Opinion and reporting by Mathew Carr

Dec. 8, 2023 — The problem with carbon credits is that many corporations see them as marketing. That could change within about a week.

Negotiations at COP28 in Dubai are apparently “toxic” according to Carbon Pulse, yet that is perhaps a good sign about mid way in the annual talks — because so much is at stake.

The effective formation of a new UN carbon market (under article 6.4 of the Paris climate agreement) could be delayed by another year, according to Andrea Bonzanni, international policy director at the International Emissions Trading Association, an industry group pushing for a greener global market structure.

“The current expectations is that projects will be able to register in late-2024 or 2025. If the recommendations [made to COP28] are not adopted, it will be late-2025 or 2026. If 6.4 is perceived as unreliable and politicised, the private sector will look at other options. This applies to both methodologies and removals, but it’s even more important for methodologies because it impacts a larger amount of projects,” Bonzanni said in response to my questions.

Many corporations are already using voluntary carbon markets to offset some of their emissions that they can’t reduce and nations will only use the new UN market credit for compliance if they voluntarily decide to do so.

Biden’s commodities regulator leaves door ajar for UN carbon market

Even after the new 6.4 market is fully formed, countries and companies will still be able to choose to use other voluntary carbon markets, where deals are already flowing (even if much slower than needed).

The carbon market landscape is very complicated and there’s a wide range of prices from a couple of euros per ton to many hundreds of euros.

As one executive at a giant global food company told me recently (rather mysteriously), it’s a “confusopoly”.

That characterization may become clearer once standards or countries or industries decide using carbon allowances and credits to hit mandatory targets is actually required. That is, not optional but mandatory, according to Benedikt von Butler, partner at Evolution Environmental Asset Management, in a discussion on LinkedIn.

Von Butler said — see below the separation lines for his comment, which I will republish with some emphasis added:

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“Thanks Andrea Bonzanni. I would say your comments sum up whats needed to *operationalize* Art 6.4ERs.

To “unlock private investment”, however, one needs to address one more crucial component: how to create demand for Art 6.4ERs?

I think it would be erroneous to assume that just because regulatory uncertainties have been clarified, private sector money will automatically flow towards 6.4ERs.

In the end money flows if there is value (otherwise it’s a donation).

“Value” can be reputation (marketing), but also commercial value (replacing tax payment) or regulatory value (avoid a penalty).

For mere marketing value we don’t necessarily need Art6.4. It’s more : What we need is demand for all sorts of credits, not just the good looking ones for marketing.

In my opinion Art6.4 can truly “unlock private investment” if regulators create frameworks *on buyer level* that incentivize[s] demand.

CORSIA Phase 3 [the UN airline carbon market — I think he means 2027-2035 **checking: CarrZee] would be an example, but also the Singapore carbon tax replacement.

In my view the biggest driver would be any ETS eligibility, such as for EU ETS.

Then the motivation – and justification (!) – for credit purchase would shift from beauty (marketing) to duty (compliance).

That, for me, would be the biggest “unlock”.”

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And indeed, such an unlock is not completely off the table (as far as I can tell, anyway).

In September, EU president Ursula von der Leyen said this, adding that ambitious global / multilateral measures were worth striving for at COP28 …even if they are not probable:

“Let us work together to bring a proposal for global carbon pricing and true carbon credits at COP 28.” (see video below)

What this means is not exactly clear, according to a commission official I spoke to a few weeks ago and I’m reaching out for more information.

The EU carbon market pricing does reflect the idea that other forms of compliance may be on their way. December futures have dropped 30% since the highs reached earlier this year.

There are plenty of other reasons why carbon prices are weak, including very mild winter weather and low natural gas prices.

Multiple other programs and voluntary markets and standards may also encourage a surge in demand for carbon credits.

As UN envoys attempt to sort all this out … COP28 might not end on time (Dec. 12), despite what leaders of the conference are saying in the past 24 hours.

(More to come)

EU President Ursula von der Leyen’s speech in Kenya, September: