Emissions trading: ‘Permanence of carbon credits, human rights protection needs focus at COP27’

Carbon credit market Article 6 of the Paris Agreement is an important agenda at the 27th Conference of Parties (COP27) to the United Nations Framework Convention on Climate Change. But some thorny issues remain.

Comprising six paragraphs, Article 6 provides principles on how countries can reach their climate targets by trading credits, each of which represents 1 tonne of carbon dioxide. 

A country that has earned credits by reducing greenhouse gas emissions can sell them to another country to help it meet its climate targets.

Clause 6.2 allows countries to trade greenhouse gas emission outcomes and 6.4 establishes a mechanism for trading these reductions between countries under UN supervision. 

Down To Earth sat down with Jonathan Crook, policy officer at Carbon Market Watch, a non-profit working on carbon pricing and other climate policies, to get a low-down of the negotiations and discussions in the first week of CoP27.

Rohini Krishnamurthy: It took seven years to create the rulebook for Article 6 of the Paris Agreement. Why did it take so long? 

Jonathan Crook: Parties agreed on the overall framework last year in Glasgow, which took many years to decide on. This is because carbon markets are quite contentious. 

There was also this question about ensuring that no double counting could happen. Under the Paris Agreement, every country has a Nationally Determined Contribution (NDC). As a result, you can’t have both the country selling a credit and that buying a credit claiming the same underlying emission reduction. This doesn’t make sense for accounting. 

There were many disagreements on double counting. But in the end, they finally agreed that double counting shouldn’t be allowed. This was one of the issues resolved last year. 

RK: Recently at CoP27, Africa launched the Africa Carbon Markets Initiative to boost voluntary carbon markets. How are voluntary carbon markets different from those under Article 6?

JC: Voluntary carbon markets allow governments or companies to offset emissions by purchasing carbon credits. They are not directly regulated by Article 6 but are verified by organisations that set rules or standards, such as Verra or Gold Standard. 

But these markets are not regulated for the most part, and some carbon market standards are not very stringent.

Countries, however, can incorporate voluntary market projects into Article 6.2, as long as it adheres to its rules.

For example, there can’t be any double-counting while accounting credits. If voluntary projects are being used in a bilateral deal, they would have to apply corresponding adjustments (where the seller subtracts emission reductions from its greenhouse gas accounting and the buyer adds the reductions to its accounting).

Though Article 6.2 has some rules in place, the system is less centralised and regulated than 6.4. These rules may be loosely interpreted, and there is not a lot of third-party oversight review here.

The overall rules for 6.4, which are more stringent, are being further detailed and established by a supervisory body comprising 12 members and 12 alternate members, who act as independent experts.

RK: Can you give an example of an issue with Article 6.2?

JC: Article 6.2 has loose rules. For example, there’s not going to be further guidance on permanence. This means, when carbon credits are purchased from projects related to nature-based projects, what happens if those trees burn down in, say, 60-70 years? 

So, this is the question of permanence. You can’t guarantee permanence for carbon credits on a credible timescale. Some measures seek to deal with that on the voluntary market, but these tend to be inadequate or unproven in the long term. 

The supervisory body will start considering how to address this in 6.4. But in 6.2, it’s unlikely there will be any further rules on permanence.

RK: Recently, supervisory body 6.4 recommended removals. If accepted, this could mean that countries can trade carbon credits generated by removing carbon. This recommendation was met with criticism. What’s the issue with that?

JC: The supervisory body prepared those recommendations in a short amount of time. So it was a rushed process, which is not good.

They make a general reference to oceans, which is very broad and potentially have some troubling implications. There are concerns that carbon removal in the oceans could have longer and bigger impacts on a wider ecosystem. 

For example, some raised concerns about ocean fertilisation (a type of removal that involves adding nutrients to the ocean’s top layers to boost photosynthesis by phytoplanktons to suck more atmospheric carbon dioxide). Such removal techniques have not been tested properly yet and could have dangerous unintended consequences. 

If you have a rushed and poorly defined definition in the beginning, it can have potentially far-reaching consequences. 

Also, there’s a part on safeguards and respecting human rights — the rights of indigenous peoples — mentioned in the recommendation. But there’s a caveat at the end about these safeguards being potentially dependent on the national context. 

This raises questions on whether exceptions could be made to the rules on respecting human rights and not having safeguards in place. So, that’s a big red line many people raised. 

It seems like the parties may not accept this recommendation. There’s been much pressure from civil society against adopting the current proposed definition of removals.

RK: How important is the Article 6 negotiations at this COP?

JC: There are still a lot of finer details that need to be agreed on. Getting those design elements right is crucial. Otherwise, you could have a lack of transparency or poor-quality carbon credits.

Carbon credits could include planting trees, preventing deforestation or even providing cleaner cook stoves. The question is, how sure are we that it is reducing the emissions that it is claiming? A lot of it is based on some degree of estimation. 

Developers will make several different assumptions. For example, in a business-like scenario, in 20 years this percentage will be cut down. 

They could assume a high rate would be cut down. But if, in reality, the forest is not at as much risk as it is being presented or their assumptions are wrong, then you have worthless carbon credits. 

More generally, using these as ‘offsets’ is a problem even if credits are of high quality. If a country or a company claims that they are reaching their NDC or Net Zero target for 2050 based on carbon credits, then they may not be doing much to meet their target, and they are just putting it on paper.

There are concerns that many companies are greenwashing their image based on carbon credits. There is a role for advertising regulators and governments to act on carbon-neutral claims that are very general because it is misleading to customers and the public. 

You see cases of LNG cargoes marketed as carbon neutral because they purchased some carbon credits, but often there is little to no detail about which carbon credits have been used, how many, from which projects they come.  In many cases, there is a huge issue with transparency regarding carbon credits. 

RK: How have the negotiations been in the first week of the CoP27 summit?

JC: The first week was relatively slow on negotiations. A general provision in the overall framework of 6.2 was agreed upon at Glasgow, saying that countries must report all information about their trades. But there’s a short final paragraph that says that this information will be made public unless the country considers it should be confidential. 

And now it’s up for discussion — some may not want to make all the details open to the public, which would mean there can be no public scrutiny. If agreed, this would be a serious problem. 

I think many countries do want to be transparent. And it’s also in their interest for this market to be transparent for people to trust it. But there are some indications that some countries might not want to be very transparent, which is troubling.

Apart from that, parties are discussing whether there should be a standardised format that everyone needs to use to report trades or whether they should report information differently. This, again, would not be good. It’s good to have a standard format so everyone can review it. 

There's a question about whether the review team for Article 6.2 will be able to make concrete recommendations. Even confidential information will be reviewed by this team (even if it’s not made public), and if the experts find issues, they will give recommendations to the parties. 

But it’s not clear how much power their recommendations will have. Can the party ignore it and continue as usual? If the party ignores the recommendations, what are the repercussions? That's something that's being debated right now.

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