At the Bonn climate conference (SB62) ahead of COP30 in Brazil, there was a mood of upbeat optimism about Article 6 carbon markets. This positivism stands in shrill contrast with all the critical issues that continue to plague Article 6.

The first ‘Article 6.2 ambition dialogue’ took place in Bonn. This dialogue, held twice a year (once in Bonn and once at the COP),  aims to provide a space for countries to exchange experiences on how Article 6.2 trade agreements (cooperative approaches) support climate ambition.

Given that the first bilateral trades under Article 6.2 have already raised red flags, including lack of transparency, low credit quality, and questionable sustainable development benefits, this dialogue should have been a moment to reflect honestly on what is going wrong. Instead of taking stock of these serious challenges, the session focused heavily on so-called success stories and the need for more capacity building to ramp up market activity. Embracing a ‘learning by doing’ approach is problematic, given the status of current implementation and the fact that  Article 6.2 carbon credits will be used by buyer countries and polluting airlines to meet their climate goals on paper. They will use these credits to offset real damaging emissions and weaken the climate ambition of developed countries and polluting industries.

Countries discussed the need for those engaging in Article 6 to have ambitious climate targets (NDCs), but strikingly the emphasis was on the countries selling carbon credits (by and large, developing countries with a lower carbon footprint), rather than countries buying carbon credits (so far exclusively developed countries with oversized carbon footprints). For example, there was no discussion about a requirement for buying countries to have domestic mitigation targets aligned with science-based pathways and progress necessary to meet the Paris goals. This omission is all the more notable given the lack of adequate climate ambition in developed countries, which bear the largest historical and ongoing responsibility for the climate crisis, and some of which, like the European Union, are considering watering down their climate targets with offsets under Article 6.

Even when the UN climate body presented the results of the first official review of Article 6.2 bilateral trades, finding a lack of transparency and potentially significant shortcomings in planned carbon credit trades, this was downplayed by countries.  Even more concerning, there was no open discussion about the fact that the review process cannot fully assess the quality of the trades themselves. And there would have been much to discuss, such as how the outcomes of the first round of reviews clearly exposed the limitations of the reviewers’ mandate, given that certain cooperative approaches involve the trade of emissions avoidance credits, which are normally prohibited under Article 6, yet reviewers were not able to question the legitimacy of these credits.

Money squabbles

Meanwhile, negotiators in Bonn also discussed the (hopefully short) future of the Clean Development Mechanism (CDM) and what should happen with its more than $45 million in remaining funds, which come from a mix of country contributions and credit issuance fees. The options under consideration included transferring the money to the UN Adaptation Fund or using it to support the operationalisation and capacity building of the Article 6.4 mechanism. Any decision on this must be taken at a COP, and so all eyes are on whether COP30 in Brazil will close years of negotiations on this topic.

Most developing countries called for the funds to be directed toward the UN Adaptation Fund, to help them deal with the impact of the climate crisis. Developed countries pushed for the money to go towards scaling up carbon markets under Article 6.4 or to a mix of Article 6.4 and adaptation. Brazil and the negotiation bloc of the Like Minded Group of Developing Countries (LMDC), led by Saudi Arabia, have historically opposed the wind-down of the CDM and the repurposing of its funds, though they expressed this slightly more flexibility in their position in Bonn.  

Carbon Market Watch supports channelling all CDM funds to the Adaptation Fund, a step that would contribute to climate justice and help the most climate-vulnerable countries in the world.

Positive takeaways

Encouragingly, during an Article 6 capacity building session, the UNFCCC Secretariat clearly restated that mitigation contribution units (MCUs) under Article 6.4 should not be used for compensation or offsetting claims – rather, they should only be used to demonstrate support for climate action that goes beyond the reduction of one’s direct emissions. 

This should come as no surprise given the obvious name of the credit and the fact that they are not subject to corresponding adjustments, meaning they are counted towards the  climate target of the country where the mitigation occurred. If a company were to use these credits for offsetting purposes, it would amount to double claiming. 

It’s been clear since COP27 in Egypt, when countries created mitigation contribution units, that they aren’t appropriate for compensation claims, even for voluntary uses by companies. However, you wouldn’t know it from discussions among many voluntary carbon market actors, who conveniently ignore that all signatories to the UNFCCC have agreed to the need for corresponding adjustments for any and all compensation claims.

An honest look

As things stand today, the Article 6 rulebook is not strong enough to ensure the transparent trade of high-quality carbon credits. Article 6.2 completely lacks binding rules on credit quality or any robust oversight mechanisms. It is entirely up to countries engaging in Article 6 to self-define their own quality criteria and set up their own systems for credible accountability. But until countries are willing to face the extent of the problems in the trades conducted so far, it is doubtful that the quality of these trades will improve.

Hopefully, at COP30, countries will be ready to have a more honest and critical conversation and admit where the rules they agreed to are not strong enough. At the next ambition dialogue, in Belém, stakeholder engagement must be improved with more NGOs invited to the table, discussions must be more open and more engaging than hours of powerpoint presentations, and flawed ‘pilot’ trades must be acknowledged rather than quietly endorsed.