Key UN body begins talks on carbon markets methodology under Article 6.4

The UN body responsible for formulating rules for a global carbon market under the Paris Agreement began crunch talks on July 10 as it hopes to make progress on methodology development with a particular focus on baseline and monitoring tools.

The Article 6.4 Supervisory Body is holding its sixth meeting over July 10-13 in Bonn, Germany, less than two months after its previous session over May 30-June 3.

During the meeting, a key issue is whether emissions avoidance activities should be incorporated in Article 6.4 and how should the term emissions avoidance be defined, if they are included, especially due to concerns around baseline calculations and additionally.

"Proposals and options to operationalize baseline contraction factors, avoid 'lock-in levels of emissions' and address leakage in the draft recommendation on requirements for the development and assessment of mechanism methodologies," were one of the key points of discussions for this meeting, according to documents released by the Supervisory Body.

Under Article 6.4, a company in one country can reduce emissions domestically and have those reductions credited so that it can sell them to a different company in another country.

The rules around Article 6.4 are still to be agreed and the UN has designated a 12-member body to supervise the mechanism. However, crucial details on what can be traded under this mechanism, particularly on what methodologies and activities can be included, are still to be decided.

Emissions avoidance

The Supervisory Body also said it plans to provisionally approve the procedure "Article 6.4 mechanism activity cycle procedure for projects" at this meeting.

Article 6.4 is crucial for the voluntary carbon market because it will effectively create a new compliance market, opening up fresh demand for credits, with the UN deciding the rules on eligibility.

Until these rules are clarified, there is uncertainty among buyers and carbon project developers regarding which projects will see increased demand and potentially higher prices.

The carbon trading mechanism is seen as a replacement for the UN's Clean Development Mechanism, which allowed emissions reduction projects in developing countries to generate carbon credits under the Kyoto Protocol.

Discussions at the previous meeting in Bonn focused on the issue of emissions avoidance and credits associated with not carrying out, thereby avoiding an emitting activity, according to analysts at S&P Global Commodity Insights.

"Several parties opposed the inclusion of emission avoidance, with some underscoring that avoidance would be highly hypothetical, especially in the forestry sector. Opposition was captured in an informal note," they said in a recent note.

Removals consultation

The meeting will also discuss the results of the recent public consultation on carbon removals that took place over June 5-19.

The consultation was to ask the industry for recommendations to help decide which activities will be incorporated as carbon removals under Article 6.4. According to its website, 133 submissions were received by the Supervisory Body.

At the previous meeting, the body also decided to adopt a ton-for-ton (mt-mt) basis instead of a ton per year (mt/year) in accounting for carbon removals. It also agreed that the accounting and crediting for removals and addressing reversals still need further work.

Carbon dioxide removal, or CDR, approaches have been the subject of much debate lately. There was a big backlash recently after a UN information note dismissed technologies that pull CO2 from the atmosphere as "unproven." The Article 6.4 Supervisory Body received more than 100 letters in defense of the nascent carbon removals sector as a result.

CDR refers to climate mitigation strategies that remove CO2 emissions from the atmosphere, as opposed to strategies that avoid such emissions. These encompass a wide array of approaches, including direct air capture coupled with durable storage, soil carbon sequestration, biomass carbon removal and storage, enhanced mineralization, ocean-based CDR, and afforestation/reforestation.