COP 28: Why global carbon pricing and trading platforms are false solutions

Since the Paris Agreement of 2015, dizzying and proliferating programs have been underway aimed at commodifying, pricing, and financializing Mother Earth in the name of development. The global carbon pricing and offset mechanisms under Article 6 of the Paris Agreement expand these programs to justify more fossil fuel extraction. From environmental services to carbon dioxide removals (CDR), the details of the Paris Agreement threaten all human and non-human life. While the details of Article 6 are still being negotiated, resistance to carbon trading may have never been more important than now.

New research has shown that tropical forest offsets are mostly useless

Since 2015, carbon traders have been busy in the voluntary markets. The last three years saw a proliferation of carbon offsets in the voluntary market sector for the first time. By 2019, voluntary carbon markets were trading more credits than compliance markets. However, this build-up of carbon credits has come under scrutiny in the past year. The Guardian and Die Zeit published data early this year demonstrating how Verra, a large voluntary offsets broker, fraudulently issued worthless carbon offsets. In the last month, new research has shown that tropical forest offsets are mostly useless, volatility in the market is increasing, and scandals erupt in REDD+ projects. With the voluntary market in question, many begin to turn to compliance markets under the Paris Agreement. This short article aims to demystify Article 6 and argues that all carbon trading is a distraction from the critical and urgent action of keeping fossil fuels in the ground.

Article 6.2 will be the largest global carbon pricing and trading platform in the world with plans to be launched in 2025. There are two key components to Article 6.2. First, countries will use the registry database to track and meet their Nationally Determined Contributions (NDCs) through bilateral trading of Internationally Tradable Mitigation Outcomes (ITMOs). However, it is still unclear how an ITMO will differ from a carbon offset. Second, parties can use the registry database to trade bilaterally across emissions trading systems (ETS). For example, the registry database would facilitate the European Union ETS to trade with the California cap and trade system.

A contention point at COP 28 will be how countries without an existing ETS will use the registry database. The Kyoto Protocol pushed for ETS in developed countries through common but differentiated responsibilities. The legacy of the Kyoto Protocol means that very few developing countries have ETS. Developing countries plan to register their NDCs, trade ITMOs, and trade across the registry database, while simultaneously requesting aid from the Global North to assist in setting up their ETS. There are contentious points related to monitoring, access, tracking pollution, double-counting units, and other areas. The parties do not question whether or not carbon pricing and trading function at its core, even after over 25 years of evidence showing repeated failure.

Article 6.4 will be the largest carbon offsets trading platform ever. Article 6.4 referred to as the mechanism database will be where carbon offsets from project-based emissions reductions, removals, or avoidance will be traded. Article 6.4 is meant to replace the clean development mechanism (CDM) of the Kyoto Protocol, but Article 6.4 is meant to be much bigger and more far-reaching. The Article 6.4 mechanism database is a database system where trading carbon offset credits will occur under the supervision of the United Nations Framework Convention on Climate Change (UNFCCC). As it stands, Article 6.4 will include carbon offsets from both the compliance markets overseen by governments but also include the private sector. Ongoing discussions and resistance to the inclusion of carbon dioxide removals (CDR) continue. CDR includes biological removals such as forests, soils, agriculture, and water offsets often called nature-based solutions; and engineered removals, which include carbon capture and storage (CCS), direct air capture (DAC), and bioenergy and carbon capture and storage (BECCS).

An appeal and grievance process could allow Indigenous Peoples and local communities to file a complaint and possibly discontinue participation in a carbon offsets project. However, the discussions have focused on the Supervisory Body (SB) of Article 6.4 imposing a fee to file an appeal or grievance and limiting participation. At the meeting of the SB in late October 2023, negotiators suggested a $5,000 fee, then went down to $2,500, and then suggested an exemption for some actors. The decision on the fee will be discussed at COP 28. Further, the SB aims to set restrictive eligibility criteria limiting the ability of Indigenous Peoples and local communities to only those “stakeholders” who were involved in the original consultation process to voice concerns. These restrictions would cause additional barriers for Indigenous Peoples and local communities to challenge and discontinue unjust contracts.

Since the beginning of the Article 6 negotiating process, there have always been plans to link Article 6.2 with Article 6.4. Linking Articles 6.2 and 6.4 would level up carbon markets into a trading system at a scale never seen before. Questions include how ITMOs in Article 6.2 and offsets in Article 6.4 will be tracked between the systems and how they might differ. There are ongoing discussions about whether or not to use a unique identifier, a verification number for ITMOs, or when and how to track ITMOs changes after selling into the market. This brings up serious questions of tracking and retiring emissions trading permits, and how fraud can easily persist in Article 6. These questions remain unanswered and exemplify the flaws of the system.

The global carbon trading system is a false solution we do not have time for.

Further unanswered questions remain on permanence. The discussion by the SB in October 2023 was related to how long a project should be monitored after the project has sold its credits and retired from the mechanism database. For example, if a biological removal project such as a forest project has completed selling its credits under its time frame, how long does the project need to be monitored before it is deforested for a cattle ranch: 150 years, 50 years, or 15 years?

Negotiations continue on which offsets will be allowed, how the private sector will be involved, and several other methodological questions. However, at its core, the global carbon trading system is a fundamentally flawed system that justifies more extraction and pollution – a false solution we do not have time for.

Article 6.8 is called non-market-based approaches (NMA). The website will be launched at COP 28 and likely be where the private sector can finance environmental services, REDD+ projects, technology transfer (possibly for energy transition), and other programs that could enclose lands. Historically, Article 6.8 was proposed as an alternative to carbon pricing and trading. However, it has developed into a serious threat to Indigenous Peoples and local communities. Key areas of concern include: how payments for ecological services (PES) or environmental services will be financed through the Article 6.8 database, and how NMAs may be linked into Article 6.4.

PES or environmental services allow the private sector to “compensate” for damage done to Mother Earth. For example, in Colombia, a coal mining company is obligated by law to compensate for damage to ecosystems. When the coal mining company, Drummond, destroyed a river ecosystem, it compensated through a tree planting project in a community 100 kilometers away (and the community did not want the project and responded by destroying the trees). Although PES units are not financialized on a market like carbon offsets, environmental services allow destructive fossil fuel corporations to destroy biodiversity, impact Indigenous Peoples and local communities, and extract fossil fuels that cause climate change. Further, laws for environmental services are being expanded in Brazil and Colombia that would restrict Indigenous Peoples and local communities from living in National Parks, making way for more environmental services “preservation” and “protection” projects. In this way, Article 6.8 could be a driver of land grabbing in the future.

Finally, proponents of Article 6.8 argue that the NMA units will stay out of the carbon markets. However, as IEN, we have sat in negotiations where representatives of the Green Climate Fund have stated that Article 6.8 would be linked to the Article 6.4 mechanism database. Further, at a global roundtable session with party representatives of Article 6.8 in Bonn in June 2023, The Nature Conservancy gave a presentation demonstrating how NMAs could be linked to the Article 6.4 mechanism database.

Any and all carbon pricing and offsets programs allow polluting industries to continue polluting.

Some proponents of Article 6 argue that projects in an unregulated voluntary market are doomed to be fraudulent, which is why a regulated program like Article 6 is necessary. Yet, the same problems in the voluntary markets arise in Article 6 including double-counting, leakage, timeframes, permanence as well as private sector involvement in Article 6.4 and Article 6.8. At the fundamental level, any and all carbon pricing and offsets programs allow polluting industries to continue polluting. Article 6 is no exception. The profit-seeking, development-focus of carbon trading and environmental services in Article 6 stands in opposition to the self-determination of Indigenous Peoples and local communities including small farmers, peasants, and forest-dependent communities. Market-driven mechanisms designed by carbon brokers, international financial institutions, and conservation NGOs reinforce dominant forms of colonial, capitalist, patriarchal power systems threatening Indigenous cosmovision, worldview, and traditional knowledge.   

The next three years are essential to resisting these false solutions that block us from phasing out fossil fuels and building a liveable future. COP 28, COP 29, and the lead-up to COP 30 in Brazil in 2025 are essential moments to push back against the details and structures of the Paris Agreement. As the Indigenous Environmental Network stated in 2015, if Article 6 of the Paris Agreement continues to build global carbon pricing and trading platforms, the Paris Agreement will be a crime against humanity and Mother Earth.