December 7, 2019
International climate negotiations on article 6 of the Paris Agreement, taking place at COP25 in Madrid, will have an impact on the voluntary carbon market. The impact may not be felt immediately but in the coming years the voluntary market will have to secure its place in the landscape created by the Paris Agreement.
A key difference between the Kyoto Protocol and the Paris Agreement is that all countries are making voluntary reduction commitments, rather than some countries making legally binding agreements. This new playing field creates accounting challenges. To ensure that offsets aren’t used by some countries to undermine their emission reduction efforts, all transfers of offsets between countries should be accounted for on both sides. This should apply regardless of whether the buyers are countries or companies, and regardless of the standard under which the offsets are generated.
Here in Madrid countries are trying to establish the necessary accounting rules and structures. This is being done through a political process at the highest level. Every country has a voice, and consensus has to be reached, else countries disagreeing may leave the process. While in theory every country has an equal voice, power dynamics will inevitably play a part: between large and small actors, big emitters and small emitters, less developed and more developed countries.
The details of the article 6 rulebook, hammered out in these negotiations, will determine the landscape in which all carbon offsetting markets will operate in future. Under the Kyoto Protocol the compliance market was politically driven while offset standards for voluntary market operated outside the UNFCCC framework. Under the Paris Agreement the voluntary market finds itself drawn into these highly political processes.