No deal on global carbon market, bilateral carbon emissions trading agreements at COP28; civil society hails move

Countries failed to adopt rules to set up a global carbon market at the 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change, which concluded on December 13. This move was hailed by civil society groups.

“Parties did not agree to 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,” Erika Lennon, a senior attorney in CIEL’s Climate and Energy Program at Center for International Environmental Law, wrote on X, formerly Twitter.

At COP28, countries negotiated rules to establish the global carbon market under Article 6.4 of the Paris Agreement. It will allow the trading of carbon credits generated by the emissions reduction or removal of greenhouse gas emissions from the atmosphere. Carbon removal projects can 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 such carbon dioxide.

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

On the evening of December 12, a draft negotiating text was released. It contained recommendations provided by the Supervisory Body for setting up standards for methodologies (to calculate emission reductions from projects) and removal projects. 

In a meeting held shortly after the draft release, countries did not reach a consensus.

Countries expressed their reservations on the preceding day as well. At a meeting held on December 11, the European Union (EU) commented that the draft text needs to send a strong signal that carbon markets can contribute and close the gap we face. “The text [on the table] is not sending a strong signal,” the EU negotiator said.

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

“Trading carbon credits requires strong environmental and human rights guardrails, as has been shown by the numerous scandals related to the voluntary carbon market that broke out over the past 12 months,” Gilles Dufrasne, Policy Lead on global carbon markets at Carbon Market Watch, said in a statement.

The text on the table, he added, just didn’t provide this. “It would have risked reproducing the mistakes of voluntary carbon markets, and by rejecting it, negotiators made the best out of a bad situation,” he explained.

Voluntary carbon markets support corporates seeking to offset their residual or unavoidable emissions to achieve net zero emissions. An investigation by Down To Earth (DTE) and the Centre for Science and Environment found that the voluntary carbon market may not benefit people and the climate.

Injy Johnstone, Research Associate in Net Zero Aligned Offsetting, told DTE that the draft will need to be reworked and will happen at the next COP.

Over the next year, the supervisory body will also have to develop a risk assessment tool for reversals of removals (reversals occurs when sequestered CO2 is released back into the atmosphere), additionality tool (to assess that financing from carbon credits would not have existed without carbon credits) and set up a registry (a platform to track, manage, and trade greenhouse gas emissions), Jonathan Crook, policy expert on global carbon markets at Carbon Market Watch, told DTE. He does not expect to see projects under 6.4 to be operational until before 2025.

Further, countries also failed to adopt rules under Article 6.2, which covers bilateral actions between countries to reduce or remove greenhouse gas emissions.

Though rules under Article 6.2 have not been approved yet, 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, out of which 116 belong to Japan´s Joint Crediting Mechanism, a Japan-initiated bilateral mechanism for reducing greenhouse gas emissions.

Without rules in place, countries could face issues. For example, if a host party authorises credits, they will have to make corresponding adjustments to deduct the emissions reductions from their inventory and add it to the buyer’s account.

“But if a host country decides to revoke some of the sold credits and count them towards their own climate target, there is a risk of double counting if the credit is being used by someone else or already traded,” Crook told DTE. Double counting occurs when the host and buyer count greenhouse gas emission reductions.

“The minimalist and no-frills framework that was on the table would have allowed countries to largely define their own reporting rules, to trade carbon credits flagged as having flaws, and to revoke authorisation for previously approved carbon credits without any limits, which could have led to double-counting, Crook explained in a statement.