COMMENT: COP27 delivers a clear signal to the voluntary carbon market

Published 18:16 on November 23, 2022  /  Last updated at 11:07 on December 19, 2023  /  Climate Talks, Contributed Content, International, Other Content, Voluntary

The COP27 UN climate talks gave a clear signal that ”mitigation contribution” units cannot be used for offset claims, the next step is for all voluntary market participants to finally accept this, writes Niklas Kaskeala of carbon credit retailer Compensate.

By Niklas Kaskeala, Chief Impact Officer, Compensate

I was on the ground in Sharm el-Sheikh and have to say that while I consider COP27 a disappointment on many fronts, progress was made on a few crucial issues.

We must not be disheartened by the failure to make serious progress on emissions reductions – 1.5C is slipping away – nor the disproportionate influence the fossil fuel industry continues to wield at COP.

Positively, COP27 was finally able to deliver a decision on loss and damages for nations most impacted by the climate crisis. This is just and right. It is long overdue that leading economies pay what they owe to developing nations. I commend campaigners who achieved this massive win.

Despite many decisions about the rules and structure of international carbon markets governed under Article 6 of the Paris Agreement being pushed to COP28, one important development took place in Sharm el-Sheikh.

The decision at COP27 to establish a new type of carbon credit known as a ’mitigation contribution’ under Article 6.4 provides some much needed clarity on the issue of double claiming and corresponding adjustments. Even though the Paris Agreement does not have formal jurisdiction over the voluntary carbon market (VCM), the market will have to react to this decision.

We got a clear signal that ”mitigation contribution” units cannot be used for offset claims. Even the name says it. These credits will contribute to the mitigation efforts of the host country of the carbon project. Proper offset claims (as well as carbon neutrality and net zero claims) will require corresponding adjustments to avoid double claiming.

The next step is for all voluntary market participants to finally accept this.

Don’t get me wrong, I believe it is fine to support mitigation efforts by national governments. Indeed many countries in the Global South need this support. However the claims by companies should be shaped accordingly – and all stakeholders must understand what that means.

Owing to the advanced stage of the climate crisis, companies and organisations must be responsible for the emissions they cause, and held to account for harm done to the planet. I saw plenty of progressive companies at COP27, saying all the right things, but unfortunately climate action needs so much more. Modern day corporate climate action should involve counterbalancing emissions, as a fundamental. Merely supporting climate action beyond the value chain is not enough.

Following the creation of the ‘mitigation contribution’ units, The Integrity Council for the Voluntary Carbon Market (ICVCM), the Voluntary Carbon Integrity Initiative (VCMI), as well as  other initiatives working on reforming the VCM, must now take a clear stance on the difference between offset claims and mitigation contributions. In taking a stance, and communicating it clearly, it is then left to buyers to decide which type of credit they wish to purchase.

For what it’s worth, differentiation between the use cases between different credits could be to use adjusted credits for offsetting Scope 1 and 2 emissions, and using mitigation contributions for Scope 3 emissions where the responsibility for emissions is more complex to define and there is much overlap. Accordingly, no offset claim could be made on Scope 3 emissions. I would be happy to hear reactions to such a differentiation.

***ANALYSIS: Scope 3 emissions could be fertile ground for new “contribution” credits***

Helpfully as well, REDD+ projects could now be classified as mitigation contributions, because the true climate impact is hard to quantify and prove. I am of the opinion that these projects deserve funding, but remain very cautious about their use for offset claims.

As COP27 delivered some much needed clarity on the different claims that can be made using different types of credits, we can hopefully now fully engage in improving the overall quality of credits on the market. This will be essential if the projected exponential growth of the voluntary carbon market is to deliver real climate impact. The Core Carbon Principles that the ICVCM has proposed tackle many of the quality issues that current market standards have overlooked. I hope they receive widespread support from market actors.