Carbon markets 101

The document explains the fundamental differences between emissions trading systems and offsetting mechanisms, evaluates the failures of the Kyoto Protocol's Clean Development Mechanism (CDM) and Joint Implementation, and details the challenges facing the implementation of Article 6 of the Paris Agreement. It specifically addresses risks such as 'hot air' trading, double counting, and the lack of environmental integrity in forest-based offsets (REDD+), while also examining the CORSIA aviation offsetting scheme and the voluntary carbon market.

• There is a fundamental distinction between emissions trading systems (ETS) and offsetting mechanisms: an ETS involves trading 'pollution permits' for future emissions, whereas offsetting involves trading emission reductions that have already occurred in the past.
• The Clean Development Mechanism (CDM) under the Kyoto Protocol is considered a failure because most emission reductions would have happened regardless of the credits, with an estimated 85% of projects functioning without CDM revenues.
• The Kyoto Protocol's International Emissions Trading (IET) and Joint Implementation (JI) systems suffered from 'hot air' trading, where countries with excessively low targets sold unused credits, allowing companies to pollute more without forcing actual climate action.
• Article 6 of the Paris Agreement introduces two mechanisms: Article 6.2 allows countries to sell excess emission reductions (ITMOs) via bilateral agreements, while Article 6.4 creates a centralized system similar to the CDM for project-based reductions.
• A critical risk for post-2020 markets is 'double counting,' where an emission reduction is claimed by both the selling country and the buying entity toward their respective climate goals unless 'corresponding adjustments' are applied.
• The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is limited in scope, covering only international flights and only the growth of emissions above 2020 levels, representing approximately 10% of global aviation CO2 emissions.
• Forest-based offsets, particularly REDD+, face severe environmental integrity issues, including the difficulty of establishing accurate baselines, the risk of leakage (increasing deforestation elsewhere), and the unrealistic requirement for permanence over 100 years.

APA

Carbon Market Watch (2020). Carbon markets 101. https://carbonmarketwatch.org/wp-content/uploads/2020/07/CMW-PORTUGUESE-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-PORTUGUESE-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-PORTUGUESE-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-PORTUGUESE-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} }