STRAIGHT FROM THE SOURCE
Will Offsets Sold Across Borders Have Value in A Paris-Aligned World? The Current Challenge and Ways to Mitigate Risk for Buyers
With President Biden’s action to rejoin the Paris Accords, the U.S. will soon be setting its own reduction target to meet international climate change mitigation goals. The creation of reduction targets by each country under the Paris agreement draws into question how offsets will be allowed to be used, casting doubt on whether or not offsets purchased across borders will be valid to meet these Paris targets.
Paris signatories have been working through the Article 6 details of how to account for offsets created domestically and sold to companies abroad that have greenhouse gas reduction goals without also counting these reductions towards the national inventories. Now that the U.S. has re-entered this agreement, it will need to formulate a plan to make sure that participants in the voluntary markets can trust that their purchases are not double counted with progress reported toward international commitments under the Paris Accords.
Whether or not an offset needs to be canceled at the federal level before being traded internationally will likely depend what type of offset it is. If the offset is from a sector that is already covered by the host country’s plan to meet the Paris Accord targets in its Nationally Determined Contributions (NDCs), then a cancellation may need to occur. If the offsets come from outside of the NDCs, then no cancellation may be necessary as no double counting would have occurred. Since each sovereign country decides what should or should not be covered by an NDC, there will likely be variation in what activities require corresponding adjustments, which could lead to a very complicated and site-specific determination for each country’s corresponding adjustment ledger.
Some offset market participants fear that the requirement to cancel voluntary offsets at the national level will create complexity and bureaucratic processes that slow offset purchases. A few offset purchasers are already requiring a letter from the host country’s UNFCCC Focal Point that states that a corresponding adjustment has been made to the national inventory and that the credit being sold abroad is not double claimed.
Certain registries have proposed moving towards tagging specific offsets that have had a cancellation or corresponding adjustment as being Paris-aligned. Such approaches rely on the presumption that a UNFCCC representative will participate in a voluntary offset program, but there is no UNFCCC mandate to do so. This situation could lead to massive delays or the inability to collect host-country approval letters, thereby cutting particular countries or projects out of offset participation and depriving them of needed funding, taking a valuable tool out of play in the fight against climate change.
The UNFCCC’s negotiations in December 2021 will determine the critical steps forward for international offset markets and carbon finance. One way to scale up these voluntary markets without creating an overly complex system of corresponding adjustments for offsets sold abroad is having a tally and cancellation of offsets with host countries’ inventories that is completed at the UNFCCC level, avoiding the need to involve the UNFCCC Focal Point in each country. The need for a seamless transition of voluntary carbon markets into a Paris-aligned world is clear; how it is done is challenging and will require the close coordination of existing standards bodies, UNFCCC representatives and offset host countries over the next few years as the transition is made.
Given this uncertain situation, Bluesource has recommendations for voluntary buyers who hope to buy offsets.
Purchasing offsets from within the same country as where the emissions occur appears to be low-risk at this time since it is unlikely that a corresponding adjustment or host country approval would be needed.
Consider whether a project resides inside or outside a country’s proposed or existing NDC before purchasing. If the project is from within a covered sector, it is more likely that a corresponding adjustment will ultimately be necessary.
At this time, it seems less likely that corresponding adjustments will need to be made for Renewable Energy Certificates (RECs), international RECs or Guarantees of Origin, all of which are useful ways to address scope 2 emissions around the globe.
Policymakers need to hear from companies affected by this issue. Engaging in the process with your relevant officials to recommend the availability of efficient, cost-effective solutions to climate change, including a willingness on their part to recognize international transfers of emission reductions and install a simple process for host country approval, will help drive these critical investments.
Bluesource welcomes the opportunity to discuss your future greenhouse gas reduction goals and how you can be confident that the actions your company takes now are recognized under future regimes.
WHAT’S NEW AT BLUE
BLUESOURCE JOINS IHS MARKIT CARBON META-REGISTRY ADVISORY BOARD
IHS Markit is launching its Carbon Meta-Registry, a platform designed to promote liquidity and transparency in carbon markets. We are honored to join the Carbon Meta-Registry Advisory Board alongside Bank of America, CBL, Conservation International, Microsoft, Environmental Defense Fund, Verra, Goldman Sachs and more leading experts in our space.
DTE CLEANVISION NATURAL GAS BALANCE PROGRAM
We worked with DTE Energy on its new residential and small business CleanVision Natural Gas Balance program. This innovative program pairs renewable natural gas with carbon offsets from a Bluesource forestry project in Michigan, creating an affordable option for DTE’s customers to reduce carbon emissions. DTE’s multi-year commitment to our forest carbon project is a win for conservation and a win for DTE’s customers, who now have an easy way to reduce their climate impact.
LOCUS AG PARTNERSHIP TO MARKET SOIL CARBON CREDITS
American farmers are ready to take on climate change through market-based solutions–creating large-scale positive impacts. We’re excited to bring CarbonNOW credits to market and reward farmers for their sustainable farming practices.
FIRST RENEWABLE THERMAL CREDIT RETIREMENT
ACT and Bluesource completed the first Renewable Thermal Credit retirement on the state-of-the-art M-RETS platform. The retirement marks the first use of a cutting-edge instrument that streamlines the emission reduction process for scope 1 emissions.
Like many others, Bluesource submitted our comments on the new SBTi guidance. We also posted a short blog that simply explains our thoughts and perspective. Check it out for more context around the guidance.
Leveraging Nature-Based Solutions to Drive Down Emissions – Hosted by C2ES
FEBRUARY 23, 2021
This webinar examined how companies can approach using nature-based solutions to reduce their greenhouse gas emissions, including the most effective use of resources when investing in nature-based solutions, understanding the growing role of carbon removal in reaching net-zero emissions, and the criteria companies should consider when selecting projects. The webinar also explored how to leverage natural solutions to reduce emissions within and outside a company’s value chain. Watch the recording here.
First Renewable Thermal Certificate Transaction
Our rapidly growing renewable natural gas portfolio of 45 biogas projects supplied the renewable natural gas for the first Renewable Thermal Certificate (RTC) transaction. RTCs work similar to RECs, allowing voluntary buyers to easily purchase the environmental attributes of renewable natural gas and avoid unnecessary contracting for the physical gas. This innovative instrument means that more voluntary buyers can take charge of their Scope 1 emissions without having to change their current gas provider.
“This first transaction is a big step toward developing additional liquidity for the renewable natural gas market. RTC demand is evidence of the growing interest from voluntary buyers to follow through on their sustainability goals and purchase renewable natural gas,” said Will Overly, Bluesource Vice President. “As companies continue to make carbon neutral commitments, RTCs will play a vital role in the fulfillment of these goals.”
WHERE TO MEET US
We are closely monitoring the ever-evolving COVID-19 situation and have postponed all travel plans until it is safe. We eagerly await the time when we can meet again in person. Until then, give us a shout via Zoom, Teams or whatever platform you prefer.