The EU should consider treating some of the international carbon credits that it can use to meet up to 5pc of its 2040 climate target as a "safety reserve" to offset potentially damaging developments in its land-use sector, according to a paper published by environmental research institute Oeko-Institut this week.
Using international credits as a safety reserve would mean raising the EU's domestic reduction target beyond 85pc, the Oeko-Institut researchers emphasised in their recommendations to the EU. The bloc has set a target to reduce its emissions by 90pc compared with 1990 levels by 2040.
The EU should also not allow the direct use of carbon credits by companies covered by the bloc's emissions trading system (ETS), they said, with credit procurement preferably carried out by a central purchasing facility.
The UN-controlled Paris Agreement Crediting Mechanism (Pacm) under article 6.4 of the Paris Agreement should be used as a "minimum" integrity benchmark for purchased credits, combined with additional criteria and safeguards, the researchers said.
And the EU should clarify the maximum amount of carbon credits that can be used, bearing in mind that "high-quality carbon credits will not be available at low cost", while the bloc should also engage in strategic partnerships with project host countries at an "early stage", the study said.
The researchers recommended that the EU count only around 50pc of the credits' emissions savings towards its own nationally determined contribution (NDC), or climate plan, under the Paris Agreement. At least 30pc should be kept for the project host countries, while 10pc should be put into the UN's climate adaptation fund — compared with the 5pc obligation under article 6.4 — and 10pc cancelled to contribute to global emissions reductions, compared with the 2pc mandatory cancellation under article 6.4.
There could be variations between host countries, with least-developed countries receiving a higher share of credits, or between types of emissions-cutting activities, the researchers said.
The EU should ensure that third-party auditors are not selected or paid by project developers, they said.
The researchers also warned about the "accounting gaps" in the Paris Agreement arising from single-year NDC targets compared with carbon-market approaches commonly implemented over multi-year periods.
Countries with single-year targets could resort to "averaging" the number of carbon credits used or sold over an NDC period for the target year, potentially leading to double counting of emissions reductions and an increase in global emissions, even when carbon credits represent additional emission reductions or removals. The EU should only engage with countries that also use multi-year approaches, the Oeko-Institut recommended.
And the bloc should implement a "like-for-like" approach for any use of carbon credits subject to reversal risks, which could be used to compensate for carbon emissions or a decline in removals from the land-use sector.
The EU should also not count payments for the credits as climate finance under the UN's new collective quantified goal target of providing "at least" $300bn/yr in climate finance for developing countries by 2035, the researchers said.
If the EU uses ambitious values for sharing emissions cut benefits, this could lead to project developers becoming unwilling to sell carbon credits with less ambitious benefit-sharing arrangements, the researchers warned.
