Environmental Co-benefits in Carbon Markets: Beyond Carbon Accounting

By Sara Tolonen, Doctoral Researcher

The parallel crises of climate change and biodiversity loss make it increasingly difficult to treat them as separate policy concerns. This reality is also relevant to carbon markets, where projects designed to generate carbon reductions or removals can also have consequences for biodiversity. In carbon market governance, environmental integrity has traditionally been understood primarily in terms of the credibility of the claimed climate benefit, with concepts such as additionality, leakage and permanence playing a central role.

While these considerations remain essential, they do not capture the full range of environmental effects that carbon market activities may generate. This is particularly evident for nature-based solutions (NbS), which can also generate wider environmental benefits. Carbon credits generated from these activities may therefore claim benefits that go beyond carbon, often referred to as ‘co-benefits’. However, they may also create environmental harm if they are poorly designed or implemented. Environmental integrity therefore raises a broader question: How should carbon markets address both the prevention of environmental harm and the promotion of positive environmental outcomes?

Despite growing policy attention to environmental co-benefits, their legal treatment remains considerably less developed than that of environmental safeguards. Safeguards are increasingly embedded within carbon market governance through eligibility criteria, monitoring requirements, certification procedures and environmental risk-management obligations. By contrast, environmental co-benefits are often encouraged through more flexible governance mechanisms, including disclosure requirements, certification labels, contractual commitments and market incentives. Rather than creating binding legal obligations, these mechanisms typically seek to incentivise project developers to deliver environmental benefits that go beyond carbon mitigation. This is particularly evident in voluntary carbon markets (VCMs), where credits with co-benefits can command significant price premiums. For example, Ecosystem Marketplace has reported that credits from projects with recognised co-benefit certifications commanded a 78% price premium in 2022 compared with credits without such certification.

The United Nations Framework Convention on Climate Change (UNFCCC) provides an early legal foundation for recognising and managing the broader effects of climate action, requiring Parties to employ “appropriate methods” to minimise adverse effects of mitigation and adaptation measures on the economy, public health and the environment, while also giving full consideration to vulnerable economies affected by response measures. Subsequent instruments have progressively developed more structured approaches to these broader considerations, with different institutional levels adopting distinct approaches to co-benefits.

Under the UNFCCC, environmental safeguards have gradually become more robust, while positive environmental considerations have evolved from largely voluntary reporting under earlier mechanisms, such as the Clean Development Mechanism (CDM), towards more structured oversight under Article 6.4 of the Paris Agreement. The European Union Carbon Removal Certification Framework (EU CRCF) prohibits environmentally harmful monoculture plantations while recognising potential broader environmental benefits, particularly for carbon farming projects. Their practical materialisation, however, depends largely on the development of future certification methodologies. In VCMs (e.g. Verra and Gold Standard), environmental integrity is governed primarily through certification standards, third-party verification and contractual arrangements. This means that project developers and other market participants play a particularly important role in delivering and demonstrating environmental outcomes.

Together, these developments reveal a fragmented governance landscape in which responsibility for environmental integrity is distributed unevenly across States, regulators, certification bodies, project developers and market participants. While both public regulation and private standards increasingly recognise the importance of environmental co-benefits, the focus remains much stronger on preventing environmental harm than on actively delivering positive environmental outcomes. As carbon markets continue to expand, an important legal and governance question remains: Will biodiversity protection and wider ecosystem benefits become integral parts of carbon market governance, or will they remain additional, market-driven features that accompany climate mitigation? And to what extent should developed countries bear the costs of demanding higher quality credits, rather than shifting the burden of delivering enhanced environmental outcomes onto projects in developing countries? These questions are explored further in my recently published article: Sara Tolonen, ‘Environmental integrity beyond carbon: Environmental co-benefits and differentiated obligations in carbon market governance’ (2026) 35 RECIEL 481.