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Carbon Market Conundrum

16th February 2024

3rd of the 3 blog series

By Dr Samir Thapa, MECS Programme, Loughborough University

This is the third blog as part of a series of three blogs that looked at COP28 reflections from a cooking transition perspective. This blog synthesises relevant COP28 decisions and discussions on carbon market with respect to just cooking transitions. This blog and the other two in the series are however based on the purposive review and participation of/at 44 relevant sessions, not including the negotiations.

Participants were unanimous in the expressed need for integrity, transparency and equity in credit generation, issuances, and their use; and their inevitability in transition to net-zero for sectors like transportation and power generation. ICVCM and VCMI jointly organised a breakfast event to inform about their plans for 2024 to operationalise their Core Carbon Principles and Claims Code of Practice. This came together with the announcement of the process with the partners, such as the Science-based Target Initiative on beyond value chain corporate action. Going forward, plans by exchanges (Xpansiv) and related (draft) regulations (Commodity Futures Trading Commission) are expected to help create spot markets for carbon credits, for a truly liquid and transparent market, that reflect prices beyond plain vanilla credits, and a rapidly declining carbon budget for different sectors.

Six different independent carbon crediting entities that share nearly 98% of the voluntary carbon market issuances jointly released statement/s of their intention to seek ICVCM’s CCP labels – expressly to help operationalize Article 6 and NDCs. Armed with these multiple arrangements, independent mechanisms GS and Verra reiterated expectations for UNFCCC to layout standards and procedures to align and interoperate with Article 6. While these are itemised in the early Article 6.2 draft manual, this is not stipulated by the Article 6.4 multilateral mechanism. This was expressly voiced during the UNFCCC Article 6.4 side-event – in relation to credit integrity. Article 6.4 operates distinctly with its own standards, procedures, and methodologies and is a CDM legacy which primarily fed credits to the EU ETS under Kyoto Protocol. During this period, the independent mechanisms fulfilled corporate climate claims, largely outside of the government regulation, and in the absence of instruments like the NDCs.

Figure 1: Article 6 carbon trading for NDCs and Paris Agreement goals. Source: Samir Thapa, 2024.

These alignments are however important for cooking transitions because the majority clean cooking projects are registered with the independent mechanisms. For example, in Kenya, out of total issuance (as of 7 December 2023) of 20,513,528 credits, the share of independent credits is more than 90 percent 1. The Article 6.4 alignment and recognition will allow market flexibility, beyond government NDCs under Article 6.2. This is also crucial in the context when these credits are facing multiple accounting issues related to pervasive over-crediting. At the same time, it will be interesting to see 1) how Article 6.2 authorisations and/or transfer of clean cooking ITMOs will develop with the projects in pipeline, e.g. from Ghana, and 2) if countries would authorise clean cooking credits generated from these independent mechanisms. Discussions were not able to clarify these nuances, beyond recommendations to obtain government authorisations for corresponding adjustments. This is now the standard practice for the improved cookstove projects developed under these mechanisms (e.g. Rwanda, Ghana), and which the market across the board is asking for e.g. CORSIA.

Beyond these overarching and interrelated issues, in principle, increasing alignment and interoperability between independent mechanisms and Article 6 mechanisms is crucial. This can lead to a truly competitive and innovative market, that integrates private ambitions in the NDCs. The ongoing work on achieving high-integrity, its growing volume, its recognition by major philanthropies and key governments and institutions to align national policies (UK) and use of credits (Singapore) – show indications of increased alignment. Importantly, these independent mechanisms are already accredited by the UN/ICAO’s CORSIA. Events related to Article 6 mechanisms (Event 1, 2, 3, 4, 5, 6) including lessons learned around national regulations and frameworks, show increasing interest and flexibility in piloting cooking projects with various mechanisms, where alignment is going to harmonise self and sovereign regulations. (Seamless) alignment and interoperability will reduce costs, improve efficiency, and help avoid issues such as cherry-picking due to fragmentation. These are critical for cooking transitions because this will allow use of tools such as SDG tools 2 and sector methodologies such as the Methodology for Metered and Measured Energy Cooking Devices 3 across projects/mechanisms. Considering these possibilities, in retrospect, some participants expressed that the lack of NDCs during the Kyoto Protocol period was a major lost opportunity.

The lack of a deal on Article 6, while partly expected, was wholly disappointing. There were contrary views with some advocating for not compromising absolute integrity and sustainability, while others advocated for not allowing “perfect be the enemy of the good”. Going forward, it is expected to lead to crucial works around standards and procedures for alignment, but, more importantly, for a consensus in COP29.  Many issues remain unanswered, which filler events dedicated to Article 6.2 could have addressed. Related events could not clarify 4 issues around accounting Article 6.2 ITMOs, and the use of international/transactional and national/accounting registries. Confusions still abound on if conditional targets correspondingly adjusted to avoid double counting needs to be replenished and if can be revoked with underachievement or overselling. Other relevant discussions focused on how and if authorisations could be used for localisation, building in circularity in cooking transitions, and developing national/jurisdictional cooking projects. It was also understood that the lack of agreement on Article 6.4 proposal around removal technologies was a deal breaker – where the other agreements became a collateral damage. The delay, however, will fuel independent discussions on the use of Article 6.8 for non-market approaches, which is already in operation and more advanced (Article 32 to 34 Global Stocktake). It can promote interaction between governments (e.g. results-based finance for policy approaches) including mitigation and adaptation actions (e.g. cooking with forestry, health), and considered to be more holistic and balanced (e.g. ACTO).



1 85% of the credit issuances by independent mechanisms is from forestry and cookstoves projects.

2 Article 6.4 Supervisory Body is developing an SDG Tool that will include findings and lessons from the other initiatives and independent mechanisms e.g. GS, Verra.

3 New Verra cooking methodology ascertains this methodology.

4 Participants constantly referred to the negotiations on Article 6 ongoing in Room B.