Decisions on carbon markets at COP27 could open the door for greenwashing and double counting of emission reductions
Last year’s hot topic, ‘Article 6’, which refers to market and non-market approaches to emission reduction (technical speak for emissions trading), made a comeback this year. Although the “rulebook” for the emissions trading under the Paris Agreement was completed last year, procedural issues, including those around definitions, were outstanding and had to be carved out this year at COP27. The climate conference delivered a partial decision on these matters, leaving questions of “emissions removals” and “avoidance” to be tackled in future sessions. The earliest possible timeframe now for the operationalisation of the Paris Agreement’s Article 6 regime is 2024, while voluntary carbon trading is already operational in several geographies, including Europe and China. In India, the government laid the grounds for emissions trading infrastructure earlier this year through the Energy Conservation Amendment Act.
Article 6.2: Greenwashing Certified
The subsection of Article 6, which deals with international trade of carbon emissions, commonly referred to as 6.2, saw significant movement this year as parties decided what kind of information they would need to share and report while dealing in “internationally traded mitigation outcomes” (ITMOs). The most contentious aspects, observers warn, open the doors to certified greenwashing.
The confidentiality clause included in the final decision text on Article 6.2 grants control over information to participating parties. There is of course a fig leaf included in the form of an expectation to provide basis for keeping the information secret, although this is not binding.
The decision adopted this year has asked for technical guidance in the next intersessional of the technical bodies in June 2023 to develop modalities that would limit the use of the confidentiality clause. Questions around what shape-reporting infrastructure for global trading of carbon credits will also be a part of the agenda in meeting over the next year. Another outstanding issue left for future meetings was the question of the circumstances that could justify ITMOs being revoked.
Article 6.4: A brave new world (of offsets)
Article 6 also deals with the creation of a new international market to trade emissions for use in national emissions inventories towards meeting climate goals. This section, referred to as Article 6.4, also saw some progress in Sharm el Sheikh. Interestingly, and much to the chagrin of observers, the final text on Article 6.4 adopted at COP27 removed references included in earlier draft versions of the decisions that stated explicitly that carbon trading through Article 6.4 “shall contribute to global efforts on climate change for scaling up mitigation ambition and implementation”.
The agenda at COP27 included defining what constitutes carbon removals, which are essentially processes that take carbon out of the atmosphere. After failing to reach consensus following lengthy discussions on the applicable definition of removals, COP27 ended with negotiators sending back text to the UNFCCC technical body for further deliberation.
Another contentious issue that has plagued discussions around a trading regime has been the potential for “double counting”. This was one of the big problems that emerged from the failed CDM regime of carbon trading that was borne out of the Kyoto Protocol.
The issue of potential double counting came to the fore at COP27 as parties negotiated the use of a special subset emissions reductions (ERs) under 6.4 called non-authorised ERs. While COP26 ended with the agreement that host countries should make “corresponding adjustments” for ERs sold abroad, non-authorised ERs were excluded from this agreement. This opened the possibility for the reductions to be counted at both the host’s and recipient’s end. This confusion was somewhat put to rest as the COP27 decision said such emission reduction units (called mitigation contribution ERs in the final text) should only be used toward the host country’s targets. Interestingly, this still leaves open some room for double counting of ERs as it does not contain definitive language (“shall’) but rather uses suggestive language (“should”).
Non-market approaches: Lack of clarity continues
The final part of Article 6, termed Article 6.8, covers “non-market approaches” or NMAs, which essentially deal with non-traded emissions reductions or removals and the monetary value of these. NMAs are yet to be defined clearly, with the UNFCCC Secretariat publishing a detailed report on the kind of NMAs in the run up to COP27 that currently exist with view to help negotiators define modalities and rules to deal with such reductions. The specifics of the work programme and priorities for the “Glasgow Committee” established last year at COP26 emerged as a point of disagreement among parties. Also a point of contention was the function of the UNFCCC-hosted web portal for NMAs where some parties argued for it to be used as service that linked these approaches with funding agencies while others insisted that such a portal should simply be used to feature existing and planned work.
Ultimately, the final decision that emerged from COP27 left the function of the portal up to parties to use as they desired, while the Glasgow Committee has been asked to continue its work for the next two years with provisions to dynamically include its findings into established practice.