The CarbonNeutral Protocol Index

4.8 Corresponding Adjustments (CAs)

Article 6(2) of the Paris Agreement, agreed in November 2021, sets out the requirement for nation states to apply corresponding adjustments (CAs) to carbon credits that are used for trading between nation states. This is to ensure that one single emission reduction is not counted as a reduction by two different countries towards their Paris pledges.

Although it provides a welcome blueprint for future carbon markets, the Article does not explicitly provide the rules for using carbon credits in the voluntary carbon market. To fill this gap, stakeholders across the market and civil society are in the process of updating the framework for best practice in future voluntary corporate action. This process is likely to continue through 2022. One central issue is whether carbon credits used for voluntary purposes will, at some point in the future, require a CA or not.

This is not an immediate issue. Any carbon offset credits with a vintage of 2020 or earlier are not subject to the debate around CAs, as those emission reductions occurred before the start of the Paris Agreement period. To date, a very small number of vintage 2021 credits have been issued, and numbers will remain small until the second half of 2022. Most buyers will therefore be unaffected by the CA issue in the medium term.

Furthermore, only a handful of countries currently have an accounting mechanism for issuing CAs, and it is likely to be 3-4 years before most ‘Paris-ready’ national accounting systems are operational. It is therefore unlikely that any significant volume of carbon credits backed by CAs will be issued before 2023-24.

In the longer term, one possible outcome of the new framework for voluntary action best practice is the differentiation between emission reductions without a CA that help the host country achieve its Paris Agreement pledge, and those with a CA which reduce emissions over and above the national pledge. Both have equal importance and merit in tackling climate change and companies may choose to act in either, or both, causes.

How to communicate these actions forms part of the ongoing process to determine future best practice, and future editions of the Protocol will provide updated guidance as this emerges.

In summary, the issue of the use of CAs in voluntary action is still lacking clarity and will not materially affect the purchase and communication of offsets through 2022.