Surprise, surprise! Article 6 carbon credits face exactly the same problems as voluntary carbon credits

Offsets instead of emissions cuts, double counting, junk credits, and Indigenous Peoples’ rights remain unresolved problems.

PHOTO Credit: Singapore Carbon Market and Investor Forum.

According to S&P Global, “Since investors lost confidence in the voluntary carbon market in early 2023, the participants have pegged their hopes on the Article 6 market to revive the use of offsets to achieve carbon neutrality and net zero goals.”

But reporting from the recent Singapore Carbon Market and Investor Forum, S&P Global writes that despite the fact that Article 6 carbon credits will be backed by the UN, experts said they “may face the same skepticism as the private sector’s voluntary carbon credits around integrity and effectiveness in reducing emissions”.

Offsets instead of emissions cuts

The article, written by Ivy Yin, states that,

Industry executives said the UN-backed market is subject to the same criticism as countries could claim emissions reductions by purchasing offsets from overseas, instead of taking actual steps to incentivize emissions cuts domestically.

Which is precisely the problem with all offsets, whether in the voluntary carbon market or the compliance carbon market.

Charis Yeap Khai Leang, Southeast Asia regional lead with the British High Commission Singapore, told the conference that the UK has announced that it will not use Article 6 credits to meet its own Nationally Determined Contribution. This is despite the UK being one of the key policy negotiators in designing the Article 6 framework.

And Emily Follett, Australian Deputy High Commissioner to Singapore, said that the Australian government also does not propose using international offsets.

Given the country’s record with carbon credits in Australia, perhaps that shouldn’t be a surprise.

In 2035, the Australian government “will consider how to leverage carbon offsets to meet the country’s emission reduction targets”, S&P Global reports Follet as saying.

Double counting

Under Article 6, when one country sells carbon credits, it has to make a “corresponding adjustment”. This is a mechanism to prevent both countries counting the carbon credits against their Nationally Determined Contribution.

Marco Stella, co-founder of Australian company CORE Markets pointed out at the Singapore conference that the issue of how voluntary carbon credits will be treated under the Article 6 carbon market has not yet been resolved.

S&P Global reports Stella as saying that,

“This is the area that I think is most at risk. Right now, there’s a big debate about how this should work, whether or not it is the case that it absolutely should be a corresponding adjustment in every one of these situations. . . .

“But I do think [this] is absolutely essential. . . .

“I think it’s extraordinarily important that we get ahead of this and deal with this in advance, because we don’t want to get two or three years down the road and then have people claiming that ‘oh, actually the current system is still allowing double counting’.”

Obviously, double counting has to be prevented. That this is still on the agenda eight years after Article 6 was written into the Paris Agreement reveals the scale of the problem.

Clean Development Mechanism junk credits

A long-running debate that the UNFCCC has still not resolved, is whether Clean Development Mechanism credits should be allowed to be traded under Article 6. There are many good arguments for scrapping the CDM (and for not starting trading under Article 6!).

Probably the biggest problem with CDM credits is that they are almost all junk. A report by the Öko Institut, published by the European Commission, found that 85% of projects covered in the analysis were not additional or were over-estimated:

Overall, our results suggest that 85% of the projects covered in this analysis and 73% of the potential 2013-2020 Certified Emissions Reduction (CER) supply have a low likelihood that emission reductions are additional and are not over-estimated. Only 2% of the projects and 7% of potential CER supply have a high likelihood of ensuring that emission reductions are additional and are not over-estimated.

S&P Global notes that most CDM credits were issued from renewable energy projects.

But the Integrity Council for the Voluntary Carbon Market (ICVCM) recently rejected renewable energy projects from its Core Carbon Principles label. The ICVCM noted that the methodologies for renewable energy projects are “insufficiently rigorous in assessing whether the projects would have gone ahead without the inventive of carbon credit revenues”.

S&P Global reports that,

ICVCM also hinted to the Article 6 market participants that renewable credits no longer have additionality, so investing in them is not a smart decision, a Singapore-based renewable carbon credit trader said at the event.

This means that including legacy renewables-based credits in the Article 6 mechanism would dent its credibility.

Indigenous Peoples’ rights

Finally, S&P Global notes that market experts at the conference in Singapore pointed out that engagement with Indigenous communities is “another problem carried over from the VCM [voluntary carbon market]”.

Many Article 6 projects will be nature-based solutions on Indigenous Peoples’ territories, the market experts predicted.

Ling Min Hoon is investment director at GenZero, a company that is wholly-owned by Singapore’s state investment company Temasek, and which is lobbying in favour of an Article 6 global carbon market.

S&P Global reports her as saying that,

“[B]esides obtaining consent from the indigenous people, there must also be clarity in terms of how to share revenues from carbon trading and their preferred types of engagement activities.”

But under Article 6 there is no specific requirement to obtain the free, prior and informed consent of Indigenous Peoples and local communities.

Article 6 is not an improvement on the voluntary carbon market. The same problems of leakage, additionality, permanence, and measurement will continue to plague all carbon markets. And no matter what sort of safeguards are built into the mechanism, abuses are bound to continue.

Meanwhile, even if these problems could be addressed, the reality is that unless we leave fossil fuels in the ground, the climate crisis will just get worse. And carbon markets provide a loophole for the continued extraction and burning of fossil fuels.

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