Search Climate Insights Directory

Carbon Market Watch concludes that Verra's VM0052 methodology for coal-to-clean carbon credits is inadequate and should not be used to issue credits in its current form. The report identifies critical risks of carbon leakage, over-estimation of emission reductions due to static baseline assumptions, and potential double counting. It also finds that the 'just transition' requirements are too vague and susceptible to manipulation, particularly regarding benefit-sharing and worker compensation. Using the South Luzon Thermal Energy Corporation (SLTEC) project in the Philippines as a case study, the report illustrates how independent power producers could build new coal plants to replace retired capacity, nullifying climate benefits. The author urges Verra to suspend the methodology and implement substantive revisions.

Carbon Market Watch argues that Verra’s VM0052 methodology for coal transition credits is significantly flawed and should be put on hold. The briefing identifies critical risks of carbon leakage due to low renewable energy pairing requirements, weaknesses in baseline-setting and additionality tests, and inadequate safeguards against double issuance. It also finds that just transition provisions are unreliable, particularly regarding benefit-sharing and stakeholder mediation. Using a case study of the South Luzon Thermal Energy Corporation (SLTEC) in the Philippines, the document illustrates how the methodology could allow for the overissuance of credits that do not represent real emission reductions.

The document examines how trade tools like border carbon adjustments (BCAs) and deforestation-free regulations are being used to advance climate goals and prevent carbon leakage. It highlights the administrative challenges of BCAs, the risk of excluding smallholders in deforestation-free supply chains, and the potential for these measures to clash with the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC). The authors argue for greater transparency, support for developing countries, and harmonized standards to ensure the energy transition does not deepen global inequities.

The guide argues that fossil fuel subsidies (FFSs) are misaligned with climate and fiscal goals and proposes a three-step approach to phase them out: establishing a whole-of-government coordination mechanism, categorizing subsidies into three timelines based on risk and feasibility, and executing detailed implementation plans with clear accountability. It emphasizes that while developed countries should lead with faster reforms, developing countries may require longer timelines and more robust social protection measures to ensure a just transition.

The report argues that G20 countries have failed to meet their 2009 pledge to phase out inefficient fossil fuel subsidies, with spending reaching USD 665 billion in 2023. It introduces a categorization framework that divides subsidies into 'quick phase-out' (within 1 year), 'phase-out with a robust strategy' (2-4 years), and 'time-limited exemptions' (4+ years). Applying this to Brazil, Germany, Italy, Mexico, and South Africa, the authors find that while a significant number of measures (30-55%) can be removed quickly, the majority of fiscal value is tied to deeply embedded structural subsidies requiring sequenced reform and mitigation measures.

The EU's Carbon Border Adjustment Mechanism (CBAM) is designed to prevent carbon leakage and encourage global decarbonisation by imposing levies on high-emitting imports. While facing criticism from BRICS nations as a protectionist barrier, the CBAM's design allows for the deduction of carbon prices already paid in the country of origin. This has led several countries, including India, China, Brazil, and Vietnam, to strategically develop or expand domestic carbon markets or taxes to ensure that carbon revenues are retained domestically rather than paid to the EU. Modelling indicates that if domestic prices reach 50% of the EU's price, countries like India could retain EUR 676 million annually.

The document defines essential carbon market terminology, including the distinction between cap-and-trade and compliance markets, the mechanics of carbon credits and budgets, and specific regulatory frameworks like the EU's CBAM and the ICAO's CORSIA.

The report examines 'coal transition credits' as a financial tool for early coal plant closure in Southeast Asia. It finds significant expert skepticism, with only 2 out of 10 experts viewing them as effective. Major risks identified include carbon leakage, baseline inflation, and 'perverse incentives' that may reward polluters. The document concludes that CTCs are not a reliable exit strategy and emphasizes the need for systemic public policy and funding over market-based offsets.

The report examines 'coal transition credits' (CTCs) as a mechanism to accelerate the phase-out of coal-fired power plants in Southeast Asia. While proponents suggest CTCs can unlock private finance for early retirement and just transition measures, a survey of 10 experts reveals widespread skepticism. Key concerns include the risk of carbon leakage, where retired capacity is replaced by other fossil fuels, and the difficulty of establishing conservative baselines to prove additionality. Experts warn that CTCs could create perverse incentives, rewarding polluters and encouraging the delay of retirements to maximize credit issuance. Furthermore, the report highlights structural barriers in Southeast Asia, such as young coal plant fleets and rigid power purchase agreements, and notes that current methodologies, including Verra's VM0052, may have loopholes regarding 'captive' coal plants. The findings suggest that without rigorous guardrails and a focus on public finance, CTCs risk being a tool for greenwashing rather than a driver of genuine climate impact.

The report examines 'coal transition credits' (CTC)—carbon credits generated by retiring coal plants early and replacing them with renewables—as a way to fund the energy transition in Southeast Asia. Based on a survey of 10 experts, the document finds deep skepticism regarding the instrument's effectiveness. Key concerns include 'carbon leakage' (where retired capacity is replaced by other fossil fuels), the subjectivity of baseline scenarios leading to over-issuance, and the risk of 'greenwashing' or rewarding polluters. Experts highlight that only 2 out of 10 view CTCs as effective, warning that without strict safeguards, these credits could undermine genuine decarbonization and fail to provide a 'just transition' for affected workers and communities.

The Netherlands is implementing a multi-level approach to phase out fossil fuel subsidies, focusing on international cooperation through the COFFIS coalition and EU-wide mechanisms like the EU ETS and CBAM. Nationally, the government uses an 'external costs approach' to identify price gaps, which amounted to a fossil subsidy of 18.0 billion euros in 2024. The plan includes raising energy taxes on natural gas through 2030, introducing a differentiated air passenger tax in 2027, and phasing out specific exemptions for greenhouse horticulture and coal use. However, several subsidies remain due to international treaties (e.g., the Energy Taxation Directive) or concerns over carbon leakage and social fairness.

The Netherlands is implementing a 'Whole of Government Approach' to phase out fossil fuel subsidies, focusing on international cooperation through the COFFIS coalition and EU-level mechanisms like the EU-ETS and CBAM. Nationally, the government uses an 'external costs approach' to identify pricing gaps, which amounted to a fossil subsidy of 18.0 billion euro in 2024. The plan details specific phase-out paths for various tax exemptions and subsidies, while identifying several others that remain unchanged due to international treaties or socio-economic considerations.

The report analyzes 32 Air Service Agreements (ASAs) among COFFIS member states to identify legal obstacles to taxing aviation fuel. It finds that while the Chicago Convention does not prohibit such taxes, many bilateral ASAs contain prohibitions or non-discrimination clauses that require reform. The authors propose a 'Joint Agreement' as a multilateral mechanism to bulk-amend these treaties. For EU states, the Energy Taxation Directive (ETD) remains a primary structural barrier, though international agreements can override it. The report also estimates that taxing three specific UK flight routes could generate up to USD 3.1 billion in revenue.

Carbon Market Watch argues that indirect cost compensation under the EU ETS should be phased out rather than expanded to new sectors. The organization identifies several flaws in the current State aid guidelines, including the use of fossil-fuel-only generation capacity to determine CO2 emission factors and a lack of transparency regarding which companies receive aid. It specifically warns that including primary plastics and organic chemicals in the compensation scheme would subsidize fossil-fuel-reliant production and undermine circular economy efforts.

The report argues that major steel companies, including ArcelorMittal, Nippon Steel, and POSCO, overlook methane emissions from coal mining in their Scope 3 disclosures. It highlights that these emissions, particularly from 'gassiest' Australian mines, significantly increase the climate impact of blast furnace-based steelmaking and are not mitigated by downstream technologies like hydrogen injection or CCUS.

The document provides a comprehensive analysis of how the transition to net-zero emissions affects nine global sectors: agriculture, carbon markets, critical minerals, digital transformation, energy transition, fisheries, heavy industries, shipping, and textiles and garments. It examines the intersection of trade policies and climate action, highlighting the risks of 'green protectionism' and the potential for developing countries to capture new economic opportunities through value addition and green industrialization. The reports emphasize the need for international cooperation to ensure a just transition, particularly for least developed countries (LDCs) and small island developing states (SIDS).

Carbon Market Watch argues against scrapping the CBAM despite industry complaints about administrative complexity, suggesting instead that the EU quantify actual carbon leakage and circumvention risks before expanding the mechanism to downstream products. The organization emphasizes that complementary EU policies like the Digital Product Passport and international standards can mitigate administrative burdens. It further recommends providing special treatment for Least Developed Countries (LDCs) and Small Island Developing States (SIDS) to align with UNFCCC principles.

The report argues that allowing African exporters to use Article 6 carbon credits to reduce their EU CBAM liabilities would address equity concerns, retain climate finance within Africa, and provide policy flexibility. It notes that current CBAM regulations only permit deductions for explicit carbon prices (taxes or ETS), making Article 6 credits ineligible. The document highlights the significant economic risks CBAM poses to African GDP and the specific challenges African nations face in implementing traditional carbon pricing due to their emissions profiles and administrative constraints. It concludes with recommendations for the EU to amend its regulations to include high-integrity international credits, specifically those from Least Developed Countries (LDCs) and Africa, to align with the principle of Common but Differentiated Responsibilities and Respective Capabilities (CBDR-RC).

Russia is attempting to form a non-Western climate coalition through BRICS, the SCO, and the EAEU to define 'sovereign' climate priorities that protect its fossil fuel exports. The document argues that Russia's approach is obstructionist, relying on the recalculation of forest carbon sinks to meet neutrality goals on paper rather than implementing genuine mitigation. While Russia pushes for shared carbon markets and 'technological neutrality' to prolong fossil fuel use, its Asian partners have largely rejected deep regulatory harmonisation. Meanwhile, Russian non-fossil fuel exporters maintain independent ESG agendas to remain competitive against foreign carbon border adjustments, despite the government's lack of a domestic carbon price.

Carbon Market Watch criticizes proposals to compensate EU exporters under the Carbon Border Adjustment Mechanism (CBAM), arguing that the actual competitiveness risk is limited and that subsidies would reward polluters. The author contends that CBAM revenue should not be used to subsidize EU producers, as this could conflict with WTO rules and encourage the export of polluting products. Instead, the document advocates for targeted financial support for clean technology innovation and the global expansion of carbon pricing.