In addition to various challenges, a prolonged postponement in the operationalization of Article 6 could result in the continued reliance on voluntary carbon markets and discretionary bilateral arrangements to address the existing void. Without a consensus on Article 6, the potential risks associated with delayed regulatory frameworks may persist, impacting the effectiveness of international efforts to address carbon emissions.
Two weeks of high-tension drama at the 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change in Dubai ended in a stalemate. The 197 countries participating failed to land a deal on Article 6 of the Paris Agreement, which would have allowed them to trade carbon credits generated from projects that reduce or remove greenhouse gas emissions to reach their climate targets mentioned in their Nationally Determined Contributions (NDC).
One carbon credit represents 1 tonne of carbon dioxide equivalent reduced or removed from the atmosphere and sold by a host country to a buyer. More than 66 per cent of nations plan to use carbon credits to meet their NDCs, according to the World Bank.
Countries could not reach a consensus as the proposed rules under negotiations lacked strong environmental and human rights guardrails. Article 6 of the Paris Agreement signed in 2015 describes a set of nine paragraphs on how countries can “pursue voluntary cooperation” to reach their climate targets.
COP28 discussed three topics: Article 6.2, a decentralised system where countries are allowed to forge bilateral agreements; Article 6.4, a centralised market system that provides common standards to validate, verify and issue high-quality carbon credits before trading; and Article 6.8 covers non-market approaches, where cooperating entities can reach climate adaptation and mitigation goals without trading.
Though Article 6 was agreed upon in 2015, it was only in 2021 at COP21 that countries created a rulebook. But guidelines were far from comprehensive. In the following years, countries were tasked with setting stringent rules to operationalise the market and non-market approaches.
What happened at COP28?
Article 6.2: It allows countries to trade carbon credits, known as Internationally Traded Mitigation Outcomes, through mutual agreements. In Dubai, the goal was to offer further guidance to fully operationalise the framework agreed upon at COP21.
The negotiating drafts released at COP28 were heavily debated among countries. Despite several iterations of the text and multiple meetings, countries could not reach a consensus due to a divergence of views.
For instance, some parties objected to the possibility of revoking authorisation on sold credits. There could be issues if a host country is allowed to revoke some of its sold credits and count them towards their climate target. “This raises a risk of double counting if the credit is already traded,” Jonathan Crook, a policy expert on global carbon markets at Carbon Market Watch, told Down To Earth (DTE).
During the negotiations, the United Kingdom voiced its reservations against revoking authorisation on credits as it could hurt business. However, the bloc of countries comprising Argentina, Brazil and Uruguay disagreed. It supported the option of withdrawal of authorisation in the case of human rights violations.
Even though rules have not been agreed upon, countries have already signed bilateral agreements. The United Nations Environment Programme Copenhagen Climate Centre has recorded 67 bilateral agreements between seven different buyers (Japan, Singapore, South Korea, Switzerland and Norway) and 42 host countries. Bilateral deals between countries further complicate the quest for a uniform and transparent approach to carbon trading.
Article 6.4: Under this, host countries that develop an emission reduction or removal project need to submit their proposal to the Supervisory Body (SB), a United Nations panel tasked with overseeing the market. Once approved by the host country and SB, these projects can earn carbon credits. These credits can be sold to countries, companies or even individuals to reach their climate targets.
The various draft negotiating texts released at COP28 were also heavily debated. The texts contained recommendations provided by the SB on setting up standards for methodologies (to calculate emission reductions from projects) and removals (projects that remove greenhouse gas emissions from the atmosphere). Carbon removal projects can be nature-based, which uses forests, mangroves, and agricultural soil or technology-based solutions, such as deploying big machines to capture and store carbon dioxide.
At a meeting held on December 11, the European Union commented that the draft text was not sending a strong signal that carbon markets can contribute towards emission reductions.
The other issue raised was the definition of removals. Blocs such as the African Group, the European Union and Russia said they did not want the SB to revisit the definition of removals. The SB defines removals as outcomes of processes that “remove greenhouse gases from the atmosphere through anthropogenic activities and destroy or durably store them”.
Experts have pointed out that the definition of removal has loopholes. For instance, “there is still no information on the amount of time needed to store carbon dioxide,” Crook told DTE. This could pave the way for projects that temporarily store carbon.
On December 13, the concluding day of the taks, no deal was reached. The absence of a clear decision means another year of uncertainty in carbon markets. The already existing voluntary carbon markets, which help corporations offset their emissions, may continue to fill the void. But their effectiveness remains questionable. An earlier investigation by DTE and the Centre for Science and Environment found that voluntary carbon market projects may not benefit people or the climate.
There are other concerns. A further delay in operationalising Article 6.4 could mean that Article 6.2 will attract more projects as it has reached a much more advanced stage of negotiations. “Article 6.2 has no guaranteed standards on environmental integrity as they are set between two countries,” Injy Johnstone, research associate in Net Zero Aligned Offsetting, told DTE. The draft will be reworked and presented at COP29.
Article 6.8: The negotiating text for this article, which focuses on non-market approaches, was adopted at COP28. The emphasis was on recognising the work done by the Glasgow committee on non-market approaches (a work programme established in 2021 to implement the framework for non-market-based cooperation for mitigation and adaptation actions in the countries’ NDCs).
Countries also discussed the failure to implement a web-based platform to exchange ideas on non-market-based approaches. Unfortunately, procedural discussions under Article 6.8 lacked depth and the non-market mechanism continues to be overshadowed by the predominant focus on market-based solutions.
