Article-Six Negotiations Struggling on UN Oversight, Which Could Complicate Voluntary Carbon Markets (2)

–UN carbon markets are here and a new one IS coming; it’s a matter of 12 months

By Mathew Carr

June 16, 2022 — BONN: See this link for audio of my conversation with Axel Michaelowa, a carbon expert who’s following talks in Bonn, Germany:

I started by asking Michaelowa for an update on the 6.4 negotiations. That’s an article of the Paris climate agreement struck in 2015 — the deal was meant to be operational three years ago.

There is still debate among countries about how to account for emission reductions when countries and corporations or investors collaborate on carbon cuts.

Envoys are balancing the need for speed, the need for a huge surge in investment, against credible regulatory oversight.

Paris carbon trading under article 6.2 is already happening, but in a very limited way.

There’s a danger the world will create “carbon havens,” where rules are less strict and which compete unfairly against the wider, better-regulated markets, Michaelowa said.

The debate is about the extent of UN oversight.

If a corporate wants to help a country cut emissions, can that country and that corporate both claim the emission reduction for their respective net-zero targets? If so, what UN signoff is needed, if any?

A bad decision on this could discourage countries from adopting ambitious emissions-limiting targets for the 2025-2050 period.

Indeed, countries are meant to be tightening their targets.

Those countries and companies with lax standards (or weak targets) could see their cost of capital balloon, as investor prefer investments that won’t be criticised as greenwashing.

There will still need to be about 12 months of talks before the 6.4 market can be fully operational, Michaelowa said.

“New improved voluntary carbon fairy credits included in corporate ESG reports, and pixy dust emissions reductions included in nationally determined contributions, are now true emissions reductions? Not!” said Tim Williamson, a former clean-energy official and negotiator for the USA government.

“This is the same sort of technical flaw as on/off, silly-accounting that went on with the Clean Development Mechanism 15-20 years ago. It would be stupid for countries to repeat the same mistakes all over again. Right?” Williamson said.

The EU used the UN CDM market to cut the cost of its transition and spread clean tech throughout the world. The CDM is being transitioned into the Paris markets.

I spoke with another senior negotiator who said the 6.4 market was one or two years away.

So that’s another two years where investors will potentially delay investment because the rules are too loose to protect emission-reduction projects from fossil-fuel rivals.

Michaelowa is senior founding partner of Zurich-based Perspectives Climate Group, which has followed climate talks for more than 15 years.

Axel in Bonn at UN talks, June 16

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