(Bloomberg) -- Negotiators at the COP29 climate summit in Azerbaijan are close to landing a carbon credits agreement after almost a decade of deliberation. The decision, if adopted, will pave the way for more trading activity under a new market overseen by the United Nations.
Securing a deal on the latest set of rules for Article 6 was a top priority for the Azeri COP29 Presidency. On day one of the summit, negotiators rushed through a deal advancing rules on how a new UN-backed global crediting mechanism will function. Late Friday, texts were published that revealed further details for Article 6.4, as well as the rules for how countries can trade credits they plan to use to meet their national emissions reductions goals under the Paris climate agreement in Article 6.2.
The rulebook allows for countries to trade carbon credits with each other, as well as companies. Critically, it details an accounting system for how a country selling a credit can deduct that off its national carbon inventory to prevent the same credit from being used twice.
Lambert Schneider, research coordinator for international climate policy at Oeko-Institut, called the latest texts an “important achievement” because negotiators have managed to iron out a number of unaddressed issues.
That includes provisions for a robust accounting of credits that countries can use against their climate targets, so-called internationally transferred mitigation outcomes or ITMOs, as well as for more detailed information from countries on how the credits they trade meet general market standards around environmental integrity.
But there also remains a number of “shortcomings,” Schneider said. This includes a lack of consequences for countries where there’s inconsistencies in reporting. Instead of a requirement to halt trading, the discrepancy will simply be flagged in the system.
A number of countries, including Singapore, Switzerland, Thailand and Japan, have already struck agreements to trade ITMOs before finalization of the rulebook. In practice, the rules will almost certainly evolve in the coming years.
Still, the extra clarity from a decision will provide a “good signal” for further market development, said Andrea Bonzanni, international policy director at the International Emissions Trading Association, an industry body.
Industry campaigners, meanwhile, are concerned the rules set a low bar for countries and may facilitate the trading of credits that have little environmental value.
The voluntary carbon market, a separate existing system for trading credits, has been the target of greenwashing allegations because many of the units haven’t delivered the promised reduction in planet-warming emissions. That’s caused buyers, including some of the world’s largest companies, to exit the market or seek higher-quality and more expensive credits that remove carbon dioxide from the air.
Already Article 6.2 has been designed through the United Nations system with limited safeguards, allowing countries to effectively agree with each other over what counts as a high-quality unit.
“The system is already so flawed that even if you get some minor improvements at this COP, you're not going to salvage the framework in terms of the quality of the credits traded,” said Isa Mulder, policy expert at nonprofit Carbon Market Watch.
Some early deals are already leading to questions. Switzerland's deal with Ghana for credits tied to clean cookstoves promises 3.2 million tons of emissions reductions, which a nonprofit Alliance Sud says is overestimating the carbon savings by 79%.
The latest texts are “a disappointing set of rules for a disappointingly open framework,” said Jonathan Crook, policy lead on global carbon markets at Carbon Market Watch.
If adopted, the texts “would put a lot of weight on the shoulders” of independent observers to scrutinize the actions of market participants. Article 6.2 is “shaping up” to be a “Wild West,” Crook said.
--With assistance from Akshat Rathi and John Ainger.
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