COP26 creates a binding framework for trading carbon credits between countries and prevents double counting. Itis also an important endorsement of corporate climate action. Companies now have even more certainty for their commitments and climate action strategies.
A view from Dr. Sascha Lafeld, Head of Carbon Offset and Green Energy Services, ClimatePartner
During the COP26 negotiations in Glasgow, the international community also agreed to concretise the open points on Article 6 of the Paris Climate Agreement.
They now define how carbon credits are traded between countries (Article 6.2) and within private-sector cooperation (Article 6.4). They formulate binding principles for the international carbon market and also ensure that double counting of emission reductions is prevented. Article 6.4 is intended as a new mechanism to replace the previous Clean Development Mechanism (CDM).
Unfortunately, only a few countries could decide to increase their targets for Nationally Determined Contributions (NDCs) to carbon reduction. ClimatePartner nevertheless sees a positive tendency in the results, despite the low ambitions of the states. Now, future emissions trading between states not only has a structure of integrity but it is also able to mobilise urgently needed capital for climate action.
Governments and private companies - separate systems, no double counting
The decisions of COP26 confirm the intention of the Paris Climate Agreement. In addition to the mandatory market a voluntary market for corporate carbon offsetting will continue to exist, operating according to its own set of rules, both in terms of content and accounting. These include the Greenhouse Gas Protocol for carbon accounting and the Gold Standard or Verified Carbon Standard for project quality standards. The accounting of emissions from the purchase of voluntary emission reduction certificates (VERs) is carried out in the company's own CO2 reports. Thus, there are still two different levels and accounting systems for emission reductions. Due to this nature alone, any double counting of carbon reductions between the two markets is ruled out.
Despite this clear separation, some of the decisions of COP26 also have an impact on the voluntary market: the verification of projects in which CO2 emissions are saved and thus certificates generated is strengthened. In addition, a complaints procedure will be introduced to clarify social aspects and impacts of project activities. A special climate fund will be set up as an additional financing instrument to promote the initiation of new projects. In addition, various mechanisms for crediting certificates are to ensure that there is more security overall in the voluntary market.
While the conference participants could not agree on a complete coal phase-out but rather a phase-down, there was at least an agreement to end global deforestation by 2030. This gives an important incentive to reforest and protect existing forests, which will also be supported by the voluntary market.
If it is already 1 minute to twelve today, what time will it be in a year?
In its assessment of the COP26 results, the standard-setting and certification body Verra sees that the rules of Article 6 define the boundaries of state-led carbon markets and thus, also set the space in which the voluntary market can operate. It remains to be seen whether the requirements in the mandatory market (e.g. corresponding adjustments) will also be a model for the voluntary market.
As a member of the leading association initiative ICROA, ClimatePartner will continue to closely follow these developments.
In the medium term, the Glasgow resolutions mean more security for companies that engage in climate action on a voluntary basis. In case of doubt, they are even significantly faster and more agile in implementation - in view of the high time pressure caused by increasingly visible climate change, this is also absolutely crucial.
The state side is much slower here. It remains to be seen whether the states will implement the agreement in the way and as quickly as is intended by COP26. The results of the next climate conference, COP27 in Egypt in 2022, will be decisive. By then, the states should not only increase their climate targets, but also report them to the United Nations as Nationally Determined Contributions, as binding national climate contributions.
This politically necessary time frame alone makes it clear how important the voluntary contribution of businesses to climate action is. They do not have to wait another year for the next decisions but can and should act today.