In addition to the compliance market, i.e. the market where demand is ultimately driven by the climate targets of the participating countries, a market for the voluntary “compensation” or offsetting of greenhouse gas emissions has developed over the past few years.

Here, buyers do not necessarily have to utilise certificates that comply with the international rules of the United Nations, but can also use private certification mechanisms.
One development that has recently given this “voluntary carbon market” significant impetus is the declaration of climate neutrality targets by companies. As most companies will continue to create emissions for the foreseeable future, procuring CO2 certificates will be necessary – at least in the medium-term – to balance ongoing emissions. This creates significant potential for demand for the voluntary carbon market. However, in the view of the Federal Government, a key basic principle needs to be observed here: avoiding and reducing greenhouse gas emissions should always be given priority over offsetting emissions. Providers of emissions compensation should make this priority clear and first provide information about options for avoiding or reducing emissions before talking about offsetting them.

In addition, offsetting should only take place through projects that meet rigorous quality criteria. For example, it should be ensured that the emissions reductions are able to be verified as on-top. It must also be made certain that emission reductions are not counted twice, i.e. for example, by a company using this reduction to balance its emissions while the host country also counts the same reduction towards its climate targets.

After all, it is essential to counter any risk of deceiving consumers. Many companies describe their products or services as climate neutral or carbon neutral because they have reduced emissions and “compensated” for remaining emissions. To avoid these negative impacts as far as possible, the basic principle of avoiding and reducing before offsetting is essential, as is transparent communication.

Details on the implementation of compensation projects are provided in a Federal Environment Agency guidebook (only in german).

Preventing double counting

Under the Paris Agreement, all countries are obligated to set national climate targets and implement measures that help meet these targets. If a contracting country implements a climate project, this then reduces the country’s greenhouse gas emissions and contributes towards meeting its national climate target. If a company were then to use the climate certificates generated in order to help reach its own climate neutrality target, the emissions reduction would be used twice. The issue of double counting therefore arises for the voluntary market, the question being: can the effect of the climate action achieved by the project be claimed by both the country and the company? Or should double counting be prevented through robust rules on offsetting emission reductions?

Box: The different forms of double counting

Double counting occurs when a single emissions reduction (i.e. a removal of carbon from the atmosphere) is counted more than once towards reduction commitments or financial pledges for mitigating climate change. As a rule, there are three different forms of double counting: 1) Double issuance: when more than one carbon certificate is issued for a single emissions reduction, 2) Double use: when a carbon certificate is used twice towards meeting a reduction target, 3) Double claiming: when two actors (countries/companies) use the same emissions reduction towards meeting a reduction target, one claim being made by the company or country that uses the carbon certificate towards the target, and a further claim by the host country where the emissions reduction then contributes towards implementation of an NDC. In the negotiations on Article 6 and in discussions on the future of the voluntary carbon market, double claiming is the key type of double counting focused on.

When it comes to the trading of carbon certificates between different countries, the Paris Agreement explicitly prohibits double counting, and since the 2021 Climate Change Conference in Glasgow, a technical solution has been available in the form of ‘corresponding adjustments’.

In the outcomes of the Climate Change Conference in Sharm el-Sheikh in December 2022, corresponding adjustments have now been designated as “mitigation contribution A6.4ER” (i.e. the emissions reduction contributes to meeting the NDC in the project country and is reported by this country to the UN). In this way, the contracting parties acknowledge that there can be two different types of carbon certificate, which opens up the possibility for the voluntary market to report transparently and truthfully on where the effect of the climate action is located. This sends a signal that double counting is not desirable even when carbon certificates are used by private actors in the voluntary market, but does so without completely excluding the possibility. In contrast, the possibility to use these certificates under the “contribution claim” approach is specifically cited and also underlined by the name given to this mechanism.