Nation states at COP28 have rejected proposed rules for a long-awaited carbon trading mechanism, effectively postponing an agreement to next year.
Clear carbon market rules had been one of the final outcomes Chief Sustainability Officers were hoping for as they left the conference, but they will now have to wait until COP29 for negotiations to resume.
Article 6 of the Paris Agreement establishes that countries can cooperate to achieve global emissions reduction targets, with those that reduce emissions further than their nationally-determined contributions (NDCs) able to effectively sell the excess mitigation to those that may struggle to meet their targets.
But after two intense weeks (plus eight years) of negotiations, parties have been unable to come to an agreement on how exactly this carbon trading mechanism should work, which mitigation activities should be included, and how it should be supervised.
In a shocking move late last night, countries outright rejected the latest Article 6 guidance they had been working on behind closed doors at COP28, killing hopes that COP28 carbon trading rules would finally be established and that the market could become operational next year.
“Still collecting my thoughts on the terrible news coming out of COP28 on compliance international trading markets,” said Alexia Kelly, Managing Director of Carbon Policy and Markets Initiative at the High Tide Foundation. “We need strong rules for a market that will continue to exist regardless of what is agreed at the UN, and we’ve missed a chance to deliver that at this COP.”
Lack of agreement over carbon market integrity rules
Over the past two weeks, negotiations revolved around the level of regulatory oversight that should be mandated by the deal, with a heated debate between what the US promoted as a “light touch approach” and the stronger integrity rules proposed by the EU and some African and Latin American countries.
For watchdog Carbon Market Watch, the absence of a deal avoids “a worse outcome” where low-integrity carbon trading would undermine progress towards the Paris Agreement.
“The absence of a deal on Article 6 avoids replicating the errors of the voluntary carbon market and sending the wrong signal to companies and countries seeking to sidestep their climate responsibilities.” said Policy Lead on Global Carbon Markets Gilles Dufrasne. “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. The text on the table 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.”
COP28 carbon trading: voluntary integrity initiatives step in
The lack of agreement on international carbon trading largely resulted from a lack of trust in the voluntary carbon market (VCM), which has been the target of greenwashing accusations in recent years – and voluntary integrity initiatives seem to understand that they are needed now more than ever.
“It just makes the work we’re doing on standardisation and reform in the VCM all that much more important. I hope countries look to emerging guidance under the The Integrity Council for the Voluntary Carbon Market (ICVCM) as a place to start while Parties sort themselves out,” added Kelly, who is also an ICVCM adviser.
The ICVCM published its Core Carbon Principles (CCP) earlier this year in line with Article 6 of the Paris Agreement, and its Interim COO Amy Merrill says the organisation will continue to support and engage with the 6.4 supervisory body to ensure a coherent approach to high integrity.
“In the meantime, the Integrity Council’s work will continue to make it easier to identify high-integrity carbon credits that will help unlock private climate and carbon finance that would not otherwise be deployed. Our CCP Assessment Framework provides a clear rulebook on what a high integrity carbon credit looks like. Assessments of both carbon crediting programs and categories of credits are well underway – the first results will be announced in early 2024 and will play a key role in launching a new, high-integrity chapter for the market,” she added.
Private sector shows faith in carbon finance
Despite the failure to adopt clear rules on international carbon trading under the Paris Agreement, COP28 did see a number of deals revolving around the use of carbon finance mechanisms to advance global climate goals.
The Rockefeller Foundation announced a pilot programme using carbon credits to retire a coal project early in the Philippines. The US-led Energy Transition Accelerator (ETA), through which companies and governments can make advance purchase commitments for carbon credits generated by countries implementing energy transition strategies, received the backing of 10 major corporations including Amazon, McDonald’s and PepsiCo.
And carbon credit standards including ACR (formerly known as the American Carbon Registry), ART, the Climate Action Reserve, Global Carbon Council, Gold Standard and Verra vowed to work together to improve best practices in project certification.
“While the lack of consensus at COP28 is disappointing, we are excited by the numerous agreements signed and projects underway,” said Dirk Forrister, President and CEO at the private sector-led International Emissions Trading Association (IETA).
While carbon market stakeholders were reeling from the news, the adoption of a global stocktake agreement calling on the world to transition away from fossil fuels was met with roaring applause this morning.