November 24, 2022
Integrity, integrity, integrity. That was the focus across the many events on voluntary carbon markets at COP27. The message was clear: while participation in voluntary carbon markets is and will remain optional, ensuring integrity is not. Integrity is also key to unlocking private finance at scale. The role of regulation received increasing attention in these discussions. Several major initiatives on voluntary carbon markets were announced at COP27
The COP27 venue in Sharm el-Sheikh served as a stage for numerous events and announcements relevant for the voluntary carbon markets. In parallel, negotiators worked long hours to agree on details to operationalise market-based cooperation under Article 6 of the Paris Agreement. The first-ever transaction of authorised internationally transferred mitigation outcomes was announced during COP27 by Ghana and Switzerland.
Integrity was the common theme across the many events on voluntary carbon markets at COP27. The message was clear: while participation in voluntary carbon markets is and will remain optional, ensuring integrity is not. Integrity includes not only high-quality carbon credits but also credible own action, targets, claims and reporting. It is also key to unlocking private finance at scale. The role of regulation received increasing attention in these discussions.
One panel discussion was specifically dedicated to the governance of claims. The Wuppertal Institute set the scene by mapping relevant international initiatives – including the Nordic Dialogue on Voluntary Compensation – and national regulation. The panel included experts from the Wuppertal Institute, the German Federal Ministry for Economic Affairs and Climate, UK’s International Net Zero Directorate, carbon project developer atmosfair, and Hanna-Mari Ahonen, the project manager of the Nordic Dialogue. Hanna-Mari shared Nordic perspectives on best practices for the voluntary use of carbon credits in this event, as well as in another event at the Nordic Pavilion on the role of carbon markets in accelerating climate action.
Other events on voluntary carbon market integrity were organised by the UK, VCMI and We Mean Business Coalition, and EU, to name only a few. Events on carbon market cooperation under Article 6, such as those organised by Nordic green bank Nefco and the Swedish Energy Agency, were also relevant for the voluntary carbon markets.
At COP27, two key publications brought much-needed clarity for non-state actors’ net zero targets: the first report of the UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities and the net zero guidelines by ISO, commissioned by a global collaboration including the UN Race to Zero and the UNFCCC Innovation Hub. The expert group recommends that “high-integrity carbon credits in voluntary markets should be used for beyond value chain mitigation but cannot be counted toward a non-state actor’s interim emissions reductions required by its net zero pathway.”
The new Africa Carbon Markets Initiative aims “to dramatically expand Africa’s participation in voluntary carbon market”, based on 13 action programmes identified in its roadmap. Action programmes range from developing country plans to building capacity on monitoring, reporting and verification, and deploying financial mechanisms to de-risk investments.
U.S. Special Presidential Envoy for Climate John Kerry, The Rockefeller Foundation, and the Bezos Earth Fund announced a “a new partnership “to catalyse private capital to accelerate the clean energy transition in developing countries” called the Energy Transition Accelerator. It would provide U.S. companies the opportunity to support clean energy activities in developing countries by buying carbon credits. Criteria for ensuring integrity are yet to be developed. One idea is to limit participation to companies that have net zero goals and science-based interim targets, and use carbon credits “to supplement, not substitute for, deep reductions in their own emissions”. Notably, five per cent of the value generated by carbon credits will go towards supporting adaptation and resilience in vulnerable countries.
The World Bank announced a new Scaling Climate Action by Lowering Emissions (SCALE) partnership to provide results-based grant funding to developing countries against verified emission reductions. Part of these carbon credits could be sold to carbon markets to mobilise additional private sector funding for national mitigation contributions.
An interesting example of increased regulatory interest in voluntary carbon markets came from the Board of the International Organization of Securities Commissions (IOSCO). They launched consultations on the role of financial markets regulators in ensuring market integrity in voluntary and compliance carbon markets and published a call of action for “voluntary standard setting bodies and industry associations operating in financial markets to promote good practices among their members to counter the risk of greenwashing”.
COP27 aimed to be an “implementation COP” and this applied also to market-based cooperation under Article 6 of the Paris Agreement. Two initiatives to support Article 6 implementation were launched at COP27: the Paris Agreement Article 6 Implementation Partnership and the Community of Practice for Article 6 Implementing Countries. The first-ever transaction of authorised internationally transferred mitigation outcomes under Article 6 was announced by Ghana and Switzerland during COP27.
In parallel, negotiators worked long hours to agree on details to operationalise market-based cooperation under Article 6 of the Paris Agreement. Limited progress was made on technical issues. A new term, “mitigation contribution” units, was introduced for mitigation outcomes that count towards the host country’s targets and are issued under the international crediting mechanism. The mechanism’s Supervisory Body will continue developing guidance and methodologies for international carbon credits in 2023.
The Nordic Dialogue on Voluntary Compensation was launched in June 2021 to help Nordic stakeholders to navigate the fast-evolving landscape of guidance and initiatives relating to voluntary compensation, and to complement and contribute to them with Nordic perspectives. The Dialogue brings Nordic actors together to co-create a robust and coherent Nordic approach for the voluntary use of carbon credits in line with the long-term goals of the Paris Agreement and the United Nations Sustainable Development Goals.
The Nordic Dialogue on Voluntary Compensation is managed by Perspectives Climate Research and facilitated by an international team of leading climate experts from Perspectives, IVL Swedish Environmental Research Institute, Carbon Limits, and Tyrsky Consulting. It is funded by the Nordic Council of Ministers’ Working Groups for Climate and Air (NKL) and Environment and Economy (NME).
For more information on the activities of and opportunities to participate in the Nordic Dialogue on Voluntary Compensation, follow us on Twitter (@Nordic_Dialogue, #nordicdialogue) and read our FAQs.
