From 3-13 June at the Bonn climate conference, national delegations reconvened formal negotiations on the design of UNFCCC carbon markets (Article 6) for the first time since talks collapsed at COP28.
The main focus of the session was on Article 6.2, since most Article 6.4 work is being done in parallel by a separate UN Supervisory Body that will need to present its updated recommendations at COP29 on carbon removal activities and broader methodological rules (additionality and baseline-setting). This is no small feat since these contentious topics were left hanging at COP27 and COP28.
The revision process for these recommendations remains complex, and time is running out before COP29 to address the concerns of many NGOs, academics, countries and even market actors, which we have continued to flag.
In Bonn, several countries seized the opportunity to “reset” talks by re-prioritising transparency and pushing for higher environmental standards in Article 6.2, as Carbon Market Watch called for in our briefing published prior to the session.
Co-operative recourse
There is currently negligible recourse if a country attempts to trade credits inconsistent with Article 6 rules and covers this up by not reporting full information to the UN to avoid detection or refuses to address problems that have been flagged in the UN review process.
We therefore welcome that many delegates advocated for our lead demand of formal upfront authorisation and review of bilateral agreements between countries before any underlying carbon credits can be traded. Comprehensive and mandatory disclosure of comprehensive information – e.g. the information listed under paragraphs 8-9 of the final Article 6.2 negotiation text from the session – is a prerequisite to ensuring the UN review team can do an adequate job of reviewing these agreements and potentially calling for remedial measures, such as halting further transactions, if they find quality concerns about the planned credits.
Linked to transparency, countries gave the green light for the UNFCCC to develop a code of conduct on “treating and reviewing” information they classify as confidential about their trade agreements. The problem is that governments could currently exploit loose rules on confidentiality to shield their agreements and trades from public scrutiny.
While it is good that such a code of conduct will be developed, the outcome in Bonn falls short of more ambitious proposals to define when, if ever, confidentiality might be warranted, and to require countries to justify invoking confidentiality, which a UN review team would assess. The code of conduct might elaborate on these topics and countries can theoretically request updates once it’s been developed. However, there is a risk the code of conduct will simply describe how to “treat” confidential information and that certain countries will shoot down any future attempts to strengthen its ambition.
Making transparency a no-brainer
Transparency around bilateral agreements and a strengthened review process are crucial for several reasons.
Firstly, an open book ensures that other countries, civil society and the public can track how countries are planning to use Article 6 ahead of time, since this has a direct impact on the achievement of countries’ climate targets (nationally determined contributions or NDCs in UN lingo), and could theoretically become an excuse for developed countries not reaching their climate finance commitments, which Article 6 cannot replace.
Second, transparency is vital so as to ensure the UN review team under Article 6.2 has access to sufficient information to verify and ensure compliance with Article 6 rules. Some negotiators have proposed that the review team should be able to transparently flag all inconsistencies and halt trade of the credits for serious problems, which are both necessary improvements to enhance oversight.
And third, countries would be encouraged to conduct due diligence. For seller countries, this could mean clearly laying out their terms prior to engaging in actual trades, such as explaining how mitigation outcomes will be shared, or how the costs and liability for reversals will be split between the seller country, buyer, and the project developer.
While these basic provisions should be a no-brainer, not all countries were aligned with this vision for transparency, evidenced by the starkly opposed options in the final Article 6.2 and Article 6.4 negotiation texts from this session, which will serve as the basis for talks in Baku.
Undermining the market
These divisions recall familiar country positions that prominently clashed at Dubai’s COP28, the origins of which date further back.
Ultimately, countries that are obstructing transparency and a clear review process are setting up a market that will undermine trust, and as a consequence sabotage the very market they seem intent on scaling up. More importantly, a market without transparency and environmental integrity risks placing Article 6 at odds with the Paris Agreement itself, by facilitating greenwashing rather than climate action.
Given that the divisions in Article 6.2 go beyond merely technical details, it will likely instigate political involvement from more senior diplomats heading into COP29, which already commenced in Bonn.
In Baku, it is crucial that delegates find the highest quality agreement on what constitutes transparency and wider integrity in Article 6.2, especially since countries are already trading credits under Article 6.2 without full rules in place.
While involving high-level government officials and ministers might be necessary for progress in the negotiation rooms, it must not come at the expense of high ambition. Their name power must lead to meaningful action.
While we are bracing for a potentially action-packed COP, one of the few concrete agreements from Bonn on emission avoidance gives us a glimmer of hope. Countries agreed to defer a long-standing debate to 2028 about whether emission avoidance could qualify for crediting in Article 6.2 and 6.4, while clarifying, as we have long stated, that emission avoidance is not permitted under Article 6. It would have been better to close this door for good, and forever, but this decision nonetheless prohibits dubious approaches that could have led to gigatonnes of hot air credits. Hopefully, countries can extend this sensible approach to environmental integrity to the rest of Article 6, and ensure a strong outcome in Baku.
