When COP28 was announced to be held in Dubai, UAE – a major oil producer, it sparked hope that they might take a more proactive stance on climate action. Dubai’s reputation for innovation and investment in clean technologies led many to believe these advancements would be showcased at COP28 and in turn would inspire similar climate-friendly innovation in developing and least developed nations. Dubai’s geographical location as a Middle Eastern trade hub offered an opportunity to bridge the gap between developed and developing nations in climate discussions.
Among the major discussions in focus, there was an anticipation of reaching an agreement on Article 6 of the Paris Agreement, which would allow the said developing and underdeveloped countries to get some funding to implement these innovations and contribute their share in the fight against climate change. However, parties involved in the discussion on international trading of carbon credits on a compliance level, remained at odds and unfortunately, the top climate conference did not reach a consensus on finalizing the frameworks for Articles 6.2 and 6.4. Disagreements arose over specific technical aspects, highlighting the complexity of establishing a functional global carbon market.
What is Article 6 of the Paris Agreement
Public funds alone won’t suffice to finance developing countries’ Nationally Determined Contributions (NDCs). Most emission reduction efforts must be executed and funded by the private sector, necessitating suitable financial approaches. This is where Article 6 of the Paris Agreement plays a pivotal role.
Article 6 of the Paris Agreement, outlines principles for countries to voluntarily cooperate to achieve their climate targets. This provision enables countries to transfer carbon credits earned from GHG emission reductions, assisting one or more countries in meeting their climate goals.
Specifically, Article 6.2 provides a framework for trading GHG emission reductions (or “internationally transferred mitigation outcomes”) across countries. Article 6.4, akin to the Clean Development Mechanism of the Kyoto Protocol, establishes a mechanism for trading GHG emission reductions between businesses post approval and acceptance of host-country, get the status of ITMO , under the supervision of the Conference of Parties, the decision-making body of the UN Framework Convention on Climate Change. Article 6.8 acknowledges non-market approaches to promote mitigation and adaptation. It emphasizes cooperation through finance, technology transfer, and capacity building without involving the trading of emission reductions.
These provisions collectively facilitate the private sector’s involvement in financing emission reduction activities, thereby supporting the global effort to meet climate targets.
However, the details of how Article 6 will work haven’t been fully agreed upon at recent COP 28. This lack of clarity creates uncertainty for businesses and governments looking to participate in international carbon trading.
Voluntary Markets Step In
Voluntary carbon markets, while not directly linked to compliance obligations under the Paris Agreement, offer a way for companies and individuals to offset their emissions and contribute to climate action. In the absence of a fully functional Article 6 framework, voluntary markets have become a more attractive alternative for several reasons. The urgency of climate action is no secret. Many carbon offset projects are located in developing countries, where they provide additional benefits such as community development, biodiversity conservation, and economic opportunities. Voluntary carbon markets channel are still funding to these projects, supporting sustainable development in these regions.
Existing Infrastructure: Voluntary markets already have established rules, methodologies, and verification processes for carbon offset projects.
Flexibility: Participation in voluntary markets is not dependent on international agreements, allowing companies to act independently.
Branding and Sustainability Goals: Companies can utilize high-quality voluntary offsets to demonstrate their commitment to sustainability and achieve net-zero goals.
Complementing Regulatory Frameworks: Mandatory carbon markets and government regulations often cover only specific sectors or regions. VCMs fill the gaps by enabling broader participation from various industries and individuals who wish to contribute beyond regulatory requirements.
Transparency and Accountability: Consumers and investors demand more environmental transparency. Voluntary carbon markets show companies’ environmental commitment, boosting their reputation.
Immediate Action: Voluntary carbon markets enable immediate emission reduction, complementing long-term strategies and regulatory measures for practical climate action.
Rising Carbon Prices: Higher carbon prices increase financial incentives, driving investments in carbon reduction projects and speeding up the low-carbon transition.
Conclusion
The landmark Paris Agreement – a climate treaty that is bound to transform the landscape of climate action was adopted in 2015, covering climate change mitigation, adaptation, and finance. It has been nearly 10 years since then but the concerning parties have not been able to reach a conclusion on how to trade carbon credits! How to offset our emissions while financing climate friendly adoption in countries with lesser means? This is why, voluntary carbon markets are now more important than ever.
Voluntary carbon markets are crucial because they provide a flexible, inclusive, and immediate means for various stakeholders to contribute to climate action, complementing regulatory measures and driving significant investments in sustainable and innovative solutions.
The rise of voluntary markets doesn’t necessarily mean Article 6 is obsolete. A well-defined Article 6 framework would still play a crucial role in the future, potentially leading to increased transparency and standardization. A global framework could lead to more consistent methodologies and verification standards across different carbon credit programs.
Clearer guidelines under Article 6 would incentivize the development of high-impact offset projects with strong environmental benefits. Some compliance markets might allow companies to use voluntary offsets to meet part of their obligations, blurring the lines between the two systems. But that remains to be bared as there has been no framework in place yet. Till then, VCM will be shouldering the fight against climate change in a sustainable manner.
