UN summit edges towards article 6 agreement

UN negotiators have produced new draft texts for article 6 of the Paris climate agreement, bringing countries closer to agreement on rules that could set up a global carbon market.

Negotiators are meeting in Bonn, Germany, in an attempt to iron out the rules on article 6 ahead of the annual UN climate summit in December (Cop 25), when ministers will sign off on the final texts.

Countries had hoped to finish article 6 at last year's UN climate summit, but decisions were postponed after the issue threatened to derail negotiations in the final hours of the meeting.

Article 6 sets out how carbon markets will function under the Paris agreement, and contains rules that would allow countries to trade emissions reductions. This could provide the foundations for an international carbon market.

The latest texts are still only drafts and contain options that negotiators will need to narrow down, while some issues have not yet been resolved.

New texts are due to be published before the end of the Bonn summit, which concludes tomorrow.

Article 6.2

Article 6.2 contains rules allowing countries to trade emissions reductions — known as Itmos — and count them towards their nationally determined contributions (NDCs) under the Paris agreement.

Negotiators have not yet decided whether countries will be allowed to use Itmos for purposes outside of their NDCs. Failure to allow this would mean credits could not be used for compliance with the UN aviation agency's Corsia scheme for offsetting aviation emissions.

Various methods to avoid "double counting" emissions cuts also remain in the text. Double counting occurs when a single emissions reduction is used for compliance with multiple climate schemes. And negotiators have not yet decided whether Itmos will be measured in tonnes of CO2 equivalent only, or by using other measurements as well.

Article 6.4

The UN will set up a sustainable development mechanism (SDM) to enable CO2 cutting projects to generate emission reduction credits, under article 6.4 of the Paris agreement.

This will replace the Kyoto protocol's clean development mechanism (CDM). A key issue in the negotiations is whether CDM projects, and the emissions reduction credits they have already generated, will be transferred to the new SDM.

The latest 6.4 text includes three options — allowing all CDM projects to transition to the SDM; allowing only CDM projects that meet the 6.4 criteria to transition; or banning CDM projects from transitioning.

Similarly, the text includes three options for the transfer of CDM credits — allowing all CDM credits to be used for compliance with the Paris agreement; only allowing credits issued before 2020 or 2021; or banning all credits from being used for compliance.

The EU and non-governmental organisations have urged the UN to ban pre-2020 credits from being used for compliance.

The first CDM projects were registered in 2001, so some credits represent CO2 cuts achieved nearly two decades ago.

Supply in the certified emissions reduction (CER) market could swell to 4.6bn credits by 2020, according to some estimates. And with CER prices currently around €0.20/t CO2, critics worry that countries will buy large quantities of cheap credits to meet their Paris targets, instead of investing in new projects to cut emissions.

But other parties in the UN talks worry that if CDM credits are not transferred to the new market, the system will not contain enough supply to set up a functioning carbon market. It could take years for SDM projects to start issuing their first credits, meaning the new market could struggle with low liquidity.