Introduction to Carbon Offsets (Class 1/5): Introduction and Historical Foundations

Added: 2026-05-19

[00:00:00]Welcome to the Carbon University, the global premier learning platform dedicated to developing and training decarbonization professionals in the private sector, governments, and academia. At the Carbon University, our mission is to expand and democratize access to critical knowledge in this field to accelerate our efforts to mitigate and adapt [music] to climate change. Through a series of high-quality, accessible training programs >> [music] >> ranging from carbon markets around the world and green bonds to CBAM and the EU's corporate sustainability reporting directive, we seek to equip professionals all over the world with most recent knowledge and skills [music] to tackle the different challenges and seize the opportunities brought by decarbonization of the global economy.

[00:00:43]Thank you very much for your interest in our work. [music] And now to the details of your course on carbon offsets.

[00:00:55]My name is Nathalie, and in this course, and over the next 30 minutes, my colleagues and I will walk you through one of the most significant and most frequently misunderstood instruments in the global effort to address climate change, the carbon offset. This is not a surface level overview.

[00:01:11]By the end of this course, you will have a solid understanding how carbon markets emerged, how they are regulated, how individual projects are structured and verified, and how prices are formed across different asset types.

[00:01:24]You will be equipped to evaluate carbon credits with the critical lens that this market demands. We will cover the historical foundations of carbon offsetting from the 1992 Rio Earth Summit through to the latest developments under the Paris Agreement.

[00:01:38]We will examine the architecture of both voluntary and compliance markets.

[00:01:42]We will explore Article 6 of the Paris Agreement in detail, including the Japan-led Joint Crediting Mechanism and CORSIA, aviation's global carbon scheme.

[00:01:52]We will then move into project types, registries, and the price dynamics that govern this market today. Hope you are ready for it. Let us begin.

[00:02:02]Before we dive in, let me briefly map the ground we will cover.

[00:02:07]The course is structured into eight modules.

[00:02:09]Module one examines the history of carbon markets [music] from the first international climate treaty to the development of the clean development mechanism. Module two covers the voluntary carbon market, its size, its structure, and the integrity debate that has reshaped it in recent years.

[00:02:25]Module three goes deep into Article 6 of the Paris Agreement, the rulebook for international carbon trading between countries.

[00:02:33]Within that, we will give particular attention to the joint crediting mechanism, Japan's bilateral approach, and to Corsia, the carbon scheme that governs international aviation.

[00:02:43]Modules four and five cover project types and registries, the two foundational pillars of market infrastructure.

[00:02:50]Module six addresses pricing dynamics and recent price trends.

[00:02:55]Module seven contrasts voluntary and compliance markets.

[00:02:59]And module eight closes with a synthesis of what high integrity participation looks like.

[00:03:04]Each module is supported and instructor and visual slides.

[00:03:08]I will now hand it over to Claudio, our first instructor.

[00:03:13]Hello and welcome. My name is Claudio and I will guide you through the the first two themes in our course, the historical foundation of the carbon market and the key elements of the so-called voluntary carbon market, sometimes referred to as VCM. Let's start.

[00:03:30]To understand why carbon offsets exist, we must first accept an uncomfortable reality of the climate transition. Not every source of greenhouse gas emissions can be eliminated immediately. Steel production, cement manufacturing, long-haul aviation, agriculture, these sectors carry what economists call hard-to-abate emissions.

[00:03:49]The technologies required to fully decarbonize them are either not yet commercially available, not yet economically viable, or require decades of infrastructure transition to deploy at scale. Carbon offsets provide a bridge mechanism. They allow an entity, whether a corporation, a government, or an airline, to fund emission reductions or carbon removals elsewhere in the global economy while it undertakes the longer-term work of reducing its own footprint. This is not, I should be clear from the outset, a license to avoid action. The most credible climate frameworks are explicit. Offsets should complement deep emission cuts, not substitute for them.

[00:04:26]The Science Based Targets initiative, for example, requires companies to reduce their own emissions by at least 90% before using offsets to address residual emissions.

[00:04:35]With that framing established, let us look at where this market came from.

[00:04:41]The story of carbon markets begins in Rio de Janeiro in 1992. At the United Nations Conference on Environment and Development, the Earth Summit, 154 nations signed the United Nations Framework Convention on Climate Change, universally known as the UNFCCC.

[00:04:56]This was the world's first binding international treaty to acknowledge that human-induced climate [music] change posed a systemic risk, and that coordinated global action was required.

[00:05:08]The UNFCCC established the principle of common but differentiated responsibilities. Developed nations, listed in Annex the First of the treaty, were expected to lead the transition, accepting deeper and faster emission reduction commitments than developing nations. Five years later, in 1997, the Kyoto Protocol was adopted. It operationalized the UNFCCC's principles by assigning quantified emission reduction targets to 37 industrialized countries for the period 2008 to 2012.

[00:05:38]For the first time in history, legal emission limits were placed on sovereign nations. The Kyoto Protocol also introduced three so-called flexibility mechanisms, designed to reduce the economic cost of compliance.

[00:05:50]International emissions trading, which allowed countries to trade surplus emission allowances, joint implementation, which enabled projects between developed countries, and most relevant to our discussion today, the clean development mechanism.

[00:06:05]The clean development mechanism, the CDM, was the world's first international carbon offset system. It was established under Article 12 of the Kyoto Protocol, and it became the blueprint upon which virtually every subsequent carbon market has been built. The CDM worked as follows.

[00:06:22]An Annex 1 country, say Germany or Japan, could fund an emission reduction project in a non-Annex 1 developing country, say India or Brazil. The emissions reduced or avoided by that project would be certified as certified emission reductions, or CERs, and the developed country could use those CERs to meet a portion of its Kyoto target.

[00:06:43]The elegance of the mechanism lay in its dual purpose. Developing countries received investment and technology transfer. Developed countries received a lower-cost pathway to compliance. In theory, global emissions were reduced at the lowest possible aggregate cost.

[00:07:01]In practice, the CDM faced significant challenges. By its peak, the CDM had registered over 7,800 projects and issued more than 2 billion CERs.

[00:07:13]But it was also plagued by concerns about additionality, whether the projects would have happened anyway without carbon finance, and by a collapse in CER prices after 2012, when demand from Annex I countries evaporated.

[00:07:27]Despite those shortcomings, the CDM established the institutional infrastructure that the modern carbon market rests upon. Standardized methodologies, third-party validation and verification, a public registry, and the concept of the the emission reduction unit.

[00:07:43]The first Kyoto commitment period ended in 2012. A second period, the Doha Amendment, extended targets to 2020, but with significantly reduced participation, as the United States had never ratified and Canada had withdrawn.

[00:07:58]During this period, the voluntary carbon market emerged as a parallel system.

[00:08:03]Corporations, municipalities, and individuals began purchasing carbon credits independently of any regulatory requirement. Driven by reputational incentives, corporate sustainability commitments, and early net zero pledges.

[00:08:16]The voluntary market operated on its own standards, primarily Vera's Verified Carbon Standard and the Gold Standard, which we will cover in detail in module five. Then, in 2015, the Paris Agreement was adopted at COP 21, a historic moment for climate diplomacy.

[00:08:33]Unlike Kyoto, Paris did not impose top-down targets.

[00:08:37]Instead, each country would determine its own national climate ambition through nationally determined contributions, or NDCs. The agreement's goal, limit global average temperature rise to well below 2° C above pre-industrial levels, and pursue efforts to limit the increase to 1.5°.

[00:08:57]Critically for our purposes, Article 6 of the Paris Agreement created a framework for international carbon market cooperation, a new architecture to replace and improve upon the CDM. We will examine that architecture in detail in module three.

[00:09:13]The slide before you presents the key milestones in the evolution of carbon markets from the 1992 Rio Summit through to the finalization of Article 6 rules at COP 26 in Glasgow in 2021. I want to draw your attention to one important observation from this timeline. Every major regulatory development in this space has lagged behind market activity by years, sometimes by a decade. The voluntary market was well established before Paris was agreed. Article 6 rules were debated for 6 years before being finalized. The Article 6.4 mechanism, the UN's new supervised crediting system, is still under active development as of the time of this recording. This gap between market activity and regulatory clarity is not a flaw unique to carbon markets. It is a feature of all nascent asset classes, but it is a feature that creates risk and one that sophisticated market participants must account for in their credit procurement strategies.

[00:10:08]This completes this first section. Back to you, Natalie.

[00:10:15]Thank you very much, Claudio.

[00:10:17]I hope you enjoyed the start of our course.

[00:10:20]Now to the next module.