If the country-to-country carbon market established under Article 6.2 of the Paris Agreement is to have any credibility, negotiators meeting at the UN intersessional climate conference in Bonn must agree on the fine print that prevents double counting, abandons secrecy and promotes accountability.
The next UN climate change conference intersession will take place in Bonn, Germany, between 5 and 15 June, where the carbon market mechanisms of Article 6 will once again be on the agenda.
While some countries will soon start to trade emissions reductions through the Article 6.2 market mechanism and the foundations are being laid for the global carbon market under Article 6.4, there is still a lot of work to be done. This summit will be an opportunity to further embed transparency in the more technical aspects of the mechanisms, especially those related to reporting and authorisation of country-to-country trades of carbon credits. As usual, Carbon Market Watch has prepared a set of recommendations for Article 6 negotiators, which are summarised below.
Cart before the horse
Reporting requirements for any of the actions undertaken under Article 6.2 are far more than just a formality; the effectiveness and transparency of the market as a climate tool hinges on the quality and nature of the information disclosed.
For example, as it currently stands, the trading of carbon credits under Article 6.2 could proceed before the details of these bilateral deals have been verified by an external review team. This could lead to countries buying carbon credits from projects that are later found to have serious shortcomings, for example, overestimating the emission reductions that occurred. Moreover, if the external review team makes recommendations to rectify errors or inconsistencies in the information a country is required to report, the country can currently ignore them without consequences.
We urge decision-makers to set up reporting requirements in a way that renders any bilateral carbon credit trading agreement accountable, accessible and logically sequenced.
The credibility of market activities occurring under Article 6 rests on the ability of outside observers, such as journalists and civil society, to critically assess them. Unfortunately, countries are allowed to designate any information about their bilateral agreements as confidential, which would mean that nobody in the public domain would be able to access such information.
Even worse, countries can opt for confidentiality without the need to justify that decision to the public or to the external review team. Confidentiality is always detrimental to the broader faith in and transparency of Article 6, and must be avoided.
Countering double counting
In order for any carbon credits under Article 6.2 or 6.4 to be used towards a nationally determined contribution (NDC), the country where the underlying project occurs has to officially give its authorisation, indicating whether the credits can be used to reach another country’s NDC. When a country authorises a credit, it cannot count the emission reduction results towards its own climate goals: if that were the case, the same emission reduction would be counted twice (also known as double counting).
While this sounds simple in principle, it is complex to implement in practice. Countries are not required to give their authorisation at the same time, which could result in situations where carbon credits end up being counted twice for different climate targets. In Bonn, countries therefore need to agree to clear rules for the timing of the authorisation process that eliminate the risk of double counting.
Country-to-country deals made under Article 6.2 are inherently subject to little regulation, leaving room for trades with low climate ambition and questionable results. Countries’ failure to implement basic provisions for transparency and accountability at COP27 raises the stakes for the upcoming conference. To salvage a minimum level of integrity in 6.2, countries must ensure that the reporting and authorisation processes meet robust minimum requirements for transparency, accountability and environmental and social safeguards – this Bonn intersession will reveal if countries are willing to do so.