Why is the carbon deal between Switzerland and Thailand considered unique?

In our recent article, we introduced the carbon offsetting agreement between Switzerland and Thailand, a topic that has since gained significant interest from our readers. This engagement has led to two particular questions from our readers. 1. Why is the carbon deal between Switzerland and Thailand considered uniquely significant? 2. Does a carbon credit universally represent the same quantity of carbon capture, regardless of where it is generated? We aim to explain the first questions in this article. We will be answering the second question in our next post.

Why is the carbon deal between Switzerland and Thailand considered uniquely significant? Especially given the existence of previous cross-border efforts to reduce greenhouse gas emissions and combat climate change.

There are cross-border carbon exchange programs, such as the* California-Quebec Cap-and-Trade Program. However, it is not between sovereign nations, this is an example of sub-national entities engaging in cross-border carbon trading. There are cross-border efforts fighting climate change, such as the [Norway-Brazil Amazon Fund](https://www.reuters.com/business/environment/cop28-norway-gives-50-mln-brazil-amazon-fund-deforestation-falls-2023-12-11/)*, in which Norway provides funding to Brazil to reduce deforestation in the Amazon. While there is no direct carbon credit exchange, it is a form of cross-border financial transfer aimed at carbon reduction.

The carbon deal between Switzerland and Thailand differs from the two examples of cross-border efforts we just mentioned. In this case, the carbon credits exchanged between the two companies contribute directly to their respective sovereign nations’ emission reduction targets, making this carbon deal significant. It was established through bilateral offset agreements allowing the transfer of carbon credits between countries. In the Switzerland and Thailand carbon deal, Swiss-based company Klik Foundation funds emission reduction projects (i.e., an e-bus project implemented by a Thailand company, Energy Absolute) in the host country Thailand to receive carbon credits. These credits are then applied toward meeting Switzerland’s emission reduction goals.

The incentives for a country, primarily countries from the global north, to fund projects in the global south is because the Paris Agreement sets long-term targets of limiting global temperature and expects all countries to update their National Determined Contribution (NDC) every five years.

Nationally Determined Contributions (NDCs) are countries’ self-defined national climate pledges under the Paris Agreement, detailing what they will do to help meet the global goal of pursuing 1.5°C, adapt to climate impacts, and ensure sufficient finance to support these efforts (UNDP,2023).

The picture is from UNDP Climate Promise

The Article 6.2 of the Paris Agreement allows countries to transfer authorized carbon credits to help other countries achieve their climate goals, and that credit is called “internationally transferred mitigation outcomes (ITMOs).” These authorized and high-quality ITMOs can be used for NDC compliance.

References:

UNDP (May, 31, 2023). What are NDCs and how do they drive climate action?Retrived from https://climatepromise.undp.org/news-and-stories/NDCs-nationally-determined-contributions-climate-change-what-you-need-to-know#:~:text=Nationally%20Determined%20Contributions%2C%20or%20NDCs,finance%20to%20support%20these%20efforts.