GCC issued credits can serve all purposes on voluntary and compliance markets.
Independent Standards Regulated (“Voluntary”) Carbon Markets
Carbon markets regulated by independent standards such as GCC allow organizations and individuals buy and sell carbon credits by acting in alignment with the rules and regulations set by the independent standards. Carbon credits are generated by projects that remove greenhouse gases (GHGs) from the atmosphere (e.g., through forestation, improved land management or carbon capture and storage in geological structures) or decrease GHG emissions originated from industry, transportation, energy generation, buildings, agriculture, deforestation, or any other aspect of human economical activities. Each credit represents one ton of carbon dioxide equivalents (CO2e) that is sequestered or has not been emitted to the atmosphere.
Private sector can accelerate global decarbonization efforts by directly investing in projects that would have not materialized otherwise. Private sector participation in carbon markets, as investors, project proponents and regulators, closes the ambition gap by enabling companies to achieve enhanced climate goals through offsetting greenhouse gas emissions that are technically difficult or too costly to reduce. Climate-focused companies set additional climate targets to benefit from growing consumer interest in ‘carbon-neutral’ products.
The compliance market is regulated by national, regional, or international carbon reduction regimes.
Carbon Crediting Mechanisms under the Paris Agreement
The Paris Agreement establishes two market-based mechanisms for international cooperation to increase Parties’ ambition set out in their national climate action plans under the Paris Agreement (Nationally Determined Contributions, or NDCs):
- The first mechanism is established under Article 6.2 which allows countries to bilaterally cooperate or engage with the private sector unilaterally (government to private entity). (unilateral or country-to-private entity).
- The second mechanism is Article 6.4 which builds on the Clean Development Mechanism established under the Kyoto Protocol. It is centrally regulated through an Article 6.4 Supervisory Body at UNFCCC.
Carbon credits generated and traded under Article 6.2 are defined as Internationally Transferred Mitigation Outcome (ITMO) and can either be generated by a private or public entities from any mitigation activities agreed through cooperative approaches. In particular, Art 6.2 allows Parties for the significant flexibility in designing and functionality of these activities. Detailed definition of ITMO is contained in Decision 2/CMA.3: Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement available at unfccc.int/decisions.
Decision 2/CMA.3, Annex, paragraph 1(f), adopted at COP26 in Glasgow builds the basis for governments to directly engage with the private sector through a unilateral approach. This allows a private company to claim Paris-aligned carbon credits, correspondingly adjusted by the selling government and ensures that the mitigation outcomes generated and traded as ITMOs are NDC additional and help to close the ambition gap.
Detailed definition of ITMO is contained in Decision 2/CMA.3: Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement available at unfccc.int/decisions.
International Aviation
The Paris Agreement deals with all domestic GHG emissions while GHG emissions associated with international aviation and maritime transport are dealt with under International Civil Aviation Organization (ICAO) and International Maritime Organization (IMO), respectively. Consequently, GHG emissions from domestic aviation are included in the national GHG inventories and their decrease may be a part of the Nationally Determined Contributions (NDCs) under the Paris Agreement, while GHG emissions from international aviation are reported separately and are not included in NDCs.
ICAO Assembly Resolution A39-3 adopted in 2016 provides the foundation for Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). CORSIA is the first global market-based measure that offers a harmonized way to reduce emissions from international aviation, minimizing market distortion, while respecting the special circumstances and respective capabilities of ICAO Member States (for more details: www.icao.int/environmental-protection/CORSIA).
The ICAO agreement on carbon neutral growth and CORSIA complement the ambition of the Paris Agreement.
Carbon credits issued by Global Carbon Council (generated from 1 Jan 2016 through 31 Dec 2020) are eligible for use toward CORSIA offsetting requirements in the 2021 – 2023 pilot phase of CORSIA. The GCC Program was approved as conditionally eligible for the first phase (2024-2026) compliance period (further details are available at www.icao.int/environmental-protection/CORSIA/Documents.
