COP29 gets UN carbon mkts going but concerns persist on climate integrity

The just-concluded COP 29 UN global climate summit at Baku, Azerbaijan, could count only adoption of Article 6 — a UN-mandated framework to enable emission mitigation and fund clean energy projects using market mechanisms such as carbon credits — as the only real achievement. These rules were adopted nine years after Article 6 first appeared in the 2015 Paris Agreement.

 

While the adoption of Article 6 helps countries like India to have bilateral arrangements with rich nations to develop projects, transfer credits, and enable local corporations to access global carbon markets, climate activists have panned it as half baked, open to interpretation, and offering loopholes to projects with low environmental integrity to slip through the UN mechanism.

 

“The flaws of Article 6 have, unfortunately, not been fixed,” said Isa Mulder, policy expert on global carbon markets, from Carbon Market Watch. “It seems countries were more willing to adopt insufficient rules and deal with the consequences later, rather than prevent those consequences in the first place,” Mulder said.

 

Countries face no real repercussions if they fail to abide by the rules, with non-compliance of carbon credit deals, Mulder said, adding: “With no deadline to take action, nor clear penalties, countries have little incentive not to game the system.”

 

“The details and their implications will emerge with time, what’s most important is the signal that the conclusion of Article 6 negotiations sends to the world: there is no more uncertainty and Article 6 is the most tangible and measurable tool the world has to scale up climate investments in developing countries,” said Olga Gassan-Zade, a member of the Article 6.4 Supervisory Body that wrote the rules and will approve the methodologies for carbon abatement, in a Linkedin post. An official from IETA (International Emissions Trading Association), a carbon market association, said that the rules and methodologies would improve over time. Gassan-Zade said there would be a review of the rules in 2028.

 

UN Climate Change chief Simon Stiell lauded the passage and said that carbon markets would enable flow of $250 billion in annual financing. That remains to be seen, experts said. Some Indian renewable project developers and an official from Delhi Metro told this reporter that they are sitting on millions of credits, which are basically worthless in the voluntary market, which is unregulated. Some of these credits were registered under an older UN scheme called Clean Development Mechanism (CDM), a precursor to Article 6.4, and of those, some may be eligible to go under Article 6.4 if their methodology for calculating carbon abatement for projects is approved.

 

“So, from COP26 in 2021 to COP29 in 2024, basically why it took so long was that certain parties are more particular about having standards that uphold environmental integrity, whereas other parties were more in favour of getting the markets operational from the perspective of getting transactions going without necessarily being very particular about that,’’ said Arjun Dutt, senior programme lead at Council on Energy, Environment and Water, declining to reveal the parties.

 

But industry officials told Business Standard that while the European Union and Switzerland-led Environment Integrity Group wanted stricter carbon abatement standards, the US and Gulf nations lobbied for looser rules to enable environmentally questionable projects to pass through. Given that credits issued under Article 6 would enable countries to meet commitments made under their Nationally Determined Commitments (NDC) on emissions mitigation to the UN, looser standards would lead to dilution of NDC goals, lowering environmental integrity, climate activists said.

 

Explaining the evolution of global carbon markets, Gassan-Zade told Business Standard: “Every iteration of carbon certification standards has added something new and better. Before CDM, there was AIJ, no centralisation, no verification, then CDM-added centralisation, standardisation, and independent verification, Verra and Gold Standard experimented with forestry projects and added environmental safeguards, ICVCM is trying to weed out ‘pretend’ carbon standards and 6.4 will go after methodological robustness and inflated volumes.”

 

Article 6 can be divided into three sections — 6.2, 6.4 and 6.8 (non-market approaches). 6.2 is a decentralised mechanism for trading carbon credits between countries where parties want a market mechanism with less oversight, while 6.4 has a centralised credit approving mechanism, oversight and registries, where corporations operate. Under 6.4, project developers must apply to a supervisory body under the UNFCCC (United Nations Framework Convention on Climate Change) and present methodologies for carbon abatement to get their projects approved. Under Article 6.2, countries come together bilaterally, like India is in talks with Japan, Singapore and South Korea, to come to arrangements on the modalities of projects, the unit of credits, and transfer across borders. Projects under Article 6.2 would be developed by companies but there must be prior agreements between nations.