Carbon markets 101

The document explains the difference between cap-and-trade systems and offsetting mechanisms, detailing the failures of the Kyoto Protocol's Clean Development Mechanism (CDM) and the risks associated with the Paris Agreement's Article 6. It highlights issues such as 'hot air' credits, double counting, and the lack of local safeguards. It also assesses the CORSIA aviation scheme and the voluntary carbon market, arguing that the global community must move beyond offsetting toward direct climate finance to achieve net-zero emissions.

• The Clean Development Mechanism (CDM) failed to contribute to global emission reductions because most projects were not 'additional,' meaning they would have occurred without the incentive of carbon credits. It is estimated that 85% of CDM projects would have functioned without the associated revenue.
• The Kyoto Protocol's International Emissions Trading (IET) and Joint Implementation (JI) systems suffered from the 'hot air' problem, where countries with very low targets—such as those in the former Soviet bloc—sold excess credits that did not represent actual climate action, allowing companies to pollute more without requiring real reductions.
• Article 6 of the Paris Agreement faces significant risks, including the potential for 'hot air' credits under Article 6.2 if national targets are too low, and the risk of double counting where both the selling and buying countries claim the same emission reduction unless 'corresponding adjustments' are applied.
• There is a massive oversupply of carbon credits from the CDM era; approximately 4 billion credits could be available for use after 2020 without resulting in any new CO2e reductions, which threatens the environmental integrity of new systems.
• 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 baseline levels. Furthermore, it ignores non-CO2 climate effects, which can multiply the warming effect by two to four times.
• Forestry-based offsets, specifically REDD+, are criticized for lacking environmental integrity due to the difficulty of establishing realistic baselines, the risk of 'leakage' (increasing deforestation elsewhere), and the inability to guarantee permanence over the required 100-year horizon.
• The document argues that offsetting is logically incompatible with the Paris Agreement's goal of all countries reducing emissions to the maximum extent. The system should evolve from offsetting toward the direct financing of zero-carbon transitions and the cancellation of credits without claiming emission reductions.

APA

Carbon Market Watch (2020). Carbon markets 101. https://carbonmarketwatch.org/wp-content/uploads/2020/07/CMW-SPANISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB-1.pdf

Chicago

Carbon Market Watch. Carbon markets 101. 2020. https://carbonmarketwatch.org/wp-content/uploads/2020/07/CMW-SPANISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB-1.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-SPANISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB-1.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-SPANISH-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-FINAL-2020-WEB-1.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }