New UN carbon credit mechanism okays first credits — and highlights flaws 

A new United Nations mechanism for validating high-quality carbon credits has announced its first approval, but carbon experts aren’t celebrating. The inaugural project is seen by many as flawed, and its inclusion highlights a challenge to the mechanism’s integrity goals.

Plans for the Paris Agreement Crediting Mechanism (PACM) were finalized last November at the COP negotiations in Azerbaijan, allowing project developers to begin applying for PACM approval. A quality label backed by the UN could be a welcome addition to the carbon market, where many buyers lack the resources to undertake the due diligence necessary to identify high-quality credits. In some cases, companies have been publicly named as purchasers of “junk” credits that generate little or no climate benefit. 

Following a meeting of the PACM supervisory body last month in Bhutan, we know now the first project to receive the mechanism’s approval: A Myanmar-based scheme that distributes fuel-efficient stoves to communities that cook using wood fires. Switching to improved stoves reduces the quantity of wood the recipients use, reducing deforestation and emissions.

What’s considered sustainable?

The general principle behind cookstove projects is generally considered sound, but the specific project that the PACM approved is not. Calyx Global, an independent rater of carbon credits, last week ranked the project in Tier 3, the lowest of its categories. 

One of the problems with the methodology the project follows is what’s called “non-renewable biomass,” explained Calyx Co-Founder Donna Lee. When estimating climate benefits, project developers must account for wood that will grow back and so should be considered sustainable. Under the methodology used in Myanmar, this estimate was left up to project developers, who had an incentive to downplay the amount of sustainable harvesting in order to maximize the purported impact of the stoves.

The methodology, which was developed by the non-profit Gold Standard, was also rejected this month by the Integrity Council for the Voluntary Carbon Market, another important arbiter of carbon market quality.

This inauspicious start stems from a compromise made as countries haggled over plans for the PACM. China, India and other nations successfully lobbied for projects generated under a previous UN-based scheme, known as the Clean Development Mechanism (CDM), be allowed to apply for PACM approval. The transition window closes at the end of this year, when new and much more stringent rules will be introduced, said Lambert Schneider, a climate policy expert at the Oeko-Institut in Germany and a member of the technical expert group crafting the rules. “I’m very confident that such a project wouldn’t pass the new rules,” he added, referring to the Myanmar cookstove credits.

Better baselines

Schneider hopes that the PACM will insist on tougher rules governing baselines, for example. To estimate the quality of emissions that a project avoids or removes, developers develop a baseline to compare it to. Many standard-setters allow a “business as usual” approach, in which the impact of the project is often compared to the status quo. The PACM requires instead that baselines are set below business as usual. Project developers also have to apply for credits before they start work, rather than retroactively identifying projects that might qualify for credits.

Yet large quantities of low-quality credits may gain PACM approval before those rules get implemented. More than 1,000 CDM projects have applied for PACM status. Large-scale renewable energy projects dominate the list, according to a 2024 analysis by the NewClimate Institute in Germany. Many of these projects would have been completed without carbon credit funding, meaning they lack what’s known in carbon markets as “additionality.” 

Schneider estimates that low-integrity credits representing hundreds of millions of tons of carbon dioxide could eventually be approved in this way. If they do, he added, buyers should scrutinize the label on PACM credits to determine whether the project was a transfer from the CDM or approved under the new rules.

That kind of due diligence is always worthwhile due to the wide variability in carbon credit quality. Almost all cookstove projects rated by Calyx fall into Tier 2 and 3, for example, but Lee noted that the concept as a whole is not flawed. Indeed, if the problems with the non-renewable biomass estimate were addressed, the majority would shift into Tier 1 and 2. “They can be good projects that have really wonderful sustainable development benefits to women and children and human health,” she said.