Article 6 of the Paris Agreement establishes cooperative mechanisms, particularly carbon markets, for countries to meet their nationally determined contributions (NDCs) and raise ambition to achieve global climate goals. These cooperative mechanisms can reduce the cost of meeting NDCs by an estimated $250 billion per year in 2030 and facilitate additional abatement of approximately 5 Gt of CO2 per year in 2030.
After the rules governing Article 6 received consensus at COP26, carbon markets have emerged as key instruments and will play a significant role in the coming years. At COP27 in Egypt, one of the agenda items focused on the details for operationalizing the mechanisms under Article 6 to ensure a robust international carbon market and emission reductions trading among countries. While key issues have been deferred until COP28, certain decisions taken at COP27 with respect to Article 6 can potentially threaten the integrity of emissions reductions and derail efforts to limit temperature rise to 1.5 degree C above pre-industrial levels.
Threat of Double Counting Continues
Double counting refers to the practice of accounting for the same emissions reductions more than once, thereby overestimating reductions. At COP26 in Glasgow, it was agreed that emission reductions authorized for trading by a country must be adjusted in its national emissions inventory. At COP27, a new category of emissions reduction termed “mitigation contributions” was created. These are emission reductions that are not authorized by a country for international trade under Article 6 but can be traded domestically within the country or in voluntary carbon markets. However, as no corresponding adjustment is applied to the national inventory, these reductions can be counted multiple times. This may end up creating a subprime market for carbon credits.
Moreover, eligible emission reductions from the Clean Development Mechanism that have been transferred to the new international carbon market can be used towards a country’s first or first updated NDCs. Again, countries where such reductions originate will not be required to apply a corresponding adjustment to their national inventory. This could lead to a scenario where the same emissions reductions are counted towards the targets of multiple countries.
Confidentiality and Weak Review Process
While carbon markets and trading of reductions can help accelerate the pace of decarbonization, processes that enable these mechanisms must ensure the integrity of transactions. The final text of Article 6.2 states that countries that trade emission reductions can keep the information confidential, including the type and quantum of the emission units traded. This can pose various problems. First, there is no limitation on what information can be treated as confidential. Second, it does not mandate countries to provide reasons for confidentiality. Finally, it does not require the outcomes of the technical expert review to be made public. Lack of transparency and accountability of transactions under Article 6.2 can render the expert review process inconsequential, risking the integrity of the reductions being claimed.
Matters Related to Emission Avoidance and Removal
Emission reductions from carbon markets must be real and permanent. Reductions through emission avoidance — such as paying for a forest to not be cut down — and removals have been contentious. Such reductions may pose a problem as the definition of “emission avoidance” is vague. Moreover, it is difficult to prove that these emissions would have certainly happened in the absence of the project and could not have been prevented through other measures, such as existing policies or future changes in legal frameworks and regulations. Additionally, there is considerable uncertainty in such projects that assume or claim avoidance of future GHG emissions. At COP27, a proposal to include emission avoidance was reintroduced. Although this will be discussed at COP28, the inclusion of such reductions risks opening up the mechanism to hot air credits.
The definition of removals is broad. Typically, removals may be enabled through carbon capture and storage or afforestation. In the absence of stringent guidelines in the final text, such projects may not adequately safeguard the human rights of local communities. Given that carbon capture and storage is a relatively new technology and that afforestation projects face threats of deforestation in the future, the permanence of such removals is not assured. The topic of removals will now be discussed at COP28.
Road to COP28
Progress on Article 6 at COP27 has been modest, at best. There are potential risks to the integrity and effectiveness of the mechanisms in delivering real and permanent reductions. The Subsidiary Body for Scientific and Technological Advice of the UNFCCC has been tasked with developing the modalities for reviewing confidential information, providing guidance on the validity of emissions avoidance for trading between countries and process of authorization, by COP28. Additionally, countries and civil society organizations admitted by the UNFCCC have been invited to share their views on the activities involving removals by March 15, 2023. It is now upon countries and civil society organizations to actively work towards ensuring the robust implementation of Article 6 to accelerate progress on our climate goals while ensuring the protection of vulnerable communities.
All views expressed by the authors are personal.