Failed Article 6 negotiations at COP28 marked a sorry end to a challenging year for carbon markets
The EU’s approach during COP28 talks on the principles that govern the trading of greenhouse gas reductions has angered some participating nations and observers. At least one participant in the negotiations has suggested the EU attempted to block progress, a charge the European Commission denies.
Countries and groups representing smaller nations faced off during the negotiations over Articles 6.2 and 6.4 of the Paris Agreement. Article 6.2 provides the foundations for countries to trade greenhouse gas emissions reductions, while Article 6.4 establishes the mechanism for emissions trades.
During talks over Article 6.2, the EU, backed by Latin American nations and the Alliance of Small Island States, spearheaded an attempt to impose greater oversight over trades between countries. Meanwhile, the US, supported by Australia, pushed back against building an international registry for transactions.
The EU also rejected the UN Article 6.4 Supervisory Body’s recommendations on carbon removals credits, which sought to ensure the monitoring of activities’ crediting periods and tackle reversals, where the carbon removed by an offsetting project is released back into the atmosphere.
The EU felt that the supervisory body’s guidance on removals was not specific enough, David Newell, an international climate policy advisor at the Swedish Energy Agency, told a briefing hosted by non-profit IETA after COP28.
More generally, the negotiations exposed an ideological rift between the EU and the US, with the EU preferring a more centralised approach to regulation while the US favoured a system in which countries set their own standards.
Talks ran throughout COP28, but neither Article 6.2 nor 6.4 was adopted, and it will be COP29 next year before negotiations resume. “Nobody expected this year to be so politicised,” Standard Chartered Bank carbon market development director Audrey Goldstein told the IETA briefing.
Countries can trade credits even without an agreement on Article 6.2 – but some involved in the negotiations expressed frustration at the deadlock.
“There’s the emergence of an anti-market coalition,” said Olga Gassan-Zade, Article 6.4 Supervisory Body chair and member of the Ukraine delegation, at the IETA briefing. She was frustrated by what she considered the EU’s attempts to block progress in the negotiations, describing the talks as “acrimonious” and adding: “It’s hard for me to foresee how these negotiations will continue, when the atmosphere is such.”
A role for the UN
The mechanism planned under Article 6.4 is an example of a compliance market: a regulated market that would allow participating countries to purchase carbon allowances and exceed their own carbon budgets. These sit alongside voluntary carbon markets, a largely unregulated space that has been dogged by scandal this year.
The Swedish Energy Agency’s Newell, who was part of the EU’s negotiating team, highlighted “a massive loss of faith” in the VCM over the past two years. “Article 6 is viewed as kind of a hope for the future of carbon markets because it puts a UN stamp of approval on something. It’s always a problem when we aren’t able to reach consensus,” he told the briefing.
The EU was “fine” with the methodologies guidance in Article 6.4, even if it “wasn’t perfect,” said Newell. But the bloc was unable to accept the removals guidance as “we felt that it was lacking, it was not specific enough”. The guidance would have “let the market continue and move forward quickly” but in the long run it would not have ensured the integrity of the projects involved, he added.
Newell noted “small but significant progress” on Article 6.2, on issues such as the authorisation and revocation of carbon credits known as “internationally transferred mitigation outcomes” or ITMOs.
“There are certainly some big differences that remain to be overcome. But if we rush to do this and get it wrong, the risk in the long run is much greater than getting the market moving for the sake of getting it moving, and not having something that has significantly better quality than what’s available,” said Newell.
He told Sustainable Views too hasty an approach risking producing “bad quality projects and ITMOs that undermine the integrity of the Article 6 system as a whole”. “If we say, ‘we can let the private sector and other standards drive this’ – well, that’s what they’ve been doing for past many years in the voluntary markets, and we see where that’s got us,” he said, referring to the current lack of confidence in the VCM.
Newell argued that “there’s a role for the UN to play”, later telling Sustainable Views that this could involve “reporting requirements, setting authorisation or transparency procedures and publishing guidance documents”.
‘EU blocking decisions’
Responding to Newell’s comments, Gassan-Zade said: “As negotiators, we didn’t see any attempts by the EU to address environmental integrity. What we saw were attempts to block the process.”
She said the EU was “blocking decisions on allowing countries to report transactions, which is contrary to [the] environmental integrity the EU is claiming is their goal”, and also highlighted the EU objection to text that included wording on consulting with indigenous communities and scientists.
Its approach to negotiations “was not done in the name of environmental integrity”, Gassan-Zade said. “This was done for the single purpose: not to allow [the supervisory body] to proceed with the recommendations on removals, which are in conflict with the EU’s domestic certification programme.” The EU defines reversals of removals as occurring at any point in time, Gassan-Zade told Sustainable Views, while the Supervisory Body’s removals framework compares the difference between previous and future monitoring periods.
“[The position] was unacceptable for a whole lot of countries, so to say that this was done for the sake of environmental integrity was hypocritical,” she added.
A European Commission spokesperson told Sustainable Views: “The EU’s position was based entirely on the desire to ensure integrity in international carbon markets. We are the region with the largest carbon market and with decades of managing the risks of these markets and so address this challenge with the voice of experience not expediency.
“The EU was in no way isolated in its position, but rather was joined by many (including the Alliance of Small States, least developed countries, the Independent Association of Latin America and the Caribbean, and African negotiators) that share our view that standards need to be set in a way that will achieve the urgent environmental objectives in a transparent and fair way. We engage in these discussions as experienced regulators rather than market players,” said the commission.
“The EU’s position on the certification of removals is not directly related to our domestic legislation on removals, though both are informed by EU concerns to address risks associated with the permanence of any removals that have been certified.”
Heated talks
Others, however, expressed their frustrations at the discussions. Lisa DeMarco, chief executive of law firm Resilient, told the briefing: “The negotiating strategy was in less than good faith. At one point we had one of the negotiators recite a defined, clear speech on the objection to the 6.4 text when we were talking about the 6.8 text. It was to the point of ridicule, and really unfortunate.” Article 6.8 concerns a framework for international cooperation on climate through methods including finance and technology transfer, and does not involve the trading of emissions reductions.
DeMarco said negotiators even failed to agree on straightforward subjects, such as the use of an electronic format for submitting data to support ongoing reporting, which has been in use since COP27.
“In the room it got quite heated by traditionally calm folks,” she said, confirming this was a reference to the EU and the Coalition for Rainforest Nations. “There was a bit of a hostage-taking in the room, and it wasn’t pleasant to sit through.”
IETA chief executive Dirk Forrister told the briefing that those pushing for greater control over bilateral arrangements “may have fumbled”, and accused the EU of manipulating concerns around the VCM as part of its negotiating strategy.
“What I hate is that it’s the EU. They’re traditionally our best friends on markets, but I feel like they lost the plot,” he added.
Responding to the criticism of the EU, Newell said: “The good faith negotiations were there, it’s just that we did have some red lines when it came to the removals guidance [and] we were not willing to compromise on those.”
The CFRN and Aosis have been contacted for comment.