Cop 27: Article 6 talks making progress

The UN Cop 27 climate talks appear to be moving toward a resolution of most issues around the Paris climate agreement's emissions trading rules.

Negotiators in Sharm el-Sheikh, Egypt, have worked late into the night in recent days in an effort to find agreements on some of the details that will allow for full implementation of trading under Article 6 of the Paris agreement.

In the last 36-48 hours "we have made some progress," International Emissions Trading Association (IETA) international policy director Andrea Bonzanni said today, the scheduled final day of the Cop.

The latest round of talks on Article 6.4 wrapped up early today, and negotiators appeared ready to "iron out the outstanding issues," Bonzanni said.

The latest draft for 6.4 has been slimmed down and contains only a few areas of bracketed text, which suggest options for issues that have yet to be resolved.

Article 6.4 establishes a centralised body, essentially a successor to the Kyoto Protocol's clean development mechanism (CDM). But it cannot function until its governing guidelines are in place, and limited time remains to do this before the informal deadline for the start-up of the mechanism at the end of 2023.

Negotiators are also discussing Article 6.2, which sets out guidelines for the trading of internationally transferred mitigation outcomes (ITMOs) between two countries. ITMOs are UN carbon credits that can be counted towards nationally determined contributions (NDCs) — nations' emissions reduction pledges under the Paris agreement.

One area on which negotiators are hoping to reach an agreement is the authorisation of credits issued under 6.4, including when the authorisation has to be made and whether it can be amended in the future.

The timing of the authorisations, which allow the credits known as A6.4 ERs to be traded globally, has significant implications for project developers. Credits from a project that already has an authorisation from its host country could fetch a higher price, while credits that do not yet have that nod from the government may not be as attractive.

"If I'm going to sell someone something with potential authorisation, I'm going to get a different price… that may be risky for me," European roundtable on Climate and Sustainable Transport executive director Andrei Marcu said at an IETA event at the Cop.

In addition, that authorisation carries with it a reporting requirement for the host country and could trigger a corresponding adjustment to its Paris agreement emissions pledge.

But a lot of countries that hope to be sellers are focusing now on the financial aspect of the carbon market and may not realise "the implications when they authorize the ITMOs," said Zambia delegation negotiator Alick Muvudika.

Many African countries do not yet have the infrastructure for carbon trading and reporting, making capacity-building a critical element of the talks, he said. He suggested countries should be cautious about authorising emissions credits too quickly.

"Yes, if you know what you are doing, and no if you're not sure," he said. "Get your house in order."

The Article 6.2 talks are more complex, and the latest text much longer given the divergent views of parties on how to set up the accounting framework. But Article 6.2 is operational, and a number of countries have signed bilateral agreements to co-operate under the mechanism.

Some issues may have to wait until next year, in part because the advisory body set up for Article 6.4 only met for the first time this summer, which has limited its ability to make significant progress.

By Michael Ball