By Mathew Carr
EXCLUSIVE: Nov. 14-18, 2021 — Glasgow, London:
Trillions of dollars are set to flow into emission-reduction projects. Companies and countries can create carbon credits with a UN stamp again.
The rules and guidance created under Article 6 of the Paris climate deal in Glasgow last weekend will spur spending because, up until now, money has sat on the sidelines.
Companies have had limited ability to argue against allegations that they were greenwashing when using carbon offsets — that is, they were being accused of making dirty business look green on the surface without holding evidence the business activity had properly been made green in substance.
Whether these rules and guidance turn out to provide a solid foundation for climate action or simply “UN stamped greenwash” is the big question of COP26.
Now at least, countries and companies can point to specific measures that they are complying with — about 13 pages of guidance on article 6.2 of the Paris Agreement, which lets countries (and companies) cooperate on climate action. There’s the same number of pages of rules for a new market under article 6.4, which is kind of a replacement for the Clean Development Mechanism of the Kyoto Protocol. (There’s also a non-market system.)
And there’s also 56 pages of a “transparency framework” under Article 13 of Paris.
Taken together, “this is what we’ve been waiting for,” said Zubair Zakir, Founder Anthropocene.io, which advises on climate solutions. The frameworks should offer clarity on how to account for carbon transactions, which will in turn allow investment to flow, he said in an interview.
It’s not entirely clear when that money will be deployed, because there’s some more policy and regulatory work to do. I believe official documents may take weeks still to surface. Countries and the private sector then need to react to the UN text.
See this comprehensive, sceptical overview: rules adopted in Glasgow include many robust elements, but also some major loopholes, some of which could potentially be large. The rules are therefore not good enough to ensure environmental integrity if used alone. It is not sufficient to rely on them. Any country or organization engaging in Article 6 will need to do more to deliver integrity and robust accounting. How Article 6 will be used will matter a lot: Lambert Schneider is Research Coordinator for International Climate Policy at Oeko-Institut.
My story continues below…
Here is the challenge / opportunity:
The rules certainly won’t halt allegations by environmental lobby groups, including Friends of the Earth, that carbon offset credits are mostly about extending the use of fossil fuels.
It’s also not immediately clear whether the measures will help repair the injustices caused by climate change, but they might drive more money into emerging countries.
Panama’s delegate said the rules were “clearly drafted by the largest emitters for their own benefit, for the benefit of the corporate sectors, accreditation companies and large non-government organizations. The rules in Article Six are not as robust as science demands.” Panama said it was reluctant to call the outcome a “full success.”
Yet Article 6 could become a genuine boomtime opportunity for emerging countries, especially the poorest ones with good government, because the Paris provisions might help them leapfrog right to the best technology.
“They get to skip the legacy systems and get to a solution that’s cleaner and more cost efficient today,” said Andrew Ertel, president of Evolution Markets Inc., a well-known brokerage in the carbon trading space the past two decades or so.
Ertel cited emerging countries such as Slovakia in Europe that already leapfrogged into modern mobile communications, avoiding the use of its Soviet landline phone system. He also cited tool manufacturer Black & Decker, which is seeking to make its supply chains more regional after the pandemic caused big problems to its global chain.
Distributed power systems that use solar and wind power plus batteries don’t require huge power grids — they are set to be much cheaper, for instance, for powering households. That will potentially give poor countries some advantages over richer ones.
Businesses say the markets being established by Article 6 will help them deal with the risks of the climate transition, because they provide flexibility. The flexibility gives a company (and countries) confidence to take on more aggressive emission targets, because they have a liquid market to buy from if they miss their limit and need to make up GHG reductions.
“Companies are interested in the pursuit of net zero,” and it looks like they now have a framework to help achieve it, said Dirk Forrister, president of the International Emissions Trading Association, speaking in an interview.
It’s important that countries and companies understand and obey rules relating to how trades of carbon credits impact national targets, which are set voluntarily by countries via “nationally determined contributions” to the Paris agreement.
IETA set out this summary of key decisions:
On the key political issues on Article 6, negotiators made a series of compromises:
- Corresponding adjustments will ensure no double-counting of units in both Article 6.2 and Article 6.4 mechanisms. IETA supports this decision because it assures integrity in the accounting system for the markets and mechanisms advanced in Article 6.
- Certified Emission Reductions produced between 2013–20 may be used against countries’ first Nationally Determined Contributions. While this may not be the most ambitious outcome, it allows the carryover of a limited supply of pre-2020 units. IETA believes this will maintain the flow of finance to developing nations until the new mechanism is up and running.
- To assure an overall mitigation in global emissions from the Article 6.4 mechanism, a 2% discount will be cancelled from issuances from that mechanism. However, this factor was not applied to Article 6.2 market linkages.
- On the Share of Proceeds (SoP) for adaptation, negotiators agreed on a rate of 5% to be taken from issuances in the new Article 6.4 emissions crediting programme, but no fixed rate will apply to Article 6.2 transactions. Instead, countries using Article 6.2 are encouraged to contribute voluntarily to the Adaptation Fund. Link is below
If selling an ITMO (Internationally Traded Mitigation Outcome), the selling country makes a downward adjustment to its emissions target, so the emission cut isn’t counted twice.
UN carbon markets have been in limbo, with the Clean Development Mechanism running out last year (sort of — it’s complicated).
Some Kyoto credits can be used under Paris, according to the new rules. This rewards countries and companies that created them during the past 15 years or so.
This measure has been criticised by green groups, too, who argue it weakens Paris.
These “old” credits could increase in value next week (but please don’t take my word for it — this is not trading advice).
Reacting to the final COP26 agreement, Nick Dearden, director of Global Justice Now, said:
“In the last fortnight, the climate justice movement that came out in force in Glasgow and around the world became mainstream. We showed that you can’t tackle climate change without a radical transformation of the global economy and reparations from those who fuelled climate change to those facing its worst impacts. But this hollowed-out agreement shows that, for all the lip service they paid, world leaders and big business have not listened.
“From the very start, the UK presidency set this summit up for failure. A sanitised COP, captured by corporate interests and inaccessible to the global south, was never going to adequately or equitably respond to the climate crisis.”
I asked the U.K. Cop26 presidency about the lack of climate finance arriving at the Glasgow talks and will report its answer ASAP.
The market rules will underpin a bid to dramatically smooth trade in green goods and equipment, and use blockchain and artificial intelligence to track carbon in products, and carbon credits, around the world. Regions and the World Trade Organization are seeking to try to ensure that the trade system is fair, more sustainable and not tainted by corruption. See the OpenEarth link below.
The Paris-deal guidance and rules were long sought after, said Lisa DeMarco, Senior Partner and CEO at Resilient LLP.
“While the transition and accounting guidance could be stronger, it provides the basis for a market with integrity, in order to increase ambition and accelerate the just transition to a net-zero economy,” she said by SMS.
(Updated Nov. 27 to give context to the paragraph on distributed power.)
IETA statement: https://www.ieta.org/page-18192/12124951
Im not saying these below are final texts.
Article 6.2 Draft:
Article 6.4 Draft Rules: