Nations Reject Weak Carbon Market Rules

During the 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change, which ended on December 13, countries failed to agree on rules to establish a global carbon market. Civil society groups have praised this move as parties did not adopt weak rules for Carbon Markets under the Paris Agreement that would have put human rights, rights of Indigenous Peoples and ecosystem integrity at risk.

At COP28, countries negotiated rules to create the global carbon market under Article 6.4 of the Paris Agreement, allowing the trade of carbon credits generated by reducing or removing greenhouse gas emissions from the atmosphere. Carbon removal projects could be nature-based, which uses forests, mangroves, and agricultural soil to capture and store carbon, or technology-based solutions, such as deploying big machines to capture and store carbon dioxide.

Entities that develop an emission reduction or removal project under 6.4 need to submit their proposal to the Supervisory Body, a panel tasked with overseeing the market. Once approved, these projects can earn carbon credits equivalent to 1 tonne of carbon dioxide. These credits can be purchased by countries, companies, or even individuals to reach their climate targets.

The conference released a draft negotiating text on December 12 containing recommendations for creating standards for methodologies and removal of methods that calculate emission reductions from projects. However, countries could not reach a consensus in a meeting shortly after the draft release.

On the preceding day, December 11, the European Union (EU) expressed its reservations about the draft text, stating that it needs to signal that carbon markets can contribute and help close the gap we face. According to the EU negotiator, the current text is not sending a strong enough signal.

While the EU acknowledged that the standards on methodologies are ambitious, clear, and fit for purpose, they stated that the removal guidance in its current state is not yet ready to be applied.

Gilles Dufrasne, the Policy Lead on global carbon markets at Carbon Market Watch, emphasised the importance of strong environmental and human rights regulations in carbon credit trading. He stated that the recent scandals related to the voluntary carbon market have highlighted this need. In his opinion, the text on the table did not provide such safeguards and approving it would have repeated the mistakes made by the voluntary carbon markets. Therefore, negotiators made the right decision by rejecting it.

Corporations use voluntary carbon markets to offset residual or unavoidable emissions to achieve net-zero emissions. However, an investigation by Down To Earth (DTE) and the Centre for Science and Environment found that such markets may not benefit the environment and people.

According to Injy Johnstone, a Research Associate in Net Zero Aligned Offsetting, the draft needs to be reworked and will be addressed at the next COP.

Over the next year, the supervisory body will be responsible for developing several tools necessary for carbon credit trading, including a risk assessment tool for reversals of removals, an additionality tool, and creating a registry to track, manage, and trade greenhouse gas emissions. Jonathan Crook, a policy expert on global carbon markets at Carbon Market Watch, stated that projects under 6.4 are not expected to be operational until 2025.

Additionally, countries have failed to adopt rules under Article 6.2, which covers bilateral actions between countries to reduce or remove greenhouse gas emissions. However, countries such as Switzerland, Japan, Singapore, and others have already started inking deals.

According to the United Nations Environment Programme Copenhagen Climate Centre, a total of 139 pilot projects have been recorded, of which 116 belong to Japan´s Joint Crediting Mechanism, a Japan-initiated bilateral mechanism for reducing greenhouse gas emissions.

With rules in place, countries could avoid issues like double-counting, where the host and the buyer count greenhouse gas emission reductions. Jonathan Crook warned against the minimalist and no-frills framework that was on the table, which would have allowed countries to broadly define their reporting rules and trade carbon credits flagged as flawed. Also, governments could revoke authorisation for previously approved carbon credits without any limits, which could have led to double-counting.