THE GLASGOW CARBON MARKETS: Muted Price Moves Underplay Importance of COP26 Decisions (2)

By Mathew Carr

Nov. 20-21, 2021 — I’m somewhat underwhelmed by the market reaction to the COP26 climate talks in Glasgow.

Don’t get me wrong. There HAS BEEN a market reaction, and that’s hopeful.

But why I’m confused is this:

There’s no noticeable surge in the price of existing Kyoto credits – Certified Emission Reductions, even though those created after 2013 are apparently now allowed for use when complying with emission targets under the Paris climate deal, which began last year.

The price of these credits remains about 1-3 euros a ton, according to a survey of four brokers and traders looking out for evidence of value changes.

So the world has agreed to transition Clean Development Mechanism credits from the Kyoto agreement into the Paris climate deal world — And, at least in week one, the market reaction was … meh.

I’m surprised because the Paris rulebook agreed in Glasgow will allow countries and companies to make money by cutting emissions.

Ultimately, this change agreed in 2021 will probably be seen as a pivotal moment — when global markets finally began to value the climate.

It’s potentially the beginning of Capitalism 2.0.

Brent crude oil did drop slightly last week. See this:


EU carbon allowance futures, on the other hand, advanced 10% — to record levels.


The limited market reaction on Kyoto credits is partly because there is still not complete clarity, according to the traders and brokers I spoke to.

What seems pretty clear is that existing Clean Development Mechanism credits (Certified Emission Reduction credits or CERs) can be used under Paris for countries wanting to use them for their first Nationally Determined Contribution (NDC – emission target for 2025, 2030 under the Paris deal)

The Rules

See this draft document:


Use of CERs towards first or first updated NDCs under Paris

  1. Certified emission reductions (CERs) issued under the CDM may be used towards achievement of an NDC provided the following conditions are met:
    (a) The CDM project activity or CDM programme of activities was registered on or after 1 January 2013;
    (b) The CERs shall be transferred to and held in the mechanism registry and identified as pre-2021 emission reductions;
    (c) The CERs may be used towards achievement of the first NDC only;
    (d) The CDM host Party shall not be required to apply a corresponding adjustment consistent with decision X/CMA.3 (Guidance for cooperative approaches referred to in Article 6, paragraph 2) in respect of the CERs and not be subject to the share of proceeds pursuant to chapter VII above;
    (e) CERs not meeting the conditions in (a-d) above may only be used for achievement of an NDC in accordance with a future decision of the CMA.
    (f) Temporary CERs and long-term CERs shall not be used towards NDCs


    The section immediately above comes from a document on article 6.4 of Paris published by the United Nations Framework Convention on Climate Change secretariat.

    That article is effectively a new global carbon currency, according to David Hone – Chief Climate Change Advisor for Shell. (There are broadly two types of market under the Paris deal, bilateral deals created under Article 6.2 guidance and the new global market rules under Article 6.4).

    “Both 6.2 and 6.4 are voluntary in that attainment of NDCs can be realised without them, but when used they bring the power of trade to the job of mitigation,” Hone said.

    Analysis of the benefits of such an approach by the University of Maryland found that international cooperation under a well-functioning Article 6 of the Paris Agreement could save as much as $250 billion per year by 2030.

    “Translating this back into the potential for greater mitigation becomes tangible and meaningful in the already very narrow window of opportunity for limiting warming to 1.5°C.” Hone said in this post.

    I added emphasis to Hone’s comments to show how climate collaboration can be very important indeed, because of the savings from trade — and potential boost to climate justice and sustainable development.

    If the world wastes money cutting emissions expensively, that’s potentially cost-inefficient effort.

    Trading will allow the least expensive emissions to be tackled first. That’s important because there’s hardly any space left in the atmosphere for heat-trapping gas if the world is serious about limiting temperature gains to 1.5C.

    Why spend $100 to cut one or two tons of CO2 equivalent when you can spend the same money to cut 10 or 15 tons?

    Other types of carbon credits are rising in value.

GMO CME credits jump a little:

Evolution Markets

GEO note: The CBL Global Emissions Offset (GEO) futures contract is a market-based solution built on an international framework, and is positioned to harmonize the buying and selling of offsets from registries and emission reduction projects around the world. The physically settled contract allows for delivery of CORSIA-eligible voluntary carbon offset credits (usable in the international airline carbon market, which includes CERs) from the following registries: Verified Carbon Standard, American Carbon Registry, and Climate Action Reserve.

(More to come)


Note one; Nov. 14:

Note two; Nov. 13 version:

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