The financial industry has long discovered the benefits of a global carbon market, sometimes described as the economist's solution to greenhouse gas emissions. Although the EU legislator in his review of the CRR agreed on further stimulus measures, such as a lower risk weight of exposures to the regulated EU Emissions Trading System (40 %), especially the VCM, which is used for exponential growth, driven by companies' desire to become sustainable and environmentally friendly. McKinsey predicts that VCM could grow 100-fold by 2050. However, regulatory approaches to VCM are still in their infancy. While IOSCO is currently considering a broader regulatory approach through consultations on initial voluntary best practices for the integrity and proper functioning of VCMs, the EU is focusing on increasing transparency with disclosure and reporting requirements. In this part of the blog series, we explain (I) what carbon credits are and analyze the legal requirements that currently apply to them from (II) a regulatory perspective; and from (III) the transparency angle. (Ján Struckmann, Elisabeth Schemmerová, Hendrik Wessling, more at lexology.com)

The Integrity Council for the Voluntary Carbon Market has decided that existing renewable energy methodologies are insufficient to prove that their emissions reductions are additional.

Carbon credits earned from renewable energy projects have failed to get a new quality mark from a key watchdog, casting fresh doubt on popular emissions offsets favored by multinationals such as Audi, Shell and Total.

The Integrity Council for the Voluntary Carbon Market (ICVCM) announced on Tuesday that eight renewable energy methodologies, which cover around a third of the carbon credits available in the voluntary market, cannot use the "Core Carbon Principles" (CCP) seal of approval.

ICVCM, an independent watchdog, aims to address widespread concerns about the quality of carbon credits after many projects were accused of overstating their climate and social benefits. It assesses groups of offset projects to determine whether they comply with the CCP criteria, which are designed to identify and promote highly integrated carbon credits that meet management, emission reduction and sustainable development requirements. (Matteo Civillini, Joe Lo, more at climatechangenews.com)

As the need to act on climate change becomes more urgent, more companies and organizations are investing in carbon removal, and the number of carbon removal markets is growing with them. Carbon removal markets are a bridge between companies that sell removal of CO2 from the atmosphere and businesses or individuals willing to buy this removal to offset their emissions and help alleviate the climate crisis. We list the 10 most promising and fastest growing markets based on statistics made available CDR.fyi – a carbon removal market registry and reporting platform. The platform was launched in 2022 to provide a means to reliably monitor the rapidly expanding market for the purchase and supply of carbon dioxide. (Violet George, more at carbonherald.com)

Companies are increasingly turning to voluntary carbon markets (VCMs) to buy and sell carbon credits to achieve their decarbonisation goals as part of their overall environmental, social and governance (ESG) strategies. While VCMs can help individuals, businesses and non-profit organizations offset their carbon emissions, their emergence and lack of an established regulatory framework has led to a disorderly market for dubious credits. (Levi McAllister, more at reuters.com)

The ICM Forum (formerly known as the CCUS Forum) brings together stakeholders from industry, EU countries, EU institutions, NGOs, academia and others to discuss how to implement industrial carbon management projects in Europe.

This year's forum will be organized by the Commission and the French Ministry responsible for hybrid energy from Pau, France on 10-11 October 2024. It will be an opportunity to discuss the implementation of the Commission's Communication on Industrial Carbon. Management as well as further policy development to help facilitate the creation of a single market for CO2 in Europe and the deployment of industrial carbon management technologies. (More on energy.ec.europa.eu)

The published calendars reflect the operation of the Market Stabilization Reserve (MSR), resulting in the placement of 266,816,768 allowances in the MSR for the period September 2024 - August 2025. Following the recent amendment to the Register Regulation on 1 January 2025, the category of "general allowances" will thus include allowances created for stationary installations and maritime transport as well as quotas for aviation. Therefore, starting in 2025, allowances to be auctioned for air transport will be included in the total volume of general allowances and evenly distributed among the auctions planned for these allowances. (More on climate.ec.europa.eu)

The Science Based Targets Initiative (SBTi), the top global regulator of private-sector climate targets, released a review that concluded “carbon credits are ineffective in achieving their intended mitigation outcomes,” according to Bloomberg. The SBTi report also said that corporate use of carbon credits could "stalemate decarbonisation efforts and reduce the flow of climate finance", according to Bloomberg. He adds: “The news is likely to reverberate in the carbon offsets market, which is already marred by allegations of greenwashing. In April, SBTi's board itself became the subject of controversy after it appeared to sanction wider use of carbon credits, prompting cheers for the offsets." -market participants but criticism from climatologists and environmental groups." Reuters says the review ultimately found that "there was insufficient scientific support for [SBTi] to lift restrictions on companies using carbon credits to offset their emissions". (Alastair Marsh, Bloomberg, carbonbrief.com)

The European Commission has decided to open infringement proceedings by sending a formal warning to 26 member states for not fully transposing the provisions of the revised regulation into national law. EU Emissions Trading System (EU ETS) Directive related to the new Emissions Trading System (ETS2). The revised EU emissions trading system (Directive (EU) 2023/959 amending Directive 2003/87/EC) entered into force in June 2023. As part of the revision of the ETS Directive, a new emissions trading system was created, which is separated from the existing EU ETS system to gradually extend carbon pricing to new sectors of the economy to encourage them to reduce emissions. (More on ec.europa.eu)

The EU's new emissions trading system, ETS 2, covers emissions from buildings, road transport and other sectors, such as fuel use in small industrial installations. It is designed to reduce emissions by 42 % compared to 2005 levels by 2030. Florian Schlennert, Simon Göss and Hendrik Schuldt from Carboneer describe how it works and what companies need to do to comply. Comprehensive monitoring, reporting and verification (MRV) must be implemented at company level and a monitoring plan must be submitted by August 31 of this year. From 2027, when the EU ETS 2 will be fully functional, it is necessary to purchase and transfer emission allowances. Quota pricing can lead to significant cost increases, affecting both operating costs and consumer prices. As prices are determined by supply and demand, they can show considerable volatility, with forecasts ranging from €48 to €340 per t CO2 by 2030. Given these implications, companies should already be putting resources in place to ensure strict compliance. (Florian Schlennert, Simon Göss and Hendrik Schuldt, more at energypost.eu)

The market for carbon offset credits is currently facing a renewed surge in criticism as more than 80 non-profit organizations have come together to oppose their use in climate strategies. These activists argue that carbon offsets undermine genuine efforts to reduce greenhouse gas emissions and call for their complete exclusion from climate regulations and guidelines.

Carbon credits, also called offsets, are used as a tool to reduce carbon dioxide emissions by allowing companies and governments to invest in projects that are said to reduce or eliminate emissions elsewhere. This procedure became part of the efforts to achieve the goals of zero net emissions. (Jennifer L, more at carboncredits.com)

The Bonn Climate Change Conference has seen limited progress in addressing outstanding issues related to Article 6 of the Paris Agreement, which aims to spur international cooperation on climate change mitigation through carbon credit market and non-market mechanisms. Many issues remain unresolved as we approach COP29 in November 2024.

Article 6 of the Paris Agreement

Although the Bonn Climate Change Conference organized four negotiations and five side events on Article 6 of the Paris Agreement ¹ , did not reach consensus on resolving open questions about the functioning of the international market for carbon credits under the Paris Agreement. Countries disagreed on the extent to which emissions avoidance can be used to generate carbon credits, which components of Article 6 carbon credit schemes should be centralized and other important points highlighted in our previous alert. (Seth Kerschner, Ingrid York, William De Catelle, more at lexology.com)

EU motorists will pay "at least 50 [euro] cents more per liter of diesel to cover their carbon costs" from 2031, according to new analysis that raises fears of new protests against climate laws, the FT reports. The paper adds: “Fuel suppliers will have to buy allowances to cover their carbon dioxide emissions from 2027 and are expected to pass the cost on to consumers. Veyt, a carbon market analysis firm, expects the scheme to add 14 cents per liter of diesel in 2027, with the premium reaching 54 cents per liter in 2031 as more measures are phased in. Emissions from fuel for heating buildings will also have to be paid for, increasing coal prices by 68 cents per kg by 2031, Veyt found. ..Pascal Canfin, the French chairman of the European Parliament's environment committee, warned that if the price of carbon rose too high, "it would be clearly unacceptable to all Europeans".carbonbrief.com,  Hancock and Rachel Millard, Financial Times)

The history of carbon, an organic component found in the earth's crust, goes back to the very beginning of the earth and is closely connected with the history of mankind. (more…)

A "rulebook" for the technical and operational aspects of Article 6 of the Paris Agreement is expected to be finalized at COP 29 in Baku this November. (more…)

According to the new European directive EmCon, terms like "climate neutral" or "climate positive", which are based on carbon compensation, will soon disappear from supermarkets . "At the moment you almost have the impression that you can consume and buy whatever you want and still be climate neutral," says Miriam Thiemann, sustainable consumption officer at the European Consumer Organisation. "You can find cheeses, flights and bank accounts that claim to be climate neutral," he adds. “Effectively, the company pays another supplier what is known as carbon credits. That means another project somewhere is doing something to reduce or eliminate emissions.” (Cyril Fourneris, more at euronews.com)

On 7 May 2024, the Commission adopted an implementing regulation updating Member States' models for reporting data on climate action. The updated models take into account developments related to the Paris Agreement on accounting for bioenergy losses with carbon capture and storage (bio-CCS), which Member States will be able to include in their lists from this year.

As removals from bio-CCS are not currently regulated under EU climate legislation, they cannot be taken into account when assessing whether Member States are meeting their GHG reduction targets under the Effort Sharing Regulation. However, Member States will be able to report on the removal volume generated by bio-CCS, providing transparent data on this emerging technology.  (More on climate.ec.europa.eu)

As part of the 2023 revisions to the ETS Directive, a new emissions trading system called ETS2 was created, which is separate from the existing EU ETS. This new system will cover and address CO emissions ₂ from burning fuels in buildings, road transport and other sectors (especially small industries not covered by the existing EU ETS).

ETS2 will complement other European Green Deal policies in the sectors covered by helping Member States achieve their emission reduction targets under the Effort Sharing Regulation (ESR). Emissions reductions in these sectors have so far been insufficient to put the EU on a firm path to the goal of climate neutrality by 2050. The carbon price set by the ETS2 system will provide a market incentive for investment in building renovations and low-emission mobility.

ETS2 will be fully operational in 2027. Although it will be a "cap and trade" system like the existing EU ETS, ETS2 will cover emissions along the supply chain. It will be fuel suppliers rather than end consumers such as households or car users who will have to monitor and report their emissions. These entities will be regulated under ETS2, which means they will have to surrender enough allowances to cover their emissions. Regulated entities will purchase these quotas at auctions. The ETS2 cap will be set to reduce emissions by 42 % by 2030 compared to 2005 levels. (More on climate.ec.europa.eu)

A World Bank report reveals that countries with carbon pricing mechanisms generated a record $104 billion in revenue last year. More than half of the funds went to programs related to climate and nature.

Carbon pricing, implemented through carbon taxes or emissions trading schemes (ETS), is critical to reducing emissions and promoting low-emission growth.

Despite this success, the report highlights that current carbon taxes and emissions trading systems are still insufficient to meet the climate goals of the Paris Agreement. Although 24 % of global emissions are covered by some form of carbon pricing, less than 1 % are subject to prices high enough to limit temperature rise to below 2°C. (Jennifer L, carboncredits.com)

As humanity struggles to combat climate change, there is an urgent need to reduce greenhouse gas emissions. One way to do this is through a carbon offset market, where organizations or individuals can buy credits from emission reduction projects.

Directive (EU) 2023/959 of the European Parliament and of the Council of 10 May 2023 amending Directive 2003/87/EC establishing a system for trading greenhouse gas emission allowances within the Union, and Decision (EU) 2015/ 1814 on the establishment and operation of the market stability reserve for the greenhouse gas emissions trading system in the Union (More on eur-lex.europa.eu)