CDM was originally designed for compliance under the Kyoto Protocol.
In the context of the Science-Based Targets initiative’s (SBTi) corporate net-zero standard, mitigation outcomes based on emission reductions and/or removals can be used to cover emissions remaining on the way to net zero. In the net-zero target year, a very small amount of emissions may remain and must be counterbalanced with mitigation outcomes based on removals.
In the global context, carbon neutrality is the same as net-zero carbon dioxide emissions, which are achieved when anthropogenic emissions are balanced globally by anthropogenic removals over a specified period. Carbon neutrality commonly also includes other greenhouse gases. At the sub-global level, actors had traditionally claimed to achieve carbon neutrality by offsetting their carbon footprint with carbon credits representing at least an equivalent amount of mitigation outcomes.
However, the legitimacy of carbon neutrality claims that rely mainly on offsetting has been questioned, and claims are increasingly under scrutiny by consumer authorities. There is wide agreement that achieving the global goal of limiting warming to 1.5 degrees requires prioritising reductions in own emissions consistent with the 1.5-degree pathway. In this context, the voluntary use of carbon credits should complement – not substitute – own emission reductions. A credible carbon neutrality claim should be accompanied by own emission reductions in line with 1.5 degrees, and based on high-quality mitigation outcomes that are not claimed towards any other purposes, including not towards national mitigation targets.
In practice, the assessment of whether own action is aligned with the 1.5-degree pathway inevitably entails subjective judgement and important equity issues. Transparent and detailed reporting is crucial to facilitate the assessment of own action, the role of voluntary offsetting in the broader efforts, and the credibility of related claims.
The Science-Based Targets initiative (SBTi) has developed a net-zero standard for aligning corporate net-zero claims with the 1.5-degree target, taking into account the company’s sector and size. Other types of non-state actors still lack tailored guidance on aligning their action with the 1.5-degree pathway and making credible carbon neutrality claims.
There is wide agreement that the voluntary use of carbon credits should be based on mitigation outcomes that are additional to what the host country has committed to achieving with its own resources.
In general, mitigation outcomes achieved within the host country will count towards the host country’s target except for mitigation outcomes that the host country authorises for use towards other countries’ targets under the Paris Agreement, for international mitigation purposes or other purposes. The authorisation constitutes a commitment by the host country to not count these mitigation outcomes towards its target by applying a so-called “corresponding adjustment” to its emissions balance.
To deliver a national mitigation contribution, carbon credits should be based on mitigation outcomes that are counted towards the host country and help to achieve and even over-achieve its national mitigation target. To truly offset specific emissions, carbon credits should be based on mitigation outcomes that are counted exclusively to counterbalance the buyer’s emissions, and do not count towards any national mitigation targets.
Double claiming with the national mitigation targets refers to a situation where the same mitigation outcome is claimed both towards a (e.g. host) country’s national mitigation target and offsetting of emissions specified by a non-state actor (e.g. carbon neutrality claim).
Many actors stress that credible offsetting claims require avoiding double claiming by countries and voluntary market buyers. They also point out that the only way to help to close the ambition gap (i.e. gap between current national mitigation targets and the 1.5-degree pathway) through the voluntary carbon markets is by using carbon credits that represent mitigation beyond national mitigation targets. Others do not see any need to avoid double claiming and/or propose to address double claiming by providing information on whether the voluntary claim is based on mitigation outcomes that also count towards national mitigation targets.
When using mitigation outcomes generated from 2021 onwards, double claiming can be avoided by using mitigation outcomes with corresponding adjustments for offsetting claims. Corresponding adjustments are done under the Paris Agreement. They enable host countries not to count adjusted mitigation outcomes towards their mitigation target. Organisations could make national mitigation contribution claims by using mitigation outcomes without corresponding adjustments. Double-claiming can also be avoided by using mitigation outcomes that are generated before 2021 in host countries that did not have targets before 2021.
There is no consensus on this question. The voluntary use of carbon credits and related claims are currently regulated at various levels. Carbon credit quality is regulated by various independent, international, national and sub-national carbon crediting programmes. For environmental claims, including carbon neutrality claims, there is international, regional and national guidance, albeit with limited details. There are efforts ongoing to align and harmonise guidance. The Nordic Dialogue on Voluntary Compensation aims to promote the harmonisation of best practice guidance for the voluntary use of carbon credits and related claims through the Nordic Code of Best Practice.
There are no readily available estimates for demand for the use of carbon credits for claims about national mitigation contributions. Demand for particular claims depends on non-state actors’ preferences and targets: what types of climate action they choose to support and what types of targets they commit. This, in turn, is influenced by the preferences of key stakeholders and the general public. Currently, carbon neutrality and net-zero targets are popular among non-state actors. Carbon neutrality targets and claims are traditionally achieved through offsetting use of carbon credits, while corporate net-zero targets under the Science-Based Targets initiative’s (SBTi) net-zero standard could potentially drive demand for the voluntary use of carbon credits for both offsetting and national mitigation contributions as a means to deliver “beyond value chain mitigation” to complement net-zero targets.
Voluntary and compliance carbon markets developed in parallel, and they have influenced each other throughout their existence. All established carbon crediting programmes have some common features and core criteria, and many of them cater for both voluntary and compliance purposes. The Clean Development Mechanism (CDM) was initially designed for compliance purposes, but it is also used for voluntary purposes and has been used as a model for other crediting standards catering for the voluntary markets. Market-based cooperation under Article 6 of the Paris Agreement may also be used to support voluntary markets and, over time, it may also facilitate alignment of criteria across carbon crediting programmes. In the future, some carbon crediting programmes initially designed for voluntary use may also be used as the basis for market-based cooperation under Article 6.
The Nordic Dialogue on Voluntary Compensation included:
There are several reasons why Nordic cooperation on the voluntary use of carbon credits and related claims may add value.
Firstly, all Nordic countries have ambitious climate targets and they have agreed to jointly promote carbon neutrality, including encouraging Nordic companies, investors, local governments, cities, organisations and consumers to step up their efforts towards carbon neutrality. The Dialogue is designed to support these efforts through Nordic cooperation.
Secondly, there are ongoing national efforts relevant to the voluntary use of carbon credits in many Nordic countries. The Dialogue can help in sharing experiences and lessons across Nordic countries and identifying issues where Nordic cooperation can add value.
Thirdly, Nordic cooperation on the voluntary use of carbon credits and related claims can be relevant for countries outside the Nordic region, and vice versa. They can help in sharing relevant experiences and lessons between Nordic stakeholders and their international peers. The Dialogue also aims to promote complementarity and alignment with relevant ongoing international initiatives.
A Nordic approach to promoting best practices for carbon markets, including the voluntary use of carbon credits and related claims, will be a process that will be shaped over time by Nordic stakeholders. Under the Dialogue, Nordic stakeholders identified elements that they consider valuable to develop or coordinate at the Nordic level. For example, Nordic stakeholder see added value in developing joint Nordic high-level principles on what constitutes best practice for carbon credits, their use and related claims, and propose to establish a community of best practice to build knowledge and capacity, align and update guidance, and support implementation of best practices in carbon markets.