Future role for voluntary carbon markets in the Paris era

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The end of 2020 marks a fundamental change in the global governance of greenhouse gas emissions with the shift from the Kyoto Protocol era to that of the Paris Agreement. This has important implications for the future role and the feasible models of the voluntary carbon market. In this report – commissioned by the German Emission Trading Authority (DEHSt) at the Federal Environment Agency (UBA) – we analyse a number of options and offer key recommendations on the future role for voluntary carbon markets after 2020.

Main findings:

A critical focus of our analysis is whether and how “double counting” of emission reductions – using the same emission reduction for voluntary offsetting and to achieve a country’s target under the Paris Agreement – is avoided. We show that, where there is a risk that the same emission reduction outcome could be claimed more than once, the impact of voluntary engagement in carbon markets could be negligible, or even lead to an overall negative climate impact.

Within this context it is important that the future design of the voluntary carbon market ensures that the support of activities does not disincentivise governments from increasing their climate mitigation efforts. We apply a number of criteria to assess potential new models for voluntary carbon markets under the Paris Agreement as well as options to increase engagement in voluntary carbon markets and improve transparency.

Three models emerge as potentially viable options in the Paris era: the “contribution claim”, “NDC crediting” and “non-NDC crediting” approaches, each with their own respective strengths and weaknesses. The relative attractiveness of the models is likely to change over time as country NDCs are scaled up.

In order to maximise the climate impact of voluntary market activities and safeguard against some of the risks presented by features of the models, we recommend that the market seeks to focus on project activities representing challenging mitigation options as well as project host countries with ambitious NDC targets.

Contact for further information: Harry Fearnehough, Aki Kachi, Carsten Warnecke, Silke Mooldijk