The 27th Conference of the Parties has arrived. Between the 6th and 18th of November, COP27 will be held in Sharm El Sheikh, Egypt. Building on the theme of ‘ambition’ that defined its predecessor, this conference will be focused upon ‘implementation’. With climate finance scheduled as a key point of discussion, it is only natural that stakeholders across the voluntary carbon market (VCM) are attentively waiting to see how this COP will impact the sector. Like many others, we have our hopes for COP27 and are looking forward to being at the conference to be part of some of the discussions. Here, we outline our ideal outcomes from the conference to ‘manifest’ the strong implementation strategies that we would like to see going forward.
The big picture
It’s safe to say that it is been a turbulent year since leaders gathered in Glasgow for COP26. The past year has seen some major climatic events. In June, catastrophic flooding began in Pakistan which has, so far, impacted a minimum of 33 million people[1]. By July, a record-breaking heatwave was sweeping parts of the northern hemisphere, causing wildfires and heat-related deaths[2]. These are just two examples, but they make it clear: it is no longer possible (or responsible) to ignore the climate crisis. These events, coupled with this year’s urgent message from the IPCC[3], should bring an unequivocable urgency to COP27.
Social and political challenges will also determine the direction of the conference. While the economic impacts of the pandemic still ricochet around the globe, Russia’s ongoing war on Ukraine has sent further shockwaves of geopolitical uncertainty. The human cost of this conflict has been indescribable, and we stand in continued solidarity with all those affected. Simultaneously, rising energy prices will force millions more to make an impossible choice between heating or eating. Faced with such critical challenges, it almost goes without saying that energy security will be high on the agenda and will likely underpin every discussion held at the conference.
The small(er) picture
Having examined the wider setting within which the conference operates, we can delve into the specific context as it relates to the VCM. With significant pledges made, many agree that COP26 was positive for climate finance. We saw 30 financial institutions aiming to remove agriculturally driven deforestation from their portfolios by 2025[4] and witnessed many countries commit to increasing climate adaptation finance by 50% (admittedly compared only to 2019 levels[5]). Even so, more finance is urgently required.
While not expressly mentioned in the Paris Rulebook, the decisions made on Article 6 at COP26 had – and continue to have – significant implications for the VCM. This section of the Paris Agreement stipulates ways in which countries can transfer carbon credits earned from their own minimisation of greenhouse gas emissions to assist others in meeting their climate targets[6]. However, for Article 6 to be implemented with maximum effectiveness, there are further details which we would like to see fine-tuned at COP27.
Article 6: clarity and implementation
On Article 6, Parties seem much closer to an agreement – there are less brackets in the draft text – but a number of contentious issues still exist. These include the definitions of avoidance and removals, REDD+ and sovereign issuance, the authorisation of emissions reductions and corresponding adjustment.
Anyone involved in the voluntary carbon market will be particularly keen to see two key parts of Article 6 clarified. The first is Article 6.2, which addresses bilateral emissions reductions trading. The second is Article 6.4 that establishes a new crediting mechanism under UN-managed oversight. We hope that discussions at COP27 will finalise all the remaining questions if carbon credits are traded internationally. We also see the clarification of any exemptions and registration fees as key to success.
In line with the conference theme, we hope to see progress on the implementation of Article 6 at COP27. This could include talks on the Article 6 infrastructure, including the databases and reporting mechanisms[7].
Corresponding adjustments
A corresponding adjustment is a carbon accounting procedure articulated in Article 6 to facilitate the responsible issue of carbon credits. If emission reductions or removals are claimed twice (e.g. by the country that generated the credit and by the country which purchased it), it undermines climate action.
To combat this, corresponding adjustments ensure that any credit which is ‘exported’ from the country where it was generated is only counted by the buyer of that credit. This is done through an ‘authorisation’ of credits ready for export by host countries. However, there is currently a lack of standardisation on the processes for countries to issue corresponding adjustments. If a standard practise could be clarified at COP27, we would view it as a great success.
Moreover, the way in which companies engage with Article 6 and how the accounting rules are implemented is still an open question. Private companies are currently operating in an uncertainty whether the credits they have invested in will need the official country authorisation. The authorisation is entirely at the discretion of each individual country, and it would provide a much needed clarity for the private sector if countries indicated their intentions in advance.
Encouragingly, the IETA report that 80% of countries of who defined a Nationally Determined Contribution (NDC) are intending to make use of Article 6[8]. However, we hope to see a widespread commitment to corresponding adjustment accounting; a final decision on whether corresponding adjustment will be mandatory and if it will be applied to voluntary credits. But overall, we hope to see serious steps to implement measures leading to significant emission reduction, even without corresponding adjustment, as a temporary measure.
Emissions avoidance
COP26 did not see the language surrounding emissions avoidance finalised in Article 6. Currently, it is not clear if emission avoidance qualifies as a mitigation strategy. Indeed, the media platform, Devex are confident that there will be talks on whether avoided emissions will qualify for carbon credit generation under Article 6[9]. This is a topic which we would like to see straightened out over the next weeks.
Climate and nature in tandem
It has become almost cliché to say ‘the dual challenge of climate change and nature loss’. Although it may be nice to expand our vocabularies, we can’t escape the fact that this message rings true. At present, climate decision making is conducted separately to that of biodiversity (COP15 for nature will be held in Montreal this December). However, this may not be the most effective strategy. We recognise that net zero will only be achieved by 2050 if we protect and restore ecosystems globally. The trees, the soil and the oceans all sequester carbon at scale. As such, protecting nature brings huge potential for climate change mitigation, while simultaneously benefitting biodiversity. This is why we hope to see more collaboration between COPs to enable more knowledge, finance and expertise to be shared[10].
Hopes for Africa
With many of our flagship portfolio projects based in African countries, we are particularly invested in what COP27 will mean for the continent. This is only the fifth COP ever to be held in Africa[11] so we are interested to see how it will impact national and regional progress on climate action. The meaning of a successful COP27 varies by region, however one thread of commonality ties them together – the need for climate justice. This approach recognises that without social resilience, environmental protection is not possible[12].
Driving action on climate justice requires large-scale, immediate funding[13]. Therefore, it is our overarching hope for COP27 that leaders in the Global North and private corporations agree to drastically increase the finance available for climate adaptation and mitigation strategies. With an abundance of tropical forests, Africa can be a world leader of these natural climate solutions, but such a transition needs the financial assistance of the biggest emitters. We are optimistic that this support can be galvanised at COP27 and demonstrate that, despite political challenges, climate action can prevail.
[1] https://www.unicef.org/emergencies/devastating-floods-pakistan-2022#:~:text=Around%2033%20million%20people%2C%20including,devastating%20rains%2C%20floods%20and%20landslides.
[2] https://www.gov.uk/government/news/ukhsa-and-ons-release-estimates-of-excess-deaths-during-summer-of-2022#:~:text=The%20heat%2Dperiod%20in%20the,over%20the%20age%20of%2065.
[3] https://www.ipcc.ch/report/ar6/wg2/
[4] https://tfaperspectives.turtl.co/story/tfa-perspectives-volume-2/page/5/1?utm_source=social&utm_medium=post&utm_campaign=ISSUE2_LAUNCHDAY_REPORTCOVER
[5] https://www.wri.org/insights/cop26-climate-pledges-tracking-progress#:~:text=This%20included%20pledges%20to%20set,just%20to%20name%20a%20few.
[6] https://www.devex.com/news/devexplains-what-s-next-for-global-carbon-credit-markets-104171
[7] https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/energy-transition/102722-cop27-may-not-focus-on-corresponding-adjustments-avoidance-carbon-credits-australian-official
[8] https://mcusercontent.com/a56b93cff5b695d2a902de8d0/files/72816d4a-47f6-f223-2580-35bbbdee1add/IETA_Pre_COP27_Briefing.01.pdf
[9] https://www.devex.com/news/devexplains-what-s-next-for-global-carbon-credit-markets-104171
[10] https://www.cisl.cam.ac.uk/cop-climate-change-conference/cop27?_cldee=K0y3iYY5lH7PqF-t-Ib0czyGhO8zhZKVCOeG5jy17T0hYtI9ICKVHam0BaoCZhI8&recipientid=contact-0f0b8a12f5b3ec11983f6045bd0f09b8-505ab0dedbee497ca80a5f7a48a950fc&esid=e2f4f45b-5b54-ed11-9562-002248428f84
[11] https://unfccc.int/process/bodies/supreme-bodies/conference-of-the-parties-cop
[12] https://www.weforum.org/agenda/2022/10/three-steps-to-africa-s-cop-succeeding-for-africans/
[13] https://www.cisl.cam.ac.uk/cop-climate-change-conference/cop27?_cldee=K0y3iYY5lH7PqF-t-Ib0czyGhO8zhZKVCOeG5jy17T0hYtI9ICKVHam0BaoCZhI8&recipientid=contact-0f0b8a12f5b3ec11983f6045bd0f09b8-505ab0dedbee497ca80a5f7a48a950fc&esid=e2f4f45b-5b54-ed11-9562-002248428f84
