Let's Trade Carbon

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Nestled between numerous announcements made at the COP26 climate summit that ended Saturday, was a deal to standardize an international carbon trading market.

Called the Article 6, this global carbon market had been introduced six years ago in the Paris agreement but after more than half a decade of haggling, a deal has finally been struck at COP26, clearly setting the rules for global trading in offsets.

How Does This Offset Work?

A carbon market allows countries and private firms to buy and sell emission credits as if they’re used cars.

For example, if you’re a country that’s already limiting emissions below your targets, you are free to sell credits to another country that’s unable to achieve its climate goals.

Similarly, companies also trade carbon credits when they aim to offset their emissions with carbon removal efforts, such as planting trees.

FYI, a carbon credit is a sort of token/permit representing 1 ton of carbon dioxide removed from the atmosphere. 

Credits are born through projects that reduce or eliminate CO2 and other greenhouse gases from being belched out into the atmosphere. 

Will It Help Us Go Greener?

While we are not the right authority to comment on its efficacy, there are two prominent lines of thought out there. 

• Believers in carbon markets feel they could unleash trillions of dollars in investments for renewable energy projects and environmental protection efforts. A standardized and regulated carbon market should allow for the efficient deployment of capital due to improved trust.
• Naysayers argue that unregulated carbon trading allows companies to “greenwash” their operations by using carbon offsets as a false front to cover up their messy business.

Now What?

Per Bloomberg, this COP26 decision creates unified and internationally-controlled standards, while including provisions to avoid a situation where the same carbon credits are claimed by multiple companies or countries.

We reckon this should put an end to negative speculation to a large extent.

In One Sip?

With the birth of a standardised and regulated global carbon market and a pledge by 450+ major financial firms to focus their investments around reducing carbon footprints, COP26 could have already done more for climate finance than any other summit before.