With national climate plans through to 2035 due in the coming weeks, some governments are planning to use carbon offsets purchased from other countries to meet their new emissions-cutting goals. But early efforts by Japan to develop such credits highlight potential problems for the new Paris Agreement offsetting mechanism, which experts fear could unleash a fresh wave of greenwashing.

Bilateral agreements to transfer emission reductions from one country to another are taking off after rules were finalised at COP29 last November, with countries looking for new ways to fund climate action and achieve targets set out in their updated national plans.

But long before the climate summit in Baku, Japan had already spent over a decade setting up its international carbon offsetting mechanism modelled on Article 6.2 of the Paris Agreement. Tokyo says the scheme will “contribute to the decarbonization of the world”, while providing a reservoir of credits that, in future, both Japan’s government and its companies can draw on to meet their climate goals.

But a Climate Home News analysis of Japan’s current projects – from forest protection to energy-efficient lighting in Southeast Asia – raises questions over the climate benefits and environmental integrity of some of the offsets.

In one of Cambodia’s most endangered ecosystems – the Prey Lang forest – Climate Home found that tree-cutting has soared since the start of Japan’s largest such project, whose offsets rely on deforestation falling. Meanwhile, across the developing world, Tokyo earns carbon credits by using public subsidies to fund emissions reductions by its corporate giants, including fast-fashion firm Uniqlo.

Booming trade

Article 6.2 of the Paris Agreement allows countries to trade “mitigation outcomes”, such as carbon credits, directly through bilateral deals. Typically, a wealthy nation funds programmes in a developing country to cut pollution in exchange for units known as ITMOs. These can help governments meet their national climate targets or be used by companies to comply with carbon-offsetting schemes, such as CORSIA for airlines.

Activity under the mechanism has accelerated this year after governments ironed out some of its final details at COP29 in Baku. There are now over a hundred bilateral agreements between more than 60 countries, with many more signalling in their nationally determined contributions (NDCs) their intention to draw on Article 6.2 to meet part of their emissions-reduction goals.

Yet, as the profile of bilateral offsets grows, observers are concerned that Article 6.2’s light-touch regulations and limited oversight will usher in a new wave of poor-quality offsets that will reduce emissions only on paper – as has been the case in the voluntary market before recent top-level efforts to improve integrity.

Agreed on the back of tumultuous negotiations, the framework for Article 6.2 gives countries near-total freedom. They can decide amongst themselves how emission reductions are calculated and which environmental or social safeguards to put in place.

‘Free-for-all’

“We have this nice bit of text saying that ITMOs should be real, verified and additional – but that doesn’t really mean anything as there is no system in place that guarantees that,” said Federica Dossi, an Article 6 expert at Brussels-based group Carbon Market Watch. “It’s a free-for-all”.

After approving the terms of trading between themselves, countries are required to submit to the UN climate change body only limited information, which is reviewed by a technical team in what observers have described as a “box-ticking exercise”.

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The UN’s expert panel can admonish countries if their disclosure around bilateral offsetting is incomplete, but it is forbidden from casting judgement on the quality of the cooperative activities.

Unlike in the nascent UN carbon crediting mechanism under Article 6.4 or the voluntary carbon market, there is no way to prevent countries from generating, or using, offsets that have little or no integrity.

“There are essentially no enforcement measures,” said Injy Johnstone, a research fellow in Net-Zero Aligned Offsetting at the University of Oxford. “This is one of the biggest gaps.”

Japan leads development

Few other countries have been at the forefront of the development of Article 6.2 like Japan. Long before the gavel came down approving the framework, Tokyo had already spent years working on its mechanism for bilateral offsetting: the Joint Crediting Mechanism (JCM).

“Countries that had already agreed partnerships would have never agreed to more stringent rules that could have invalidated their work up until then,” said Johnstone, who has closely followed the development of Article 6.2 governance and co-authored guidance on how countries can engage responsibly with the mechanism.

According to analysis by the UNEP Copenhagen Climate Centre, more than three-quarters of the 162 existing Article 6.2 projects fall under Japan’s Joint Crediting Mechanism (JCM), a scheme through which the Japanese government earns carbon credits by partnering with developing nations on emissions-reduction initiatives.

The JCM is effectively a forerunner to the bilateral offsetting mechanism introduced by Article 6.2. Tokyo set it up in 2013 – before the Paris Agreement came into being – after refusing to renew its support for the Kyoto Protocol amid growing frustration with its carbon-offsetting tool, the Clean Development Mechanism (CDM).

“Japan thought [the CDM] was too heavily regulated,” Yuri Onodera of Friends of the Earth Japan explained to Climate Home.

Thirty-one countries have signed up to Japan’s scheme, with India being the latest – and largest – to join in August.

Additionality concerns

The JCM serves multiple purposes. When fully implemented, it will grant Japan a steady supply of credits that can either be counted by the government towards its international climate targets or used by companies to comply with carbon-pricing mechanisms.

But the JCM also directly supports Japan’s corporate giants both by providing ready-made markets for their low-carbon technologies or by subsiding their efforts to cut emissions overseas.

Fast Retailing, which runs an $80-billion clothing empire, has tapped the scheme to switch to more energy-efficient LED lights in its Uniqlo stores across Indonesia and Thailand with financial backing from the Japanese government.

Nearly a third of all JCM projects involve Japanese tech giants like Sharp or Panasonic installing solar panels in factories or shopping malls, which are often themselves run by subsidiaries of Japanese firms abroad.

Carbon market experts told Climate Home such projects would be regarded as low-integrity and possibly excluded from other carbon crediting mechanisms.

Renewable energy offsets last year failed to obtain a quality label from the Integrity Council for the Voluntary Carbon Market (ICVCM), a leading oversight body. That’s because existing rules do not go far enough to prove that the projects need the funding generated by selling carbon credits – a concept known as “additionality”.

Under Article 6.2, countries are free to come up with their own definition of additionality – and, Onodera said, Japan applies a “very lax and vague” one.

The Japanese government is planning to use the offsets generated by some of these projects to achieve its international emission-cutting targets under the Paris Agreement.

In its latest nationally determined contribution (NDC), published in early 2025, Japan said it aimed to accumulate ITMOs equivalent to 100 million tonnes of CO2 by 2030. If those are all counted towards the country’s NDC, it means about 15% of Japan’s planned emission reductions by 2030 will be achieved by funding measures to cut pollution overseas rather than taking action at home. The share of carbon offsets is set to rise to 20% in 2040.

Carbon Market Watch’s Dossi warned that the NDC process risks turning into “an accounting trick” if those ITMOs fail to meet high-integrity standards. “You would see countries claim that they are achieving climate targets when, in the real world, their emissions continue rising or stay at the same level,” she said.

Protecting Prey Lang?

The Japanese government, however, will not be the only beneficiary of the JCM. Japanese companies will also be able to use credits generated under the mechanism, for example, to comply with the country’s carbon pricing system.

The biggest existing JCM project is funded by Mitsui, a Japanese conglomerate with significant fossil fuel interests, in Cambodia. It aims to protect the Prey Lang, a vital biodiversity hotspot and one of the largest remaining lowland evergreen forests in Southeast Asia.

Prey Lang plays a key role in absorbing carbon from the atmosphere and combating climate change. But the forest has been plagued by widespread logging to harvest luxury timber, expand rubber plantations and set up mining operations – something experts say often happens with the complicity of the Cambodian government.

In 2018, the Cambodian environment ministry and Mitsui partnered up on a REDD+ project in a portion of the forest with the support of American environmental NGO Conservation International. Their stated goal was to reduce deforestation by bolstering law enforcement and improving the living conditions of local communities.

But trees have disappeared at a rapid rate since the project began. Forest loss nearly tripled between 2017 and 2024, according to Climate Home analysis based on data from monitoring service Global Forest Watch. In that period, around 4,000 hectares of forest vanished – an area equal to 12 times the size of New York’s Central Park.

“Deforestation has dramatically reduced the forest cover in the REDD+ project and it is extremely serious,” a spokesperson for the Prey Lang Community Network, a group of mainly Indigenous communities living in and around the area, told Climate Home by email.

Pressure from Cambodian authorities

The community network has been carrying out its own patrols and monitoring illegal activity in the forest since 2004 – long before the REDD+ project started. “The only reason Prey Lang is still there is because of the Indigenous people,” said Ida Theilade, a professor at the University of Copenhagen who has researched Prey Lang extensively. “Their lifestyle is tied to the forest.”

Sony Oum, Cambodia country director at Conservation International, said the NGO works “directly with the target villages to ensure broad participation […] and to support local communities’ role in conservation”.

But, despite its extensive local knowledge, the community network said it had been excluded from participating in the REDD+ project. The developers “have instead collaborated with sub-national and national authorities, which still oppose the activities of grassroots groups”, its spokesperson told Climate Home.

Observers have accused the Cambodian government of accelerating a crackdown against environmentalists and reporters who have documented illegal activities in the Prey Lang.

Journalist Uk Mao, who had reported on logging in the wildlife sanctuary, was arrested and charged with incitement and defamation in a case condemned by civil society groups and the UN special rapporteur for human rights defenders. Mao denied all the charges and told Mongabay he is being targeted because of his work.

Cambodian authorities have faced accusations of fuelling the drivers of deforestation in Prey Lang by handing out mining concessions, turning a blind eye to illegal wood harvesting and sanctioning the construction of power transmission lines across the reserve, as reported by Mongabay.

Questions over carbon accounting

Richard Jeo, senior vice president and chief Asia-Pacific field officer at Conservation International, told Climate Home that Prey Lang is “a complex environment”, but “we are seeing progress”. He added that the REDD+ project “is helping to slow deforestation rates compared to nationally reported baselines”.

Carbon credits from so-called ‘avoided deforestation’ activities, like Prey Lang’s, are underpinned by predictions of how many trees would have been cut down without the project, as well as how much carbon dioxide would have been released into the atmosphere as a result.

That is known as the baseline against which the project’s performance is assessed. This system has come under intense scrutiny over the last few years, with critics arguing that flawed methodologies for setting baselines compromise the integrity of carbon offsets.

In Prey Lang, project developers followed a rulebook drawn up by Conservation International and Mitsui themselves and approved by Japan’s JCM. It allowed them to derive the baseline from countrywide deforestation figures produced by the Cambodian government.

They also predicted which portions of the forest would be cut down. This matters because specific types of vegetation – like evergreen or semi-evergreen forest – can store significantly more carbon than others, such as deciduous trees that shed their leaves seasonally. Depending on where forest loss happens, the carbon savings – and the number of offsets issued – can vary significantly.

The project’s baseline anticipated that, in Prey Lang, the overwhelming majority of deforestation would happen in the carbon-rich evergreen and semi-evergreen portions of the forest. That scenario seemed to be confirmed in 2020 when, as part of an internal exercise, the team behind the project looked at satellite images to detect deforestation hotspots in the area and guide its patrols. That analysis found that, in the first two years of the project, close to 90% of forest loss had occurred in the evergreen and semi-evergreen areas.

But the first monitoring report required under the JCM before issuing carbon credits painted a completely different picture. Drawing on data from the Cambodian government, it recorded soaring forest loss overall. But it also reported that the evergreen portion was left untouched and the vast majority of the clearing happened in areas made up of deciduous vegetation and bamboo trees, which have lower or no capacity to absorb carbon and store it, respectively.

Despite rising deforestation in the Prey Lang, this meant project developers could still show that CO2 emissions caused by tree-cutting were not as high as the baseline scenario had anticipated. In December 2023, the JCM’s committee, made up of representatives from the Japanese and Cambodian governments, approved the findings and authorised the release of a first batch of over 600,000 credits.

University of Copenhagen researcher Theilade told Climate Home there appears to be “a lot of creative accounting” going on. “Can you actually say any carbon credits should be generated? I am not sure when you look at the deforestation happening,” she added.

Greenwashing risk

A spokesperson for Mitsui told Climate Home the firm has “helped provide resources that have led to a reduction in deforestation rates” against the project’s official baseline scenario, as well as giving funding for the development of a system that will enable community-led conservation in the future. “Meaningful forest protection takes time, and we will provide support to Prey Lang for as long as possible,” the statement added.

Conservation International’s Jeo said “protecting Prey Lang requires long-term, reliable funding” and carbon financing represents “a needed, viable mechanism” for achieving that.

“Lasting progress comes from doing the work, learning and adapting as data and methods evolve — that’s what this project is doing,” he added.

However, the lack of clarity over the methods used to measure avoided emissions reductions in this flagship programme, as revealed by Climate Home, suggests that governments will need to pay close attention to how they justify offsets under Article 6.2.

Given the power it affords to individual countries, Oxford University’s Johnstone said its integrity rests on them acting responsibly and building on the limited safeguards available.

Otherwise, she warned, the risk is that this mechanism “could enable greenwashing on a scale that we have never seen before”.

The post As governments bet on carbon trading, Japan’s early scheme spotlights pitfalls appeared first on Climate Home News.

As governments bet on carbon trading, Japan’s early scheme spotlights pitfalls