Is COP29 “breakthrough” on UN carbon market all it seems?

Azerbaijan presidency claims Article 6 could help countries save $250 billion a year – but experts warn UN carbon trading is still some way off

Azerbaijan’s COP29 presidency claimed an early win at the start of the climate summit when countries waved through long-awaited – and controversial – rules laying the foundations for a new UN carbon market, without any debate.

But the approval of the documents setting out key guidelines – or “standards” – for the development of carbon credit projects and carbon removal activities provoked strong opposing reactions.

For some, including proponents of carbon credits and the COP29 presidency itself, the adoption late on the first day of the talks in Baku was a major “breakthrough” that ended a years-long deadlock and paved the way to raise hundreds of billions of dollars for climate action.

“This will be a game-changing tool to direct resources to the developing world,” COP29 President Mukhtar Babayev said.

UN climate chief Simon Stiell told reporters at a press conference on Tuesday that “this is not some bit of arcane UN bureaucracy”, but something that could help countries implement their climate plans “faster and cheaper”.

The Azerbaijan COP presidency put a number to that assertion, claiming that “co-operation across borders” under Article 6 of the Paris Agreement using carbon credits could reduce the cost of carrying out national climate plans by $250 billion every year.

That figure comes from a theoretical modelling exercise conducted in 2019 by the International Emissions Trading Association (IETA), a pro-carbon market group that counts among its members many of the world’s largest fossil fuel companies, including Saudi Aramco, ExxonMobil, Shell and BP.

Speaking to Climate Home, carbon market experts raised doubts over the $250-billion figure due to the number of assumptions made in the study that could be out-of-date by now.

“Relying on a single data point is never good science, let alone a figure that emerged before the rules had even been negotiated,” Injy Johnstone, a research associate in net-zero aligned offsetting at Oxford University, told Climate Home.

Governments struck a deal on the overarching rules for the development of the new Article 6 carbon market at COP26 in November 2021 – two years after the publication of the IETA study.

“Rushed” approval

Countries had failed to build on the Glasgow decision for the following two climate summits until the new standards were approved on Monday in Baku.

Many close watchers of carbon market talks strongly objected to the “unprecedented” decision to greenlight the rules in the opening plenary of COP29, bypassing the scrutiny of negotiators and observer groups. They voiced concerns not only about the risk of the resulting carbon credit projects producing dubious emission reductions and dragging down climate ambition, but also about the precedent this move sets.

“This decision should have not been rushed through without giving the space to adequately discuss the issues,” said Trishant Dev, programme officer for carbon markets at the Delhi-based Centre for Science and Environment (CSE). “Especially as, in previous years, several countries objected to the inadequate nature of these standards.”

While it caught many by surprise on Monday, the fast-tracked adoption of the rules stemmed from a strategic move made nearly a month ago by the Supervisory Body tasked with overseeing the development of the Article 6.4 crediting mechanism.

After several days of drawn-out discussions, this technical panel decided to directly adopt guidance on carbon-credit methodologies and carbon removals as “standards”, rather than forwarding it as a proposal to be fought over at COP.

Government negotiators were therefore presented with a complete document that they could either accept or reject as a whole without re-arranging any of its contents. They opted for the former, with a strong nudge from the Azerbaijan presidency that has made the “operationalisation” of Article 6 one of its top targets for the climate summit.

More work to be done

While the decision at COP29 rubber-stamped the Supervisory Body’s approval, countries left the door open to asking the technical committee to add more provisions or stronger guardrails on top of the adopted rules. Negotiators will discuss over the next two weeks whether and how to take this forward.

But, regardless of this COP’s outcomes, carbon market experts also urged caution over what Monday’s decision means for long-running efforts to turn the UN carbon market into a reality, as several key building blocks still need to be agreed on before credits can be traded.

“This was certainly one of the biggest steps in terms of operationalising Article 6.4,” Jonathan Crook, a policy expert at Carbon Market Watch, told Climate Home. “However, it’s not like starting in January we’ll see this market up-and-running. We’re quite a long way from there”.

Technical committees operating within the Supervisory Body still need to develop and approve a series of “tools” that developers of carbon credit projects will have to apply to demonstrate that emission reductions or removals are credible, durable and do not create any unintended harm. Additionally, the registry where the credits will be physically traded has not yet been created.

“I wouldn’t expect all of that to be completed before the end of next year, if not 2026,” said Crook.

‘Junk’ credits revived

The first batch of credits likely to be traded under the new UN carbon market are old offsets originally developed under the Kyoto Protocol-era’s Clean Development Mechanism (CDM), starting from the early 2000s. Over 1,200 CDM projects are currently waiting for approval from their host countries to transition into the new system.

Nearly four-fifths of these are renewable energy activities, like solar power plants or wind farms, which experts believe have produced “junk” offsets because the income from the carbon markets was not needed to build them and therefore does not produce “additional” emissions reductions.

Maria AlJishi, chair of the Supervisory Body, said at a press conference in Baku on Tuesday that the adoption of the standards on COP29’s opening day would enable the process of switching CDM projects to the Article 6.4 mechanism to continue.

“This means hopefully that we could be seeing the first issuance of 6.4 credits soon,” she added.

Cover photo: COP29 President Mukhtar Babayev hailed the adoption of the carbon market rules as a "breakthrough" on the opening day of the summit: Photo: UN Climate Change - Kiara Worth