High road to Dubai COP28: Why discussions on carbon credits are important at upcoming Bonn climate conference

Carbon markets will be a key discussion topic at the Bonn Climate Change Conference in Germany, scheduled from June 5-15, 2023.

The Bonn Conference will deal with technical details to feed discussions at the 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change, which will be held in December 2023 in the United Arab Emirates.

COP27, hosted by Egypt last year, led to securing the establishment of a loss and damage fund, which had been negotiated upon and postponed for over three decades.

The Bonn Conference will advance the work on how countries can cooperate to fulfil their nationally determined contributions (NDC) through provisions made under Article 6 of the UN-mandated Paris climate pact. More than 66 per cent of countries plan to use carbon credits to meet their NDCs, according to the World Bank.

Carbon markets are trading systems in which carbon credits are sold and bought, according to the UN Development Programme.

Article 6 of the Paris Agreement deals with trading carbon credits. Clause 6.2 allows countries to trade greenhouse gas emission reduction outcomes, and 6.4 establishes a market for trading these reductions between countries under UN supervision.

Credits are certificates representing one tonne of carbon dioxide equivalent that has either been prevented from entering (emissions reductions) or removed from the atmosphere (CO2 removals). They can be generated from projects such as restoring forests, setting up renewable energy, managing industrial gases, etc.

In 2021 at COP26 in Glasgow, parties created a rulebook for carbon markets — a feat that took six years to achieve.

But the rulebook is far from complete. Negotiators still have to work out the architecture of the market and how emission reductions have to be reported, said Vladislav Malashevskyy, a member of YOUNGO, the official youth constituency at the UNFCCC.

What happened at COP27?

Transparency emerged as a hot topic. Under 6.2, parties decided to keep information on carbon credits hidden after they had justified the reasons to the reviewers. If the review team spots inconsistencies, the party is encouraged to address them. They, however, cannot make confidential findings public, according to the adopted decision on Article 6 at COP27.

Some countries used national security to push confidentiality. “I think that’s a front for keeping the system secretive, which allows dodgy dealings to go on, which we know already happens under carbon markets and will allow countries to cheat the system, potentially,” Matt Adam Williams, climate and land lead at The Energy and Climate Intelligence Unit, a non-profit had told Down To Earth.

Article 6.4 had a rocky start at CoP27. The Supervisory Body — tasked with overseeing the Article 6.4 mechanism — recommended carbon removals. This was criticised by civil society groups and indigenous peoples.

‘Carbon removal’ means removing carbon dioxide from the atmosphere. It can be land-based, like afforestation or reforestation, ocean-based and engineering-based such as direct air capture (where big machines suck CO2).

The Supervisory Body’s recommendations provide a broad definition of removals. It does not distinguish between types of removals, including each activity’s requirements, risks and implications, according to Geoengineering Monitor, a project of Biofuelwatch, Heinrich Boell Foundation and the Global Forest Coalition. There were also concerns over human rights violations.

Towards the end of the negotiations, parties asked the supervisory body to re-examine the recommendations on removals after considering the views of the parties and observers.

Another major aspect was renaming unauthorised emissions reductions — credits not authorised for NDCs or other international mitigation purposes — but could still be sold on voluntary carbon markets; the name was changed to “mitigation contribution emissions”.

Corporates, therefore, cannot use credits to offset their emissions when emission reductions are counted by a country, Gilles Dufrasne, Carbon Markey Watch’s lead on global carbon markets, said in a blog post.

What to expect at Bonn?

Under Article 6.2 discussion at Bonn, the Subsidiary Body for Scientific and Technological Advice (SBSTA) will recommend additional rules to help operationalise the cooperation between countries.

This includes discussing the special circumstances of least developed countries and small island developing states in the mechanism and transfer of Internationally transferred mitigation outcomes (ITMOs), a unit of trade. ITMO trading allows countries to purchase ITMOs from other countries

It would also address the question of when information should be treated as confidential regarding mitigation efforts, their transfer, and appropriation. The discussion would also cover other agendas, such as corresponding adjustments and the process for authorising and using ITMOs.

SBSTA’s agenda for Article 6.4 involves further work on the rules, modalities and procedures developed last year at Sharm-el-sheikh. Discussions will focus on three key aspects:

1. Determining if ‘emission avoidance’ (credits on projects that aims to prevent deforestation or pump less oil and gas) and ‘conservation enhancement’ (which could partially include land use emissions) activities fall within Article 6.4’s scope.

2. Establishing the specifics of the connection between the mechanism registry, international registry, and other registries, including interoperability between them. A registry is a centralised accounting and reporting platform.

3. Addressing the necessary information required for host parties’ authorisation statements on Article 6.4 Emissions Reductions (A6.4ER) transfers. The authorisation statement will declare whether the country requires A6.4ER for its own NDCs or other purposes.

Further, the Supervisory body will discuss removal activities based on the information note released by the secretariat. The note has attracted negative attention for its favoured stance on ‘nature-based removals’ as against ‘engineered removals’.

What should lie ahead?

After adopting a rule book for international cooperation at Glasgow, discussions on Article 6 have taken on a subdued tone, primarily focusing on procedural and technical questions. However, with increasing interest in meeting climate goals through markets, parties and non-party stakeholders are interested in having more clarity on the full operationalisation of Article 6.

The work done so far on Article 6.2 has enabled countries to start implementing the framework, with Switzerland signing bilateral agreements with multiple countries and Ghana providing the first set of authorisations for ITMOs to be used by Switzerland. However, the prescriptive framework provided in pursuit of the Article needs more carvings as answering questions on how countries would report information on mitigation and what information disclosures would be necessary.

The supervisory body needs to address several outstanding agendas, such as developing methodology, organising registries (including the overall infrastructure), and clarifying the activities that would be recognised as carbon removals to operationalise Article 6.4.