Bonn Climate Talks Make Slow Progress on Key Carbon Market Principles

Insight Focus

  • Delegates from more than 190 countries are meeting in Bonn.
  • They are discussing how to account for and track emissions trading reductions.
  • They also need to decide how transfers between nations will work.

Delegates from more than 190 countries are meeting in Bonn to advance work to establish rules governing international trade in emission reductions under Article 6 of the Paris Agreement.

The talks are proceeding on two parallel tracks. The first is dealing with Article 6.2 of the treaty, which establishes the legal basis for trading emission reductions. In these talks, countries are discussing how to account for reductions, how to track them – ideally using an electronic registry – and how transfers between nations should be carried out.

The second track covers Article 6.4 of the accord, which will create an international market for emission reductions carried out by investment projects of various kinds. Countries here are negotiating over a set of global rules that would govern any projects that are registered under Article 6.4.

These rules will include how to monitor, verify and report reduction outcomes, how to register a project with the market supervisor – currently referred to as the Article 6.4 Supervisory Body – and how countries will account for transactions made under the mechanism.

Many of the same issues are being discussed in both tracks of the talks, since they are relevant to both processes, and there is some lack of clarity over which of the two tracks should take priority.

The discussions in Bonn have made only limited progress in the last week, with Article 6.2 talks still striving to decide on processes to formally authorise the transfer of emission reductions, on how changes should be communicated to the supervisory body, and on an agreed set of definitions and nomenclatures to ensure consistency among all participating countries.

Countries also need to establish special rules to assist least-developed countries and small island developing states to enable them to participate in the market system.

The Article 6.4 discussions are also making limited headway on some technical issues, including how to integrate the respective electronic registries for Article 6.4, which will be run by countries themselves, and the international Article 6.2 registry. Some countries are resisting any link between the two, asserting that managing national registries is a domestic prerogative.

Others have pointed out that a centralised data resource is essential for transparency and to help countries understand their own positions with regard to meeting their NDC targets.

As the above suggests, the UN talks are at risk of falling behind key deadlines to ensure the Article 6.4 market is operational by 2026. At COP26 in Glasgow in 2021, countries formally established the Article 6.4 Supervisory Body, gave it operational parameters, and handed it a long list of tasks to ensure the new UN carbon credit market is ready to issue its first certificates in 2026.

That body has met on five occasions already to develop detailed procedures for projects seeking eligibility to issue carbon credits, in particular setting out approved methodologies to calculate emission reductions from a wide variety of project types.

This includes tools to decide if projects are “additional”, that is, if they reduce emissions above and beyond business-as-usual, which is a key criterion for eligibility; a new methodology to calculate and verify emission removals – as opposed to reductions – which is a new concept for the UN and a fast-emerging climate technology; and on how to calculate baselines against which to measure emission reductions.

These technical elements are critical to determining how many carbon credits some project types can generate, and as such they are receiving a lot of attention from both the Supervisory Body and from stakeholders in the market.

But while investors and project developers may soon start to see the first detailed rules on generating carbon credits, countries are still finding it difficult to agree over-arching rules on trade, transfer and accounting, and this will increase the pressure on country delegates when they assemble in Dubai for COP28 in December.

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Alessandro Vitelli

Alessandro Vitelli is an independent reporter and columnist specialising in climate and energy policy and markets for nearly 20 years. He writes about the spread of carbon markets – both voluntary and compliance – as well as the UNFCCC international climate process.
Alessandro covered the development of the first UN carbon credit market under the Kyoto Protocol and observed the negotiations over the Paris Agreement and its Article 6 markets at close range. He has also covered the EU emissions trading system since its inception, as well as markets in the UK, the United States and elsewhere in the world.

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