The Paris Agreement Crediting Mechanism (PACM) has reached a significant milestone by approving its inaugural project—a cookstove initiative in Myanmar. This development underscores the UN-backed carbon credit system’s commitment to ensuring high-integrity offsets. However, questions linger regarding the actual climate benefits and whether this approval signifies a triumph for carbon markets or a harbinger of deeper underlying issues. Let’s delve into the intricacies of this momentous market advancement.
What exactly is PACM? The Paris Agreement Crediting Mechanism is a global endeavor aimed at enhancing the quality and integrity of carbon credits. These credits enable companies to offset their greenhouse gas (GHG) emissions by investing in projects that diminish or eliminate CO₂ from the atmosphere. Established under Article 6.4 of the Paris Agreement, PACM allows countries to collaborate and trade emission reduction units, known as A6.4ERs (Article 6.4 Emission Reductions Units), to fulfill their climate objectives.
Distinguished from private carbon credit schemes, PACM is an official system endorsed by the United Nations (UN), providing it with enhanced oversight and credibility. Finalized at COP28 in 2024, the UN carbon credit system supersedes the Clean Development Mechanism (CDM), which faced criticism for permitting substandard carbon credits. Many CDM projects lacked “additionality,” meaning they would have transpired even without carbon credit financing, thereby undermining genuine climate action. PACM introduces more stringent regulations to ensure that credits genuinely reflect tangible, measurable, and verifiable emission reductions. It elevates baseline standards and mandates upfront credit registration to prevent retroactive project approvals. This UN-supported system aims to bolster trust in carbon markets and ensure their meaningful contribution to nations’ climate goals, also known as Nationally Determined Contributions.
With more than 3,500 companies committed to achieving net-zero emissions, the demand for high-quality credits is escalating. PACM’s rigorous standards can assist companies in procuring reliable carbon offsets, mitigating the risk of acquiring “junk credits” that provide minimal or no genuine environmental benefit.
The shadow of the CDM looms over PACM, particularly concerning the transition of projects from the former to the new system. Commencing in 2001, the CDM enabled countries and companies to earn carbon credits by funding emissions reduction projects in developing nations. Over time, it became evident that numerous CDM projects lacked integrity, failing to reduce emissions beyond what would have occurred naturally. In response to pressure from China and India, PACM negotiators decided to permit CDM projects to seek PACM approval until the conclusion of 2025 to avert disruptions in the carbon credit market. Nonetheless, experts express apprehension that this transition phase could pave the way for low-quality projects inundating the system before the more stringent PACM regulations come into effect. According to analysis by the NewClimate Institute, over 1,000 CDM projects have applied for PACM status, including large-scale hydropower and wind energy projects likely to proceed irrespective of carbon credit funding, methane capture projects in landfills potentially falling short of PACM’s stringent baseline emissions criteria, and cookstove projects, historically controversial due to uncertainties regarding their actual reduction of wood use. The NewClimate Institute warns that if all these projects secure PACM approval, hundreds of millions of carbon credits with ambiguous climate benefits could saturate the market, undermining trust in PACM before its full operationalization.
The first project endorsed by PACM is situated in Myanmar—a cookstove initiative designed to assist families in reducing firewood consumption, thereby lowering CO₂ emissions. By transitioning to these stoves, communities can combat deforestation, enhance indoor air quality, and diminish respiratory health hazards. Household cooking contributes 2-3% of global CO₂ emissions, primarily stemming from wood and charcoal combustion. Improved cookstoves offer climate and health advantages. However, the Myanmar project has encountered criticism, with Calyx Global assigning it a Tier 3 rating, the lowest quality classification, citing concerns about overstated carbon savings. The ratings agency emphasized the ongoing apprehensions regarding greenhouse gas integrity and potential over-crediting at the project level. A significant issue is the reliance on estimates of non-renewable biomass (fNRB) to determine claimed reductions in firewood usage. Critics argue that project developers have overstated deforestation avoidance, thereby exaggerating climate benefits. The recent rejection of this methodology by the Integrity Council for the Voluntary Carbon Market (ICVCM) has further cast doubt on its credibility. However, Calyx Global noted that the project’s rating could ascend to Tier 1 if it fulfills its pledged reductions.
The approval of the Myanmar project has sparked concerns about PACM’s credibility. Will the mechanism deliver on its commitment to delivering high-quality carbon credits? While PACM appears promising in theory, the potential approval of numerous low-quality projects raises doubts. Stricter regulations are not slated to commence until 2026, prompting apprehensions that certifying these projects could erode trust in the system even before its full implementation. Should buyers perceive PACM credits as akin to the old, inferior CDM credits, the entire initiative risks losing credibility. To allay these apprehensions, experts like Lambert Schneider from the Oeko-Institut advocate for extreme caution among carbon credit buyers, advising thorough scrutiny to discern whether a credit emanates from a transferred CDM project or a newly sanctioned PACM project.
The PACM holds the potential to become the benchmark for carbon credits, but it must promptly fortify its regulations to forestall low-integrity projects from inundating the market. Key areas necessitating enhancement encompass more robust baseline rules ensuring reductions are computed using dependable estimations, increased transparency in divulging methodologies and impacts, and independent verification by third-party auditors. The Paris Agreement Crediting Mechanism signifies a significant stride towards a more credible and efficacious carbon market. The ensuing years…
