Factors influencing Environmental Integrity
The Scheider and La Hoz Theurer (2018) identified four (4) factors that influence environmental integrity under the Paris Agreement. These factors are:
- Accounting for international transfers.
- Quality of units.
- Ambition and scope of the mitigation target of the transferring country.
- Incentives and disincentives for future mitigation action.
Next, we will explore these factors in greater detail.
Accounting for international transfers
“Robust accounting of international transfers is a key prerequisite to ensure environmental integrity” (Schneider and La Hoz Theurer, 2018)
The goal is to avoid double counting of emission reductions and/or removals as this can distort the real impact of mitigation activities by country and in aggregate at the global level.
Double counting can occur by:
- Double issuance, when more than one unit is issued for the same unit of emission reduction.
- Double claiming, when a unit of emission reduction is counted towards fulfilling multiple mitigation targets, national and for other international mechanisms (i.e., CORSIA, ICAO).
- Double use, when the unit is used twice to achieve a mitigation target.
In addition, this requires finding a common ground for the NDCs as to be sure that we are trading in equivalent units.
An important solution to this issue is found through “Corresponding Adjustments”, like balancing “accounting entries” in a financial balance sheet. For example, the units are recognized for the country that acquires them, and those units are deducted from the transferring country.
Quality of Units
The units are considered to have quality “… if the underlying mechanism ensures that the issuance or transfer of one unit, expressed as 1 tCO2e, directly leads to an emission reduction of at least 1 tCO2e in the transferring country, compared to the situation in the absence of the mechanism.” (Schneider and La Hoz Theuerer 2018, 5)
The factors that influence units´quality depend on the market mechanism used:
- Under crediting mechanisms, the units must be “additional” and not over-estimated (i.e., robust accounting). Also, the units must represent “permanent” change without resulting in any adverse effects. Thus, “carbon credits are a trustworthy representation of real mitigation action” (WEF 2023). Further initiatives to safeguard the credibility of the market are being developed under the “Integrity Council for the Voluntary Carbon Market” (ICVCM) and the “Voluntary Carbon Market Integrity Initiative”; we will discuss these initiatives in greater detail later in this lesson.
- Under emission trading systems (ETS), the quality of allowances depends on an ETS cap level below “the emissions level that would occur in the absences of the trading system”, and the proper monitoring of emissions.
- Under direct bilateral government-to-government transfers, the quality of units depends on conditions like those found under crediting mechanisms and must be a result of verifiable mitigation activities.
Ambition and scope of the mitigation target of the transferring country
A key incentive to ensure unit quality resides in the ambition and scope of the mitigation target of the transferring country.
Under the Paris Agreement, countries determine the ambition and scope of their mitigation targets, including sectors of the economy they focus on, and the types of GHGs they aim at mitigating.
As a result, the NDC targets could determine indirectly the level of effort to meet the quality criteria of units. The easier to meet the targets, the lower incentive to ensure quality by engaging in projects with mitigation activities.
Incentives and disincentives for future mitigation action.
International carbon markets could lower the costs of achieving targets for acquiring countries; on the other hand, transferring countries may set lower ambitious targets in order to benefit from the trading without the pressure to meet their own targets.
In addition, there are other indirect ways in which the market could both incentivize or disincentivize the reduction of GHG emissions.
- Enhanced mitigation efforts via awareness brought on by capacity building.
- Favor short- and medium-term cost-effective mitigation measures. Avoid expensive technology lock-in.
- Meeting “additionality” requirements could discourage policy-makers from enacting carbon mitigation legislation.
For example, methane capture in landfills could…
- Incentivize the continuation of land-filling activities
- Disincentivize changes in waste management practices like composting and recycling
A spill-over effect from the unilateral enactment of climate change mitigation policies. This can translate into changes in trade relationships and the unintended shift or relocation of carbon emitting activities.
“[It] is defined as the increase in CO2 emissions outside the countries taking domestic mitigation action divided by the reduction in the emissions of these countries.” (IPCC AR4 2007)
You can read more in Lesson 5, Compliance Markets.