While talks about fossil fuels and climate finance dominate the Cop28 climate change summit, regulators and industry bodies are setting out a framework for carbon credit trading.
Carbon credits, also known as carbon offsets, are permits that allow companies to emit a certain amount of carbon dioxide or other greenhouse gases. The proceeds from the sale of the credits are used to finance climate action projects that would not otherwise be feasible.
The discussions have been held as the industry faces criticism over lack of transparency and poor quality of projects, with some critics saying that carbon offsets give some sectors the licence to pollute.
“The project-based carbon markets have grown very quickly. They were [growing] between 30 per cent and 40 per cent a year for a handful of years until 2022,” Peter Mannion, partner at McKinsey’s sustainability practice, told media.
“We’ve seen a slight kind of pause in that growth and maybe even a slight decline over this year, and that’s been driven by a number of concerns related to integrity in both the supply side … and the demand side.”
The number of credits used by companies fell 6 per cent in the first half of the year, the first dip in at least seven years, BloombergNEF data shows.
An outcome of the Cop26 summit in Glasgow in 2021 was the establishment of Article 6, which regulates carbon markets under the UN Framework Convention on Climate Change.
In theory, it allows the government or private companies in one country to pay for emissions reductions in another and receive the credit for their own Paris Agreement goals.
However, there is still no agreement among countries on the technical details for trading carbon credits.
“The goal there being that money might be able to flow from countries with a high cost to base to countries with lower cost, and also support some really important projects like … clean cooking, reforestation, or nature restoration,” Mr Mannion said.
Singapore and Papua New Guinea on Friday signed an implementation agreement on carbon credits co-operation, which sets out a legally binding framework and processes for the generation and international transfer of carbon credits.
High-integrity carbon markets can contribute to “much-needed” climate action globally, Grace Fu, Singapore’s Minister for Sustainability and the Environment, said in a statement.
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