Carbon trading under Article 6 threatens to make the climate crisis worse
UN standards inevitably fail to address the flaws in inherent in carbon trading.
A recent paper in Nature Climate Change highlights the danger that carbon trading under the UNFCCC “could undermine global climate action”. The paper is written by Stephen Lezak (University of California, Berkeley and University of Oxford), Sharaban Zaman (University of California, Berkeley), Injy Johnstone (University of Oxford), and Barbara Haya (University of California, Berkeley).
The authors write that,
Recent United Nations policymaking on international emissions trading fails to reconcile longstanding flaws that could jeopardize the integrity of these programmes.
Under Article 6 of the Paris Agreement, countries are allowed to meet their emission reduction targets by buying carbon credits (known as Internationally Transferred Mitigation Outcomes under the Paris Agreement). There are two options:
Bilateral emissions trading (Article 6.2); and
An international market for carbon credits from individual projects (Article 6.4).
The authors note that the rules for Article 6 agreed at COP29 and COP30, “lack sufficient safeguards to ensure that these carbon credits deliver real climate benefits”.
Article 6.2
Article 6.2 is “so flexible as to become practically unenforceable from a quality standpoint”, the authors write.
Article 6.2 allows countries to write their own accounting rules, with limited supervision by the UN. The “technical expert review” has no enforcement authority.
Countries can classify data as “confidential”. Crucial information will be hidden from public view — and external review.
The authors write that,
As a result, Article 6.2 agreements can operate in the dark, with excessive flexibility and without meaningful accountability. This regulatory vacuum fundamentally undermines the Paris Agreement’s credibility, opening the door to unverifiable claims of climate action.
Article 6.4
Article 6.4 “could reproduce many of the same credit integrity challenges that have plagued carbon markets since their inception”, they write.
The authors note that under the Kyoto Protocol’s Clean Development Mechanism the majority of carbon credits generated were based on “vastly overstated” climate impacts. They give the example of hydropower and wind energy projects that several studies have shown would have been built without the finance from sales of carbon credits.
The authors write that,
The failures of the CDM are the same that have undermined nearly all voluntary and compliance carbon markets, which stem from the fundamental market structure of carbon offsetting. The actual impacts of carbon credit projects are usually highly uncertain because they must be estimated against an unproveable counterfactual, that is, a ‘what if’ scenario that never takes place. Then, a set of market actors that all benefit from over-crediting are tasked with making highly subjective decisions. Buyers seek low-cost credits; project developers compete on price; auditors, hired directly by developers, want to please their clients with lenient reports; and nations and programme administrators compete for market share. The result is persistent exaggeration of the climate benefits of credits, often by an order of magnitude, across all large compliance and voluntary crediting programmes.
Yet CDM projects are allowed to “transition” credits from 2021 to 2025 into the Article 6.4 carbon trading mechanism. More than 1,500 CDM projects have requested this transition, which could result in about 1 billion carbon credits flooding into Article 6.4. Of these credits, 58% are from wind energy, efficient cookstoves, and hydropower projects which, the authors point out, “rely on discredited methodologies”.
Carbon Market Watch calculated that the first project to apply for transition, a cookstove project in Myanmar, over-credited by 26 times.
The authors are also critical of the Paris Agreement Crediting Mechanism, under which Article 6 credits are generated. They point out that the additionality standard “allows carbon offsets to be validated through easily manipulated financial analyses”.
And they warn that “it remains to be seen how successfully the UN will enforce compliance” with its standards.
Nationally determined contributions
Under the Paris Agreement, countries produce nationally determined contributions which include emissions reduction targets. But these targets are sometimes expressed as economic indicators, such as emissions intensity per unit of domestic product. Or installed renewable capacity, which is not a measure of greenhouse gas emission reductions.
In order to avoid double counting, countries selling carbon credits under Article 6 have to make “corresponding adjustments”, which are incorporated into nationally determined contributions. This means that “carbon trading is only as robust as the NDCs that underpin it”, the authors write.
But the vagueness of nationally determined contributions “gives national governments broad discretion to assess their own compliance”, the authors write. “As a result, it is practically impossible to verify the integrity and additionality of Article 6 trades.”
The authors argue that substantial changes to Articles 6.2 and 6.4 are “urgently needed”. These include:
creating conservative, science-aligned, uniform and rigorous
accounting methods for measuring emissions reductions and removals;
establishing clear, quantitative methods for assessing NDCs;
transparent public reporting to facilitate independent validation;
and
verification by financially and politically independent expert
bodies.
Failure to carry out these reforms, the authors write, “could further entrench the status quo in carbon trading, which undermines trust and allows actors to claim progress without delivering real-world emissions reductions”.
And they note that the decisions made so far on carbon trading under the Paris Agreement “suggest an absence of the political will required to make the technical and procedural changes that would prevent emissions trading from undermining the Paris Agreement”.