Countries will try to agree rules for a global system for trading carbon offset credits at the UN COP29 climate summit in Azerbaijan.
Here’s what you need to know:
What are carbon offsets?
Some governments and companies may struggle to reduce planet-warming greenhouse gas emissions to meet their climate targets. Proponents of carbon offsets see them as a key means of helping meet these goals.
These offsets allow a nation or company to offset some of its emissions by paying for emissions reduction actions elsewhere. These actions could include rural solar panel installation or converting fleets of petrol buses to electric.
What is Article 6?
Article 6 of the Paris Agreement helps countries work together to reduce their carbon emissions. It sets out two options for offset trading for countries and companies to help them meet the targets set for reducing planet-warming gases in their climate action plans, known as Nationally Determined Contributions (NDCs). ) is known as.
One allows two countries to set their own terms for a bilateral carbon trade agreement, known as Article 6.2. The second aims to create a central, UN-managed system for countries and companies to offset their carbon emissions and start trading those offsets, known as Article 6.4.
Article 6 is seen as a key mechanism to provide climate finance to developing countries, and if the Paris Agreement’s carbon market is launched, the United States under Donald Trump is likely to withdraw support for the Paris Agreement. Despite this, one can continue to work.
What decision has been taken so far?
At the COP26 climate summit in Glasgow, negotiators reached a landmark agreement that established a comprehensive rulebook to regulate the trading of carbon credits.
But after two weeks of talks at COP28 in Dubai, the countries failed to seal an agreement on the details needed to operate a centralized carbon trading system or to clarify rules for countries wanting to create a bilateral arrangement.
Some countries, such as Japan and Indonesia, have decided to proceed with bilateral agreements without those clarifications and are already preparing to trade carbon credits, known as “Internationally Transferable Mitigation Results” (ITMO). Is known. The United Nations says that till October this year, 91 agreements have been signed between 56 countries. Thailand and Switzerland completed the first sales in January, and the market is still too small for bilateral trade agreements.
Some buyers are concerned that there are not enough rules in place to prevent countries from changing the terms of the agreements or canceling them, and that there are no robust systems in place to ensure that credits bought and sold are counted in both the buying and selling countries. Is not being done by.
What decision will be taken at COP29?
Officials are keen to secure a quick “victory” on Article 6 at this year’s climate summit.
Market watchers are hopeful that an agreement can be reached to establish guardrails for bilateral agreements and operationalize the UN-backed centralized market.
Guardrails include checks and balances to assure that countries are buying and selling genuine emissions reductions. For example, some countries want the methods nations use to generate credit to be scrutinized internationally.
Countries will also negotiate whether a UN central registry could itself hold credits that can be transacted and settled or whether it should operate only for accounting purposes.
An expert group selected under UN rules has already developed a framework for the multilateral trading system to ensure that credit meets basic quality standards. But at COP29 countries can decide to either sign the standard, initiate further discussions, or reject it.
After COP29, the Technical Expert Group will meet again to agree which methods of generating carbon credits through cookstove projects or reforestation for example can release credits in the new Paris aligned system.
If key points are resolved this year, the system could launch as soon as 2025.
What does this mean for the voluntary carbon market?
Some companies that have no legal obligation to cut their emissions have set voluntary targets, which they can partly meet by purchasing credits on the voluntary carbon market. In 2022, the worldwide volunteer market was worth approximately $2 billion. But the market cap fell to $723 million last year after being rocked by repeated scandals.
Linking carbon projects to the Paris Agreement system, currently in a voluntary market, could increase confidence.
Developers of projects ranging from mangrove restoration to regenerative agriculture can apply to sell their credits under the UN system, meaning that if approved, they can sell in that system or on the voluntary market. Experts expect the price of UN-approved credit to be higher.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
