By “carbon trading,” we mean anything that involves quantifying amounts of climate change mitigation in tonnes and exchanging ownership or “credit” for it against money or investment.

 of this series looks at how we got to carbon markets under the UN in the first place - it gives an overview of the Paris Agreement’s Article 6, which details how parties can exchange units of climate change mitigation in order to maximize greenhouse gas reductions at least net cost.

 of this series looks at government-to-government transactions of mitigation units under Article 6.2 of the Paris Agreement since the last COP, and at the development of a mechanism laid out in Article 6.4 of the Paris Agreement.

Although the global voluntary carbon market (VCM) is not set up or governed by the UN, its participants increasingly look to COP decisions to “legitimize” their transactions. Given the VCM’s origins in the Kyoto Protocol’s CDM, many of the project developer institutions are still active – using those same or similar carbon cutting methodologies and selling the quantified mitigation units they generate as offsets to corporate entities or organizations. Being able to say that those units are somehow “UN certified” or “Paris Agreement compliant” because they correspond to Article 6 requirements (even though Article 6 and indeed the entire Paris Agreement applies to countries, not businesses) is a significant marketing advantage, as consumers buying those units then associate them with the UN’s global effort to fight climate change.

Furthermore, rich parties like the US and some European nations have failed to come up with the climate finance they pledged to developing countries (100 billion USD/per year by 2020) out of national budgets (their taxpayers’ money) alone, so they have characterized ‘mobilization of private sector investment’ as a portion of their climate finance contribution. Indeed US climate envoy John Kerry proposed a so-called Energy Transition Accelerator (ETA) at COP27 through which US-based firms like Microsoft or Bank of America would fund the transition of poorer countries’ power sectors from fossil fuels to renewables.

Facilitated by two US non-profits that originated as personal wealth fund charities (the Rockefeller Foundation and Bezos Earth Fund), the ETA declared a “high-level consultative group” full of renowned leaders of organizations active in climate change mitigation in early 2023, but since then has held no public meeting or publicized any actual mitigation finance.

In September, representatives of the two charities and the US Department of State announced a collaboration with the World Bank: the ETA will partner with the global lender’s existing 

Scaling Climate Action by Lowering Emissions

 initiative, which is set up to channel money from the public and private sectors into mitigation projects. The initiative is not a new fund, but rather a repackaging of all World Bank-administered “results-based climate finance” programs as well as a venue for policy dialogue – as such, neither it nor the ETA as a standalone initiative have financed any climate change mitigation activities in 2023.

We expect further high-level announcements about collaboration and partnerships during COP28, with no details on methodologies, projects, credits, transactions, or actual payments to developing countries for mitigation.

This increasingly blurry distinction between public and private sector financing begs the question of who can claim “credit” for mitigation, and what that credit “counts toward” when measured as a quantified unit and an act of social responsibility. VCM stakeholders are split on the question of whether voluntary units should be authorized by the country in which they were generated, i.e. whether they require corresponding adjustments like units traded among countries do (see Part 1 in this series). If a company pays for projects that reduce Algeria’s or Zambia’s emissions, helping those countries reach their NDC, can it call that help an 

 and apply it (in tonnage terms) toward its own corporate carbon neutral target? Though Article 6 cannot prescribe what claims companies make about their mitigation efforts outside their own firm, the text adopted in Glasgow created a new type of unit called a “mitigation contribution” (MCER), solidifying the idea that private sector 

 to greenhouse gas reduction where climate change mitigation is 

 tallied up, namely at the national level by governments.

Over the months since COP27, the VCM community has increasingly shifted from an offset purchasing paradigm toward this contribution concept along the lines of the above described Article 6 text. The main reason for this is the negative media attention corporate offsetting programs have received over 2023 - news outlets, popular television shows, and even academic publications have challenged the degree to which corporate offset credit purchases really constitute climate change mitigation.

Another major reason firms are veering away from offsetting and toward contribution claims is the progress of European Union legislation targeting “greenwashing” – rules agreed by the EU in late September will ban firms from claiming their company or its product is “carbon neutral” (without specific accuracy proof) by the year 2026. The provisional law is set to be passed by Europe’s elected officials in its parliament and council, with the parliamentary vote expected in November. The law would not ban offsets or even discourage companies from buying carbon credits from climate change mitigation projects – it would only regulate what 

 firms are allowed to make about those purchases. 

 was passed in the US state of California earlier this month.

Thus, businesses are re-assessing how they communicate about voluntary market actions. Carbon footprint calculator firm MyClimate has moved away from offering firms carbon neutrality claims through offset purchases in favor of an “Engaged for Impact” label it launched in early 2023. United Airlines promises to “become 100% green by reducing GHG emissions by 2050 without relying on traditional offsets.” Individual offset aggregators and projects developers such as VERRA and The Gold Standard, as well as their self-government institution the Voluntary Carbon Markets Integrity Initiative, have put forth a so-called Claims Code of Practice that distinguishes between taking credit for emission reduction in terms of offsetting vs. taking credit for having contributed to global climate change mitigation.

We expect COP28 to be a major venue for discussion of this trend, with its president Sultan al Jaber being the CEO of Abu Dhabi National Oil Company and thus controversially representing precisely the business sector most contributing to climate change and most accused of blatant greenwashing. Al Jaber has emphasized his business credentials and intention to create coalitions within the private sector to facilitate climate change mitigation as well as financing it. We thus expect corporate entities and their approaches to financing to be front and center at the COP, with pledges of “net zero” by 2050 as well as carbon neutrality on display.

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The pre COP28 series Part 3: The UN and voluntary carbon markets

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