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^{UNFCCC in Bonn. Photo: Carbon Market Watch}

Two weeks of negotiations show governments are keen to get global carbon market mechanisms up and running, but much work lies ahead to ensure transparency, environmental integrity and respect for human rights. 

The most recent UN climate change conference wrapped on Thursday, concluding two weeks of negotiations on a number of subjects including the implementation of carbon markets under Article 6 of the Paris Agreement. While there was agreement last November at Glasgow’s COP 26 on the broad rules for how these markets will work, there is a lot of work yet to be done to flesh out the finer details.

For government-designated carbon market negotiators the objective of these sessions was to make progress on rules for tracking and reporting on country-level emission reduction trades under Article 6.2 and to accelerate some operational aspects of the global carbon market under Article 6.4.

For civil society observers like Carbon Market Watch the priority is not rapid implementation of these mechanisms. Rather, what’s essential is to ensure that environmental integrity, human rights and transparency are upheld in any future carbon crediting activities.

Slow but steady

The conference’s main outcomes on Article 6 were a set of “informal notes” – basically a summary of differing views expressed by countries – as well as “conclusion texts” setting the next steps for COP 27. 

In short, no big decisions were made. Instead, countries agreed that more technical work is needed.  In the run-up to COP 27, taking place in Sharm el-Sheikh in November, workshops will be scheduled, papers will be developed by the UNFCCC secretariat, and submissions on Article 6 topics will be open to countries and observers. Carbon Market Watch welcomes this opportunity to submit our views, building on previous recommendations we’ve prepared.

The slow but steady pace of Article 6 negotiations was neither surprising nor necessarily problematic. With the main overall rules for Article 6 agreed at Glasgow, negotiations are at the start of a new cycle where many finer details need to be agreed on. While quite procedural and very technical in nature, these points are crucially important and should not be rushed. 

To be confirmed

On Article 6.2, some main elements to address concern the processes for reporting and tracking emission reduction trades between countries, such as which information countries will report about their trades, in what level of detail, and to what extent this will be made public. Total transparency is needed here, but this is not something all governments seem to agree on. 

On Article 6.4, little progress could actually be made, since the supervisory body that will set most of its rules has not yet been able to meet. The body will likely meet soon since, after quite some delay, the composition of its members was recently finalised. Until then, much substantive work cannot commence, meaning no credits can be issued, no trades can happen, and the establishment of an independent grievance process cannot get started. Such a grievance process is vital for communities to have a right to redress if they are negatively affected by a carbon market project – it should adhere to these key principles and should also cover country-to-country trades under Article 6.2.

A few hiccups

While the negotiations on Article 6 were relatively uncontroversial and procedural, there were a few notable divergences and questionable proposals that warrant some explaining and debunking.

“Confidentiality” (or how to block transparency)

Most countries are aligned with our position that all information about Article 6.2 emission reduction trades should be public. Others disagree: the negotiation group of like-minded developing countries (LMDCs), for example, has suggested that all information submitted by countries via a formal UN process could be considered confidential. Countries still need to agree on clear rules for “confidentiality”, including where applicable (if at all), so this will be a key subject to track.

Eligibility of emissions avoidance to generate carbon credits

“Emissions avoidance” is an inconsistently and poorly defined term in a carbon crediting context, which could be interpreted in a variety of ways with potentially devastating outcomes. For example, under the guise of emissions avoidance, a fossil fuel extracting country or company could say they’ll pump less oil and gas and hence become eligible to sell carbon credits for use by another country or company to “reach” its climate target. It’s therefore good that emissions avoidance is not eligible under Article 6.

However, at COP 26 countries agreed to consider the eligibility of emissions avoidance under Article 6 in the future. During these last two weeks of talks, only the Philippines and India argued for its inclusion. It is important that any momentum for this is nipped in the bud to stop hot air credits from entering the market.

Exemptions for overall mitigation in global emissions

At Glasgow it was agreed that 2% of all carbon credits under the Article 6.4 global carbon market would be automatically ‘cancelled’ so that some emission reductions are not claimed by anyone and only benefit the atmosphere. This is to guarantee an “overall mitigation in global emissions” (OMGE) which goes beyond traditional tonne-for-tonne offsetting.

In order for this to happen in practical terms, these ‘cancelled credits’ need to be excluded from the emissions inventory of the country where the underlying emission reductions took place, via the application of a so-called “corresponding adjustment”.

It is a clear requirement that corresponding adjustments apply to Article 6.4 credits, including the 2% portion cancelled for OMGE purposes. However some negotiators, including the LMDC group, suggested there was an exception to this rule for credits that are not officially authorised by countries. This is little more than an attempt to water down one of the few clear safeguards in Article 6 for environmental integrity.

Exemptions to Article 6 rules for avoided deforestation (REDD+) activities

The Coalition for Rainforest Nations (CFRN) negotiation group suggested that avoided deforestation activities described under Article 5 of the Paris Agreement should be exempt from the review rules under Article 6.2, if such activities are used to generate carbon credits (for more details, their view has similarly been expressed in pages 3-4 of an earlier submission). 

This proposal is significantly flawed since Article 5 and the UN-REDD+ framework are not carbon market mechanisms and do not establish carbon crediting methodologies. The Article 6 rules are clear that any activity proposed for carbon crediting will be subject to a specific review and reporting process, without exception. It is misleading and inaccurate to suggest otherwise.

It’s not new for CFRN to make proposals seeking exemptions for REDD+ activities. Those following Article 6 at COP 26 will remember CFRN’s (unsuccessful) attempt in the final hours to push through a proposal to make REDD+ activities automatically eligible to sell credits under Article 6, thereby exempting them from review or adherence to all Article 6 rules, e.g. for environmental integrity.

It is important for all activities to be reviewed, but this is especially so for nature-based ones, including for avoided deforestation, since these are unsuitable for use as offsets. These activities often do not satisfy basic carbon credit requirements: the emission reductions or removals cannot be overestimated (overcrediting); the sequestered carbon cannot be re-released later, for instance through forest fires or disease (permanence); the project is not required by law and it depends on revenues from selling credits to operate (additionality).

Protecting and restoring nature should of course be supported, but in the context of carbon markets, such credits must be cancelled without any offset claims, amounting to a form of results-based payment. And of course, the activity still needs to adhere to environmental integrity and uphold human rights.

^{UNFCCC in Bonn. Photo: Carbon Market Watch}

On the road to COP 27

While countries are less likely to accept some of these proposals (emissions avoidance, REDD+ exemptions) than others (confidentiality and OMGE exemptions), they should all be treated seriously – no matter how outlandish or unfounded. It is highly possible that some countries will try to leverage these positions for use as bargaining chips further down the line.

In summary, despite the overall framework agreed in Glasgow for how UN carbon markets will function, there is a great deal of work to be done, and the devil lies in the details.

In the coming months, negotiators must get behind strong provisions for transparent reporting and tracking of emission reduction trades, must stick to strong outcomes for environmental integrity and respect for human rights, and must propose solutions for how an independent grievance process could also cover country-to-country trades.

Governments may be keen to accelerate the implementation of Article 6, but they cannot rush this process. Otherwise, they risk relegating transparency and proper safeguards for environmental integrity and human rights to a mere afterthought.