Carbon Markets-COP25 leaves Article 6 of the Paris Agreement unresolved

By Olivia Oldham

Source: Conservation in a Changing Climate

What is Article 6?
Article 6 allows cooperation in order for states to achieve their Nationally Determined Contributions (NDCs) under the Paris Agreement (art 6.1). Article 6 sets up three mechanisms for cooperation:
 

• Bilateral agreements between states to trade carbon credits (art 6.2)
• A centralised, global carbon credit trading scheme, known as the Sustainable Development Mechanism (SDM), which states and the private sector can participate in (art 6.4)
  • To be agreed upon by the Conference of Parties (COP)
• Non-market approaches (art 6.8)

 
The important thing to understand is that although the Paris Agreement briefly sets out the existence of these cooperation mechanisms, it doesn't detail the rules of how they will operate. Negotiations on these rules were meant to have concluded at COP24 in Poland in 2018, but they were carried over to COP25 in Madrid last December.
 
How do carbon markets work?
Carbon markets represent the idea that if an entity (a state, or sometimes a corporation) reduces its carbon/greenhouse gas emissions, it can claim a credit. It can then sell that credit at an agreed rate to another entity, enabling it to continue to emit at a higher rate.
 
Carbon markets are said to have several advantages. For example, they are argued to make global emissions reductions cheaper, theoretically enabling higher ambition/faster reductions. This is said to be because wealthier countries can pay less wealthy countries to implement mitigation measures which are cheaper to carry out in that country. One study showed that carbon markets can be used to achieve nearly double the emissions reductions aimed for in countries' current NDCs at no additional cost.
 
Whether or not carbon markets actually achieve their potential, they're pragmatically important because they are included in the emissions reduction plans of most countries – though the UK has stated that it doesn't plan to use carbon credits to reach its net zero goal.
 
Potential pitfalls of carbon trading?

• Double counting: emissions reductions being counted both by the 'host' entity (i.e. the entity that actually made the reductions) and the 'recipient' entity (i.e. the entity that bought the credits)
  • Explicitly prohibited by art 6.5
• Fraud
• No real reductions: difficulties with quantifying emissions reductions means that in the past, carbon credits have been earned for projects that haven't actually reduced emissions. One European Commission-sponsored study found that only 2% of projects undertaken under the equivalent mechanism to the SDM under the Kyoto Protocol are actually likely to ensure real additional emissions reductions that are not overestimated
  • 'Hot air': when countries set under-ambitious targets, and then claim the 'extra' reductions (which are not additional, as they would have happened anyway) as credits

 
What happened in Madrid in December at COP25?
Matters on the table included:

• How to ensure no double counting
• How to ensure an OMGE ('overall mitigation in global emissions') rather than emissions in one place just being offset somewhere else without a net benefit
• Whether and how to allow carbon credits accrued under the previous carbon trading scheme under the Kyoto Protocol to be 'carried over'
• Whether specific reference should be made to human rights in the rules – as previous carbon offsetting regimes have resulted in large scale human rights abuses

 
No decision was reached despite COP25 going 44 hours overtime, a new record. In large part, this was because a few key countries dragged their feet on some of the key issues under discussion, in particular about the ability to use 'carry-over' Kyoto credits (Brazil & Australia in particular), and the inclusion of loopholes enabling double-counting (particularly Brazil).
In the end, all that was decided was that negotiations will more or less start again at an intersessional meeting in June, and at COP26 in Glasgow in November 2020, under 'Rule 16' of the UN climate process.
 
How drastic is the failure to negotiate Article 6?
The lack of agreement is deeply frustrating, yes, and it stymies the initiation of a new global carbon credit trading mechanism. But there is still some hope:

• Article 6.2 allows for bilateral agreements, so countries wanting to get on with it now could still do so. The problem is, they won't have the benefit of any UN guidelines or rules, meaning that the potential pitfalls of carbon trading might rear their ugly heads.
• 31 countries, a bloc led by Costa Rica known as the Unconventional Group, signed up to the San Jose principles—minimum standards to ensure the integrity of the global carbon market in the absence of any COP-sanctioned rules
  • These principles rule out double counting, and prohibit the use of carry-over credits
• Some argue that failing to reach an agreement is better in the long term than reaching a bad agreement which undermines the purpose of the whole Paris Agreement

 
Overall, it's very important that a functioning set of rules which achieves the purpose of article 6 to enable "higher ambition in [countries'] mitigation and adaptation actions and to promote sustainable development and environmental integrity" (art 6.1) is agreed upon at COP26. However, the lack of agreed rules doesn't actually prevent ambitious, committed entities from using cooperation strategies to reduce their emissions already.
 
Resources

• Paris Agreement
• https://www.climatechangenews.com/2019/12/02/article-6-issue-climate-negotiators-cannot-agree/
• https://ec.europa.eu/clima/sites/clima/files/ets/docs/clean_dev_mechanism_en.pdf
• https://www.edf.org/climate/implementing-paris-climate-agreement
• https://www.edf.org/sites/default/files/documents/Power_of_markets_to_increase_ambition.pdf
• https://www.carbon-mechanisms.de/en/introduction/the-paris-agreement-and-article-6/
• https://carbonmarketwatch.org/2019/12/15/cop25-no-deal-on-un-carbon-markets-as-a-number-of-countries-reject-loopholes/
• https://www.carbonbrief.org/cop25-key-outcomes-agreed-at-the-un-climate-talks-in-madrid
• https://www.climatechangenews.com/2019/12/14/australia-brazil-carbon-credits-will-put-1-5c-reach-ten-countries-say/
• https://www.climatechangenews.com/2019/12/16/cop25-achieved-next/
• https://www.climatechangenews.com/2019/12/09/carbon-offsets-patchy-human-rights-record-now-un-talks-erode-safeguards/
• https://cambioclimatico.go.cr/press-release-leading-countries-set-benchmark-for-carbon-markets-with-san-jose-principles/