After COP26, new questions arise over carbon trading as markets gain new prominence

With the UN Climate Change Conference now settling into the rearview mirror, stakeholders questioned Nov. 23 how carbon dioxide removal can be done with climate justice concerns in mind.

"The decisions that were made at COP do provide momentum to CDR," said Hunter Cutting, communications director of Climate Nexus, during a panel discussion. "There's a growing social license to CDR and this COP helped push that along, like it or not. I think the question increasingly becomes, how is it done responsibly?"

Janos Pasztor of the Carnegie Climate Governance Initiative cited a lack of formal discussions about climate justice issues at COP26, held in Glasgow.

"So there's a big gap that needs to be met somehow, and we haven't yet met that in COP26," Pasztor said.

Article 6 of the 2015 Paris Agreement, the provision that determines how countries can reduce emissions through carbon credit trading, was a primary focus of COP26. In the final hours of the conference, long-awaited agreements were made on a set of rules that govern international carbon markets.

One key agreement at COP26 aims to avoid double-counting credits that are traded across borders by creating a verification system under the UN that ensures one credit counts towards one country's national determined contribution, then is removed from the country's emission accounting if it is sold.

This agreement, among others, generated speculation that the firmed-up rules would open the door to billions of dollars of investment in the carbon markets over the next several years. And market prices of emission offset credits are already reflecting the growing demand for these credits among companies with net-zero commitments.

According to Platts price assessments, CORSICA-eligible carbon credits have surged by nearly 20% since the first day of the conference, to $17.55/mt CO2e on Nov. 22 from $14.70/mt CO2e on Oct. 31. Nature-based carbon credit prices have grown to $13.95/mt CO2e from $9.65/mt CO2e over the same period, a 45% gain.

The collateral effects of a scaled-up carbon market could be multifold. Cutting fears that skyrocketing demand for offsets could spark a land rush in developing countries as large emitting companies look to buy up nature-based carbon credits to meet their net-zero commitments. And there are concerns of over-reliance of offset credits that allow companies to continue emitting, thereby exacerbating localized pollution that could have community-level impacts.

"This speaks to the question that many have rightly raised: Is CDR being used in place of emission reductions that should be done?" Cutting said. "I think these are the question that rise quickly to the top in the wake of this COP."

COP26's anointment of CDR as a primary market-based solution to fighting climate change may signal a new era in the discourse surrounding carbon capture and carbon credits. The panelists, hosted by the Institute for Carbon Removal Law and Policy at Northwestern University, questioned whether it's time to push beyond net-zero commitments and into an era of net-negative commitments, the panelists said.

"The science is pretty clear that we need to get to net negative," Pasztor said. "Maybe some countries need to get to net-negative much earlier, particularly in the global north in order to enable the developing countries to have a somewhat easier transition."

Arturo Garcia-Costas, who manages environmental grantmaking at the New York Community Trust, said, "We have to be aggressively net negative, and we can't lump everyone together. Maybe some criteria can be developed quickly for which countries have to go net negative and why."