Why experts are concerned about adoption of Article 6.4 rules for carbon market at COP29

Experts have criticised the adoption of rules governing Article 6.4 of the carbon market, which permits countries to trade carbon credits generated from emission reductions, on the opening day of the annual climate talks in Baku, Azerbaijan.

Carbon credits represent a tonne of carbon dioxide or equivalent greenhouse gas emissions (CO₂e) reduced or avoided. Credits are issued for activities that either avoid emissions (such as using efficient cook stoves or lighting systems) or remove greenhouse gases from the atmosphere (such as planting trees).

At the opening ceremony of the 29th Conference of Parties (COP29) to the United Nations Framework Convention on Climate Change (UNFCCC), COP President Mukhtar Babayev announced that countries had reached a consensus on market rules, breaking years of deadlock. At COP28 in Dubai, United Arab Emirates, countries had failed to reach an agreement on the carbon market rules, with some rejecting it due to weak guidelines.

In his opening speech, Babayev indicated he was keen to promote the carbon market as a climate finance tool. “This is long overdue. It may reduce the cost of implementing Nationally Determined Contributions (NDC) by $250 billion a year,” he said. NDCs are each country’s national climate action plans under the Paris Agreement.

“Developed countries should not shirk their responsibilities to provide real money to developing countries and carbon markets are not representative of real finance for supporting climate mitigation and adaptation,” Erika Lennon, Senior Attorney at the Center for International Environmental Law, a public non-profit law organisation based in the United States, told Down To Earth (DTE).

Just hours ago, the Presidency proposed a draft decision on the rules, modalities and procedures for the mechanism established by Article 6.4 of the Paris Agreement on day one. The decision endorsed the adoption of methodologies (calculating emission reductions) and carbon removal (to remove carbon dioxide from the atmosphere). 

The decision took note of the adoption of two documents by the supervisory body released last month. The supervisory body is a technical team mandated to oversee Article 6.4 and tasked with setting rules and overseeing the carbon market. 

The supervisory body’s recommendations were rejected at both COP27 and COP28.  However, this time it took a different route. Instead of sending their recommendations to the COP serving as the meeting of the Parties to the Paris Agreement (CMA), a governing body, for approval, the body adopted their recommendations as two standards. They also requested the CMA “endorse” the approach and provide any “additional guidance”.

However, experts argue that the text is not ready for adoption in its current state. “The endorsements have been rushed without countries having adequately discussed the supervisory body’s recommendations,” Trishant Dev, programme officer, Climate Change, Delhi-based think tank Centre for Science and Environment.

“Kicking off COP29 with a back-door deal on Article 6.4 supervisory body recommendations sets a poor precedent for transparency and proper governance. Adopting these rules on highly sensitive and contentious issues during the plenary on day 1 reduces crucial time for countries and observers to look at and debate the issues, undermining trust in UNFCCC decision-making processes,” Isa Mulder, policy expert on the global carbon market, said in a statement.

Why is this concerning?

The standard defines removals as anthropogenic activities removing CO₂ from the atmosphere and durably storing it in geological, terrestrial or ocean reservoirs or in products like biochar.

Mulder explained that there were still significant issues with the documents, such as handling projects that face reversal risks — like storing carbon in a natural sink (such as geological, terrestrial, or ocean sinks), which may release that carbon after a few years. 

Although the standards on reversals mandate that project developers — individuals or organisations managing emission reduction or removal projects — conduct monitoring after projects end and issue no credits, certain provisions exempt them from doing so. 

For instance, the project developer can request the supervisory body to allow termination of the post-crediting monitoring if they can demonstrate that their removal project poses a “negligible” risk of reversal or the potential future reversals are remediated.

“There are questions on how “negligible“ will be defined. It could be done rigorously in future work, but it's not a guarantee and there's another problematic provision [on remediation of future reversals],” Jonathan Crook, policy expert on global carbon markets, told DTE.

Further, there is also a risk to the robustness of the risk rating for the potential release of stored carbon from projects. If a project has a low-risk rating, then a relatively small portion of credits goes to the buffer pool, it is then likely to be cancelled at the end of the project, which is commonly done on the Voluntary carbon market — an unregulated market — in a flawed manner. There is a lack of clarity on this, specifically a provision to conclude monitoring early based on remediation of potential future reversals, he added.

The Carbon Market Watch recommended that projects on removals require a minimum post-crediting monitoring period and that there is a need to develop a science-based, conservative risk assessment tool that specifically evaluates when the risk of reversal is negligible or not.

The removal standards are silent on whether removals include nature-based solutions or technological solutions. These details were contentious, so they kept it vague to possibly include both, Crook said.

The standard for methodologies is relatively less problematic. “Overall, it is a clearer text with some good principles,” Crook added.

What happens next?

At the opening plenary, the COP29 President highlighted that the CMA will continue to provide further guidance to CMA.

“Over the next two weeks, CMA will discuss additional guidance for the supervisory Body to clarify or justify certain items in the documents,” Crook said.

Dev stressed that the CMA has authority over the supervisory body, suggesting that the body will consider the guidance. But Crook said that the adoption of the rules has set a bad precedent. It has raised questions on what this means for governance.

“The CMA should be providing strong guidance on what the market should look like to ensure environmental integrity and no harm is caused to people. We will have to see what that guidance would look like over the next two weeks,” Lennon noted.

Countries will also need to agree on the final elements of Article 6.4. Towards the end of COP29, the Presidency will encourage the uptake of Article 6 carbon trading, reads a statement from the body.