Article 6 credits may face same integrity issues as voluntary carbon market: experts

Article 6 carbon credits, despite being backed by the UN and governments, may face the same skepticism as the private sector's voluntary carbon credits around integrity and effectiveness in reducing emissions, experts said Aug. 15 at the Singapore Carbon Market & Investor Forum.

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.

The only difference is that the VCM is used by companies and the Paris Agreement's Article 6 is created to enable governments to offset their emissions to meet their targets committed under the UN's frameworks, called nationally determined contributions or NDCs.

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.

This has already led to pushback from some governments.

Despite the UK serving as one of the key policy negotiators in designing the Article 6 framework, the country has announced that it will not use Article 6 credits to meet its own NDCs, Charis Yeap Khai Leang, Southeast Asia regional lead with the British High Commission Singapore, said at the conference.

"The (Australian) government at this stage is focused very much on reducing Australia's emissions, so [it] does not propose to use international offsets at this time," Australian Deputy High Commissioner to Singapore Emily Follett said.

The Australian government will consider how to leverage carbon offsets to meet the country's emission reduction targets in 2035, she said.

Double counting concerns

Marco Stella, co-founder of CORE Markets, a Melbourne-based climate solution provider, said the issue of how VCM credits will be treated under the Paris Agreement framework has also not been resolved.

While Article 6 projects must be certified as corresponding adjustments (CAs) so that emission reductions are only counted once, either by the host country or importing country, there is still ambiguity around how VCM credits will be treated if they are used to make NDC claims.

"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," he said.

"But I do think [this] is absolutely essential," Stella said, adding that this issue will probably be unleashed as Article 6 gets finalized.

"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'," Stella said.

Other integrity dilemmas

Another big debate that has delayed the UN's finalization of the Article 6 text is how to handle the legacy Clean Development Mechanism (CDM) credits under the Kyoto Protocol. The majority of CDM credits were issued from renewable projects which would normally be transformed into Article 6.4 credits.

Earlier in August, the Integrity Council for the Voluntary Carbon Market (ICVCM) announced that carbon credits from renewable projects have failed to receive a high-integrity Core Carbon Principles label. The reason was lack of additionality, which means renewable projects no longer need financial support from carbon markets as they have become economically viable.

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

Another problem carried over from the VCM is the engagement with the indigenous communities, as many Article 6 projects will be nature-based ones on territories inhabited by indigenous people worldwide, market experts said.

Nature-based projects usually have long carbon crediting periods of 30 to 40 years, so the engagement with the indigenous communities should also be an ongoing, long-lasting process, said Ling Min Hoon, investment director with GenZero, a company backed by Singapore's state investment company Temasek. GenZero has been working to implement the Article 6 market in Singapore.

She said, besides 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.