COP26: Article 6 hangs in balance as climate summit enters final week

Negotiations over the rules governing international emissions trading remained in deadlock Nov. 8 as the UN Climate Change Conference in Glasgow entered its second and final week.

Article 6 of the Paris Agreement is one of the unresolved elements of the "rulebook" which will set out the terms of how governments can trade emissions reductions to help meet climate targets.

"The Article 6 negotiations under the Subsidiary Body for Scientific and Technical Advice (SBSTA) came to an end on Saturday with Parties still divided on numerous issues," the International Emissions Trading Association said in a note to members Nov. 7.

The UK COP26 Presidency has asked SBSTA delegates to complete their work in time for cleaner versions of the draft text to be passed up to ministers on Nov. 8 when the Parties to the Paris Agreement reconvene, according to IETA.

However, even a fresh version of the negotiating texts on the morning of Nov. 6 could not unlock entrenched positions, the group said.

"Instead, the latest texts, together with an explanatory note from the SBSTA chair, Tosi Mpanu Mpanu of the Democratic Republic of Congo, have been forwarded to the UK President Alok Sharma," IETA said.

The discussions over Article 6 remain in deadlock, with Switzerland and other countries calling for clearer rules on Corresponding Adjustments -- a requirement that a country transferring emissions reductions abroad would need to adjust its own emissions tally higher to avoid double counting of credits.

Meanwhile the group of Least Developed Countries objected to arguments against the Share of Proceeds -- a proposed tariff on emissions trading that would generate funding for the poorest countries to adapt to climate change.

"Parties did not refer to the issue of carrying over CDM [Clean Development Mechanism] projects and credits, though the Climate Action Network urged governments not to allow any carryover, and to require corresponding adjustments for all transfers, whether inside or outside the scope of NDCs [Nationally Determined Contributions]," IETA said.

Carbon credit demand

The Article 6 negotiations matter for the international market for carbon credits because clarity on the rules could trigger additional demand for credits among governments -- boosting a market that is already expanding due to corporate demand as companies embark on pathways to reach net-zero emissions.

CORSIA-eligible carbon (CEC) credits have already surged by 888% since their launch on Jan. 4, 2021 and were assessed at $7.90/mt at the close Nov. 5, according to S&P Global Platts assessments.

The latest developments in Glasgow suggest the negotiations may require more clout from ministers if governments are to thrash out a compromise text that can be adopted by the UN before the summit ends on Nov. 12.

"Our team believes negotiators have made incremental progress on improving the options paper that was published before the COP began," IETA said.

"Options in the text are clearer and more concise, but there's still a long way to go. While we had hoped that they would clear out more of the 'clutter,' it seems clear the technical negotiators didn't really have the political authority to move on those issues," the group said.

A lot is going to depend on how well the heads of delegations have been briefed by their experts and, in turn, how well ministers are briefed when they take up the various issues on Nov. 8, according to IETA.

"Our view on outstanding Article 6 agenda items is that the CDM carryover will probably be limited in some way, chiefly in order to avoid overloading the Paris mechanisms with reductions from the outset," it said.

A large volume of old credits from the CDM flowing into the markets under the Paris Agreement could weigh on carbon credit prices, while restrictions on the use of CDM credits could provide a supportive factor for credits that are recognized in the rules.

On Corresponding Adjustments, IETA anticipates that the COP will "decide on a transitional implementation over a period of some years," it said.