COP28 host, The United Arab Emirates, expressed hopes for advancements during the summit to enhance credibility of carbon markets.
The Pre-COP brings together ministers to prepare for COP 28 to discuss the key political aspects of the negotiations. (Photo: COP28)
In a study focusing on averted deforestation, researchers pointed out that emission reductions and project benefits were exaggerated. They also raised concerns about the lack of independence among project inspectors and the lenient practices of carbon credit certifiers, such as Verra. It also indicated the overflow of carbon offsets with minimal actual reductions achieved.
At the 2023 Carbon Markets Summit in July, research firm Sylvera and Pachama assembled a group of global leaders to explore the present complexities and future potential of carbon markets. They made a comprehensive report detailing the current state and future trajectory of the sector.
One of the findings revealed that carbon credits, as a last resort, do not mean “later”. The mitigation hierarchy does encourage reductions first over offsetting using carbon credits. However, companies can buy them throughout their net zero journeys, so long that they don’t replace actual reductions.
More notably, firms are moving upstream and becoming more involved earlier in projects, focusing on the ‘contribution’ approach rather than just offsetting. This means they’re pursuing quality to secure future supplies of high-quality credits. This trend is expected to persist this year and beyond.
Carbon market continue to grow despite price declining
Amid quality criticisms, the pricing of carbon credits for nature conservation projects has sharply declined. It plummeted from $18 dollars per tonne in January 2022 to $6 in January 2023, eventually dipping below $2 by mid-October.
Despite the dip in prices, credit retirements remained strong in 2022 and on track to break records this year. As per report by Bloomberg with support from Carbon Growth Partners, there was an astounding 350% increase in annual retirements since 2016.
Carbon credit issuance peaked at over 350 million in 2021 and slightly decreased in 2022 and 2023. Bloomberg projections suggest that the carbon credit market could reach up to $800 billion by 2050.
More importantly, companies are not the only entities relying on carbon credits to achieve climate goals. Article 6 of the Paris Agreement permits countries to collaborate in meeting emission reductions goals, including transferring carbon credits. This is also known as the Internationally Transferable Mitigation Outcomes.
This opens avenues for significant state investments in carbon credits, with developing nations relying on them for climate funding. Oil-producing countries view them as a cost-effective way to deliver net zero emissions. Saudi Arabia is already unveiling a offset scheme for corporations aligning with Article 6.
This matter is crucial in the lead up to COP28 when Paris Agreement mandated the climate summit to deliver the first ever Global Stocktake, which is a comprehensive evaluation of the world’s progress against climate targets.