INTERVIEW: Criticism of carbon markets limiting the role of Article 6: IETA

The recent criticism of the voluntary carbon market is unfortunately limiting the role that Article 6 can play in reducing greenhouse gas emissions, Andrea Bonzanni, international policy director at the International Emissions Trading Association, said in a recent interview.

"Our view is that [carbon] markets are necessary to reach net zero. And it's unfortunate that these criticisms only look at the negatives and do not propose an alternative. This is damaging for the understanding of the role Article 6 and carbon markets should play in the fight against climate change. It should be recognized that they are necessary," he told S&P Global Commodity Insights.

Bonzanni also said that pressure is building on policy makers to iron out the details and methodologies on Article 6.4 of the Paris Agreement.

This comes a week after the Article 6.4 Supervisory Body had its fifth meeting, where it acknowledged that it still had more work to do to progress on methodology development and the incorporation of carbon removal technologies.

Article 6 of the Paris Agreement sets out the rules for global trade in greenhouse gas emissions reductions and will have a critical impact on voluntary carbon credit markets.

Countries can adopt cross-border exchanges of credits known as Internationally Transferable Mitigation Outcomes, or ITMOs, under Article 6.2, which sets out a system of national accounting for greenhouse gas emissions.

But the rules around Article 6.4 are still to be agreed and the UN has designated a 12-member body to supervise the mechanism.

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

In an interview, Bonzanni discussed some of the challenges that carbon markets are facing. Below is a transcript of his comments, edited for length and clarity.

Q. How is the recent scrutiny of the carbon markets affecting participation of countries under Article 6?

A. I think, on the integrity, the criticisms have led many to believe that the voluntary carbon markets are not a viable tool to reduce emissions and meet the goals of the Paris Agreement, or at least that they shouldn't be the priority. And that's reflected in what many countries are doing. They are focusing their efforts domestically without looking at international markets.

However, if we want to meet the current NDCs [Nationally Determined Contributions, countries' stated plans to mitigate climate change] and reach net zero in the second half of this century, it's unrealistic to believe that this can be done by domestic action alone.

Our recent report (with the University of Maryland) shows that in the short term, by using markets, you can get a lot more mitigation done for the same amount of investments.

So. our view is that [carbon] markets are necessary to reach net zero. And it's unfortunate that these criticisms only look at the negatives and do not propose an alternative. This is damaging for the understanding of the role Article 6 and carbon markets should play in the fight against climate change. It should be recognized that they are necessary.

Q. What are the reactions to the latest meeting held by the Article 6.4 Supervisory Body?

A. Thanks to the new chair, the meeting was much better run than the previous ones -- the discussion was more focused, action points and next steps were agreed at the end of each session. However, fundamental differences between A6.4 Supervisory Body members remain. It will be very difficult to square the circle in the next meetings.

The amount of work the members and the Secretariat must deliver is huge. It is of utmost importance that requirements for methodologies are agreed in the next meetings and endorsed by parties at COP28 [the UN Climate Conference to be held in Dubai in December]. Without this piece, methodologies cannot be approved, and projects will not be able to register in 2024.

Q. Carbon nationalism is gaining ground, with many governments trying wrest back control of big carbon projects? How do you see this affecting the evolution of carbon markets globally?

A. We have had a lot of countries looking into how voluntary carbon activity impacts their ability to meet NDCs and how they can benefit from it. Usually, it is the negative cases that make the headlines. But there are countries that are regulating the market in a way that does not create problems for project developers.

For example, [some countries] have a framework to authorize projects under Article 6 and to track voluntary carbon market projects without authorization under Article 6 and therefore without corresponding adjustments. So overall it's positive that countries look into how carbon markets can work in their interest. But there is a balance to be found between the countries' objectives of maximizing the benefits for them and what is feasible for international investors.

I believe many of these countries look at carbon in the same way as they're looking at other natural resources like oil, agricultural commodities. So, it's all about the government take versus the take of the international investors. In all commodities there's a balance to be found, but in carbon there's one key difference as the international carbon market would not exist if we didn't have a certain international framework or set of cooperative approaches.

So, it is important that this infrastructure is built, and it is robust, otherwise there would be no carbon to be monetized. It's a bit different from commodities, where demand is there because our economies need these resources. The carbon market is different as demand ultimately depends on policy and institutional arrangements.