If Portugal manages to get a dynamic market up and running quickly, it can gain a competitive advantage within the European landscape, and it is certain that the Portuguese market will always benefit from being part of this EU ‘certification system’.
In the current geopolitical context, global attention is focused on issues such as security and trade wars with their stock market consequences, shifting away from environmental and climate concerns. It is the hard truth. But it is also true that natural resources continue to be exploited beyond their capacity to regenerate and the climate continues to warm, with 2024 being the first year in which average global temperatures exceeded the 1.5◦C barrier – the famous threshold defined in the Paris Agreement.
Scientific reports are clear in concluding that we will only be able to contain global warming and achieve climate neutrality if, as well as reducing emissions, we counterbalance them with solutions – on a large scale – for capturing and storing the greenhouse gases (GHG) already present in the atmosphere.
This is where carbon markets come into play, particularly voluntary markets where carbon credits can be bought and sold. These markets make it possible to create economic incentives for operators to finance GHG emission reduction and sequestration projects by generating and offering carbon credits on the market. On the demand side, buyers can use the credits to offset their own emissions that they have not yet managed to eliminate, as part of their decarbonisation plans. But these markets only work if there is a guarantee of quality, transparency and traceability in the use of the credits generated and traded on them and, of course, an effective valuation of the carbon neutrality objectives pursued by the companies and institutions using the credits.
Thus, at the end of 2024, a new European law came into force that creates and regulates a voluntary scheme for the certification of CO2 removals, providing for a unified register of carbon credits at the European Union level. This piece of legislation (Regulation 2024/3012 of the European Parliament and of the Council) aims to incentivise projects for:
a. Permanent carbon removals – storing carbon ‘for several centuries’ in geological formations or chemically stable products (for example, by capturing and storing carbon directly from the air);
b. Carbon farming – (i) sequestration and storage of carbon in agricultural, forest or coastal ecosystems, or (ii) the reduction of emissions from soils, for a minimum duration of five years;
c. Carbon storage in products – carbon sequestration in durable products for a minimum period of 35 years (e.g. in wood-based construction materials).
The different types of projects will give rise to different categories of carbon credits (‘units’, in the language of the Regulation, each corresponding to 1 tonne of CO2 equivalent captured or stored), with operators subject to regular monitoring, audits and verification by independent, accredited certification bodies.
The law establishes a guarantee of quality, transparency and traceability in the use of carbon credits and thus aims to provide the robustness, security and integrity that the voluntary market – so heavily criticised and weakened in the past – depends on to function and be credible. This credibility is essential if there is to be an effective incentive for the development of projects and the purchase of credits by those wishing to offset emissions – in short, for the market to function as an effective tool.
For the Regulation to be operational, the European Commission will now have to develop certification methodologies for the different types of carbon removal and soil emission reduction activities, which have already been prioritised:
- In carbon farming activities: methodologies covering the sustainable management of agricultural land, forests and marine ecosystems;
- In the storage of carbon in long-lasting products: methodologies for wood-based and bio-based building materials.
By the end of 2028, the European Commission must also create a European registry platform to ensure transparency in the certification of carbon units and prevent double counting.
It is also required that emissions removal and reduction projects do not significantly harm the environment, and that they can generate environmental and socio-economic co-benefits, such as the protection of biodiversity and natural capital or increased territorial resilience.
Portugal has already had a voluntary carbon market (VCM) created and regulated since the beginning of 2024, but it is not yet operational and is still awaiting some of the necessary regulations, including the approval of methodologies, as well as the entry into operation of the electronic VCM registration platform, scheduled for the 2nd half of the year.
The link between the national VCM and the new European certification scheme – which is directly applicable in all EU member states – (and between the two platforms) is necessary, but is not expected to be complicated to materialise, since there is an alignment of principles and criteria of quality and integrity between both legal systems.
Although Portugal has moved ahead, there is still some way to go before both the Portuguese MVC and the new European certification regime are fully operational. If Portugal manages to get a dynamic market up and running quickly, it can gain a competitive advantage within the European landscape, and it is certain that the Portuguese market will always benefit from being part of this EU ‘certification system’.
Given the current international context, market instruments – including the voluntary carbon market, which has now been regulated and strengthened in terms of quality, transparency and credibility – are perhaps the most likely to succeed and make an effective contribution to combating climate change. We will all benefit from their success.
Ângela Lucas, Advisor no Center for Responsible Business & Leadership da CATÓLICA-LISBON