Bilateral carbon trading under the Paris agreement has come under scrutiny for insufficient environmental integrity at the Bonn climate talks, a halfway conference between UN Cop climate summits.
Buyer and seller countries under Article 6.2 of the Paris agreement in Bonn defended the "inconsistencies" identified in the mandated initial reports submitted. A total of 23 countries, about half of those active under Article 6.2, have submitted reports so far.
Technical reviews of the reports undertaken by UN climate arm UNFCCC had identified issues such as insufficiently conservative baselines against which emissions reductions are measured, and non-permanence of nature-based activities. The reviews also suggested a lack of alignment between carbon activities and countries' climate plans and long-term low-emission development strategies under the Paris agreement, known as nationally determined contributions and LT-LEDS, respectively.
Countries active in Article 6.2 cautioned against treating every inconsistency as proof of a defective activity, arguing that many findings may reflect weaknesses in reporting rather than in the underlying co-operation.
Diversity should be seen as a strength of Article 6.2, as it allows markets space and time to evolve, a delegate for the Like-Minded Developing Countries bloc said.
Switzerland, an Article 6.2 frontrunner, said that it had chosen a project-by-project pathway, scrutinising the project as well as the underlying methodology, drawing on the expertise of its environment ministry and external experts including rating agencies.
The Swiss delegate said that "experience" had shown that "the same methodology can be applied in very different ways with very different outcomes", arguing that strict methodologies do not always do justice to individual projects, such as clean cookstove projects.
As a result, Switzerland has in some cases set up a "mini carbon-crediting standard" for a co-operation, the delegate said.
Japan, which under its Joint Crediting Mechanism (JCM) has signed the most bilateral agreements of any host country, stressed that it has no intention to align the JCM with the Paris Agreement Crediting Mechanism (Pacm) under Article 6.4 of the Paris deal, emphasising the JCM's "conservative" baseline.
But an EU delegate argued that a closer alignment between Pacm rules and Article 6.2 would "considerably" reduce inconsistencies, given Pacm's "well-known" and "helpful" methodological tools such as the downward adjustments to baselines.
Some delegates and observers voiced their concern about the lack of rules on the reversal of emissions removals under Article 6.2. The EU delegate flagged the "challenges" of this issue, which even the Pacm regulator is finding "very" difficult to address. It is not clear, for instance, what will happen if there are insufficient credits in the buffer pool designed to compensate for reversals, the EU said.
Switzerland is looking at potential closer alignment between Article 6.2 and Pacm, but this would depend on the future choices made under Pacm, the Swiss delegate said.
The African group delegate urged Article 6.2 host countries only to submit their initial reports once domestic institutional arrangements and robust standards are in place.
South Korea-based Global Green Growth Institute's head of carbon pricing, Fenella Aouane, flagged the struggle many host countries face in developing vital institutional arrangements for Article 6.2 activities such as monitoring, reporting and verification provisions, or domestic registries.
No agreement was reached at the talks on how "prescriptive" Article 6.2 should become.
Another issue without agreement was revised funding arrangements for Article 6.2 activities, given that the UNFCCC faces an estimated financing gap of about €8mn–9mn to 2027. Developing country groups warned against any financing that could create new barriers to participation, while developed countries called for self-financing models.
