Outdated carbon credits issued under the Kyoto Protocol’s Clean Development Mechanism must be scrapped for the sake of the climate, argues Gilles Dufrasne.
Carbon markets are high on the agenda of this year’s COP26 climate conference as countries meet again to agree on rules governing the Paris Agreement. One of the most contentious negotiation items in this area is to decide on how to deal with old markets, in particular the Clean Development Mechanism (CDM).
This market, which dates back to the 1992 Kyoto Protocol, has generated hundreds of millions of credits through more than 8,000 projects. Most of these lack environmental integrity and would have happened regardless of the support they receive from the sale of carbon credits. Most projects have stopped issuing and selling credits and yet continue to reduce emissions. Reviving this system would do nothing for the climate, and could, perversely, even lead to an increase of global emissions.
The era of the Kyoto Protocol is over. And there is nothing in the agreement providing for the continuation of the CDM. Therefore, governments have been negotiating what happens to the old credits and projects.
Can a credit issued 10 years ago be used to meet a climate target today?
Can projects registered under the CDM automatically continue to generate credits under Article 6 of the Paris Agreement, just because both are part of the broader UN system?
The accountant in the sky
As far as the climate is concerned, the answer to both questions is a resounding ‘no’. Obsolete credits do nothing to reduce emissions today, and legacy projects should not be assumed to be of high quality, until they are re-assessed against stringent criteria.
The exact negotiations are politically complex, not least because there continues to be confusion around the number of credits which could be transitioned. The UNFCCC secretariat recently estimated that there are between 300 million and 2.3 billion CDM credits (“CERs”) which could be generated for emission reductions prior to 2021.
However, this excludes all projects that did not communicate with the secretariat since 2017, on the assumption that these projects are no longer active and/or no longer interested in the CDM. Another estimate from German and Japanese research institutes puts the total potential at above 4 billion, and nothing prevents a project to request the issuance of credits even if it has not communicated with the UNFCCC secretariat for many years.
Unsurprisingly, the loudest countries supporting a full transfer of CERs are those where most projects are located, including India, Brazil and China. These have argued that governments themselves own many credits, after having decided to buy these from their project developers. Yet many developers and intermediaries holding the credits could very well be based in rich countries. Ultimately, who exactly owns the CERs remains a mystery and is irrelevant to the climate, which stands to lose if these credits are carried forward.
From Kyoto to Paris
Finally, to make matters worse, the CDM was established under the Kyoto Protocol and the carry-over of the system concerns the Paris Agreement. This means that the discussions are spread across two different formal processes.
The CDM is governed by a Kyoto-era executive board, made of country-nominated, independent experts. Given the current absence of guidance from countries, and the absence of any legal language in the Kyoto Protocol supporting the continuation of the CDM, the CDM Executive Board decided last year that it could no longer register new projects or issue credits for emission reductions that occur after 2020.
Countries will hence have to negotiate in one room whether or not the CDM can continue to operate, while debating in another room whether or not CDM credits and projects can be used/transitioned into the Paris Agreement system. In the absence of an agreement, the CDM executive board will need to continue managing CDM activities on a day-to-day basis. In light of this, it should remain clear that the Kyoto Protocol does not provide any legal basis to continue issuing credits for reductions taking place after 2020.