Carbon markets 101

The document distinguishes between cap-and-trade systems and offsetting mechanisms, arguing that the latter are often a zero-sum game incompatible with net-zero goals. It critiques the Clean Development Mechanism (CDM) for lack of additionality and local safeguards, and warns that Article 6 of the Paris Agreement risks repeating these failures through 'hot air' trading and double counting. The guide also assesses the limitations of the CORSIA aviation scheme and the voluntary carbon market, ultimately advocating for a shift from offsetting toward direct climate finance for the zero-carbon transition.

• Carbon markets are divided into cap-and-trade schemes (ETS), where pollution permits for future emissions are traded, and offsetting mechanisms, where credits representing emissions already reduced in the past are traded. Offsets are described as a "zero-sum game" because one tonne is emitted while another is reduced elsewhere, making them incompatible with global net-zero emissions goals.
• The Clean Development Mechanism (CDM) under the Kyoto Protocol failed to contribute effectively to global emission reductions because a vast majority of its projects lacked additionality, meaning they would have occurred without CDM revenue. It is estimated that 85% of CDM projects would have operated regardless of the mechanism.
• The 'hot air problem' occurred under the Kyoto Protocol when countries with weak targets or economic collapses (such as the former Soviet Union) generated excess credits (AAUs) that were sold to others, allowing companies to pollute more without achieving actual additional climate action.
• Article 6 of the Paris Agreement faces five primary challenges: the oversupply of credits (with approximately four billion CDM credits potentially available after 2020), the risk of double counting, the lack of safeguards for local stakeholders, the need for overall mitigation in global emissions (OMGE), and the risk of perverse incentives that discourage ambitious national targets.
• The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is limited in scope, covering only about 10% of global aviation CO2 emissions because it excludes domestic flights and only offsets growth above specific baselines. Furthermore, it ignores non-CO2 impacts, which can multiply the climate impact of aviation by two to four times.
• Forestry-based offsets, particularly REDD+, are criticized for lacking environmental integrity due to the difficulty of establishing accurate baselines, the risk of leakage (increasing deforestation elsewhere), and the unrealistic assumption that forests can be protected for the required 100-year permanence horizon.

APA

Carbon Market Watch (2020). Carbon markets 101. https://carbonmarketwatch.org/wp-content/uploads/2020/07/CMW-ENGLISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB.pdf

Chicago

Carbon Market Watch. Carbon markets 101. 2020. https://carbonmarketwatch.org/wp-content/uploads/2020/07/CMW-ENGLISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB.pdf.

Wikipedia

{{cite report |author=Carbon Market Watch |title=Carbon markets 101 |date=July 2020 |url=https://carbonmarketwatch.org/wp-content/uploads/2020/07/CMW-ENGLISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{carbonmarketwatch2020carbon, author = {{Carbon Market Watch}}, title = {{Carbon markets 101}}, institution = {Carbon Market Watch}, year = {2020}, month = jul, url = {https://carbonmarketwatch.org/wp-content/uploads/2020/07/CMW-ENGLISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }