A new type of carbon credit created at the Sharm el-Sheikh climate conference provides an overdue alternative to the offset claim. This signals a path towards more honest climate accounting and fewer loopholes for potential greenwashing.

The outcome on carbon markets at COP27 was generally poor. Negotiators failed to set basic oversight and transparency checks and balances in the intergovernmental carbon credit trading system under Article 6.2, with countries able to shield transactions from public scrutiny by shrouding them in impenetrable secrecy if they exploit loose confidentiality clauses.

However, a glimmer of silver lining came via the agreement for a new kind of carbon credit in the centralised carbon market for companies and governments under Article 6.4. Despite its seemingly innocuous name, a “mitigation contribution” unit represents a potential paradigm shift in how carbon credits are used and marketed. 

Companies purchasing these contribution credits must not claim the emission reductions they represent to offset their own pollution because the underlying mitigation will continue to count towards the climate target of the country where the climate project(s) are based.

Involuntary double counting

It may seem obvious that an emission reduction/removal cannot be counted by two different countries, but this had been a long-running debate between negotiators until it was resolved at COP26 in 2021. 

In Glasgow, countries agreed that all credits under the Paris Agreement would not be counted twice by countries. This was achieved by designing a double-entry bookkeeping method that applies a so-called “corresponding adjustment”, whereby the country where the credit is issued removes it from its greenhouse gas inventory so that the buyer can count it towards their climate target.

However, this debate has raged on in the unregulated voluntary carbon market, where the risk of double counting persists because they do not fall under jurisdiction of the UN climate change secretariat (UNFCCC). Some voluntary market actors want the status quo to endure so that an emission reduction/removal counted by a country can continue to also be counted by a company.

This view ignores the reality that this double counting is problematic, including on the voluntary market, since it can displace or delay climate action. A country may no longer implement emissions reductions they would have normally carried out, if they can still count them after they’ve been sold to someone else (who also counts them). This can also create a misleading picture that emissions have been reduced by more than they actually have in reality.

When double counting displaces climate action, it undermines the core promise that a carbon credit must always unlock additional mitigation. This means that any offset claims based on double-counted credits are unreliable and inappropriate. Not all claims will be false, but the promise that they are right is no longer strong enough.

Contributions, not offsets

And this is why the Sharm el-Sheikh decision to create contribution units under Article 6 is significant, since it encourages an alternative to the outdated and problematic offsetting approach. The new carbon credits will not need to go through the double-entry bookkeeping system, but this does not reopen the clear COP26 decision on double counting, for several reasons, starting with the name.

UN negotiators called these credits “mitigation contribution” units for a reason. Those who follow carbon markets will understand it is no coincidence that they chose the word “contribution” and specified that these units “contribute to the reduction of emission levels in the host Party” (COP27 Art 6.4 decision, annex, para29b).

For years, campaigners including Carbon Market Watch and WWF, have been calling for the “contribution claim” approach as a much-needed alternative to offsetting. The contribution claim essentially boils down to a change in how carbon credits are handled by the buyer: rather than a company claiming to offset its emissions or calling its products/services carbon-neutral, it would rather express its contribution to mitigation efforts in a given country by financially supporting a climate project.

Contribution claims are also supported by leading carbon market actors like the Gold Standard, among the top three issuers of carbon credits. In its claims guidance, it encourages buyers of carbon credits to make an “impact” claim (which is the same thing as a “contribution” claim): the purchaser can say it is contributing to a domestic climate target or to UN Sustainable Development Goal 13, “without stating or implying” they’ve offset their emissions. Gold Standard also specifies that any company choosing to make offsetting claims can only do so credibly with credits that are not double-counted.

Risky business

Corporations resistant to change tend to negatively portray contribution claims as not being an attractive alternative to offsetting, but this misses the point.

For one, in a context where companies left and right are claiming they or their products and services are carbon neutral or net-zero, offsetting claims are rapidly losing credibility. When major business-as-usual polluters can pile into the same leaky net-zero boat as companies truly cutting emissions, this means that offsetting can’t even deliver on its promise to differentiate the committed from the greenwashers.

Furthermore, the debate on the contribution claim shouldn’t be about finding an alternative that’s just as attractive as an offsetting claim. The reason offsets are so attractive is because they sell a dream that doesn’t exist. At best offset claims are misguided, and at worst they are outright misleading. There are other industries – e.g. tobacco, alcohol – where certain types of claims and advertisements are not permitted on grounds of being misleading or even harmful. The same rigour to prohibit misleading ads is needed for offsets too. The contribution claim isn’t about finding a shiny equivalent to offsets, but rather not to mislead while still supporting climate action.

The contribution approach is simply a more honest and transparent description of using carbon credits. Aside from double-counting, there are many problems and uncertainties with offsetting. It can justify ongoing/increased pollution and defer corporate climate action, and it often incorrectly assumes fossil fuel emissions can be compensated with emission reductions/removals that are temporary (e.g. sequestration in trees or soil) or not additional. Credits also often fail to satisfy key quality criteria – such as permanence and stringent baselines – making them unsuitable for tonne-for-tonne offset claims in many cases, even if the underlying finance may be beneficial and would better be channelled via a contribution approach. 

Finally, companies are increasingly exposing themselves to litigation risks when making unsubstantiated or misleading offset and net-zero claims. Recent legal actions and complaints filed against companies include Shell, KLM, Austrian Airlines, Easyjet, and FIFA. Of course, the contribution approach doesn’t negate the obligation for companies to cut their own emissions as a priority and to carry out due diligence if they want to buy credits, but it does lessen companies’ risk of exposing themselves to lawsuits based on their use of carbon credits.

Overdue paradigm shift

An offset is only one possible use of a carbon credit. It’s regrettable that forgoing responsibility for one’s pollution via an offsetting approach has been the norm to date, but the future can be different.

The new designation of Paris Agreement “mitigation contribution” units at COP27 sends a strong reminder to companies and wider voluntary carbon market actors that an alternative to offsetting is not only possible but even better. 

Companies should seize yet another opportunity to turn a brighter page on carbon markets and shed offsetting once and for all. Whether the motivation comes from a desire to communicate more honestly or to simply avoid becoming the subject of tomorrow’s lawsuit, all signs point to the contribution claim.