Under the Paris Agreement, almost all countries have pledged to reduce emissions occurring in their territories over time through the implementation of ambitious national GHG mitigation actions and policies. Although current pledges are widely seen as insufficient to avoid dangerous climate change, they cover nearly 90% of global greenhouse gas emissions. For carbon credits, this new framework of national commitments raises the question of double counting. Specifically, could the avoided emissions or enhanced removals associated with carbon credits be double claimed, once by the user of the carbon credits, and once by a national government towards its Paris commitment?[1]
As explained in Exclusive Claim to Avoided Emissions or Enhanced Removals, double claiming must be avoided for carbon credits to maintain environmental integrity. If double claiming occurs, there is no guarantee that the use of a carbon credit will be associated with lower global emissions, compared to a baseline scenario without carbon credits.[2] A crediting project could still avoid a quantity of emissions, and meet all criteria for additionality, avoiding overestimation, and permanence. However, if the project had not happened, the country may[3] have had to achieve an equivalent quantity of emission reductions to meet its target (because the emissions the project avoids would instead have shown up in its national inventory) – meaning there would be no difference in total emissions to the atmosphere. If total emissions would be the same either way, there is no basis for claiming that buying and retiring carbon credits has in any way “compensated” for the user’s own allocated inventory emissions.
Negotiators of the Paris Agreement recognized this issue when agreeing to rules for how international emissions trading should work. Under Article 6 of the Paris Agreement, if one country acquires a “mitigation outcome” (avoided emission or enhanced removal) from another, then both countries must apply what are called “corresponding adjustments” in the accounting ledgers they use to track progress towards their mitigation commitments. The selling country must adjust its ledger to reflect that it transferred a mitigation outcome, so that this mitigation may no longer be counted towards its commitment. The acquiring country may in turn adjust its own ledger to reflect that it has “received” the mitigation outcome, and therefore does not have to achieve as many reductions in its own national GHG inventory.
The “corresponding adjustment” applied by the selling country ensures that no double claiming will occur, and guards against a scenario where acquiring mitigation outcomes causes no decrease in the selling country’s total emissions. This is essential for preserving the environmental integrity of international emissions trading under the Paris Agreement.[4] However, it is also – arguably – an essential requirement for any voluntary purchaser of carbon credits who wishes to sustain a compensation claim.[5]
The problem is that today, in practical terms, it is quite difficult (if not impossible) for voluntary purchasers of carbon credits – credits issued outside of any formal Article 6 trading framework – to obtain a corresponding adjustment from national governments. Widespread concern about how such a requirement could dampen credit supply and limit the market (perhaps severely curtailing urgently needed mitigation investments, especially in developing countries) has led to two responses.
The first response is that the voluntary carbon credit market should be viewed as separate from any accounting system maintained by national governments under the Paris Agreement. This is true in purely legal terms. However, it fails to acknowledge that the physical emissions avoided by voluntary market crediting projects can still show up in the inventories and accounting ledgers of national governments – and therefore could still be double claimed. This means that compensation claims associated with these credits may still be on shaky ground.
A variant of this response is that the accounting architecture for countries under Article 6 is still a work in progress. National commitments vary in their scope and specification, and in some cases do not set explicit emission targets (e.g., they may set renewable energy goals, or commit to certain mitigation actions). It is not clear whether all countries will achieve their targets, and some countries may not have the systems in place yet to apply corresponding adjustments. Under this argument, corresponding adjustments are viewed as an accounting formality (a form of “double entry bookkeeping”) without direct implications for environmental integrity and, as such, should not be required for voluntary compensation claims. While this argument is grounded in practical realities (for the time being), it begs the question of why voluntary market compensation claims should be held to a different standard than equivalent claims made by national governments.
The second general response is that buyers of carbon credits could switch to a contribution claim. Under this approach, a credit buyer could secure an exclusive claim to enabling additional, robustly quantified, and permanent mitigation that avoids social and environmental harms in a particular country (assuming all these criteria are met). The difference would be that, rather than compensating for the buyer’s emissions, the mitigation would contribute to the achievement of the host country’s national commitments.
The challenge with this framing, of course, is that currently most buyers (explicitly or not) use carbon credits to make compensation claims. Many market actors are concerned that a switch to contribution claims would dampen demand for credits, and limit overall investment in the same way that requiring corresponding adjustments would.
It should be noted that these two options are not mutually exclusive. In the future, it is possible that some credit buyers could seek recognition for making contribution claims, while others might demand credits – backed by corresponding adjustments – for making compensation claims. For now, however, the concerns and controversy surrounding either approach continue.
[1] Commitments are referred to as “nationally determined contributions,” or NDCs.
[2] Assuming all else remains equal – i.e., in either scenario, the carbon credit user’s own allocated inventory emissions remain the same.
[3] There are possible scenarios where a country would not have to achieve an equivalent quantity of emission reductions, e.g., if the country set a target for emissions that turns out to be above its actual emissions, because it was insufficiently ambitious.
[4] See, for example, Schneider, L., Duan, M., Stavins, R., Kizzier, K., Broekhoff, D., et al. (2019). Double counting and the Paris Agreement rulebook. Science, 366(6462). 180–83. DOI:10.1126/science.aay8750.
[5] To be clear, the argument is not that environmental integrity will be violated in all cases without a corresponding adjustment. There are many possible scenarios, including that a crediting project could avoid emissions or enhance removals that – for various reasons – are not claimed by the host country government, or that the government might simply fail to achieve its target, in which case crediting projects could still contribute to a lowering of national emissions (compared to their baseline scenarios). The argument is instead that the only way to guarantee that double claiming does not occur is through a corresponding adjustment (whereby the host country government formally relinquishes a claim to the avoided emissions or enhanced removals), and that such a guarantee is necessary to support a credible compensation claim.