COP29 | Baku, Azerbaijan

Now Article 6 Has Been Negotiated, 'We Need to Start Implementing': Sources

November 27, 2024

Following a negotiated outcome on Article 6.2 and 6.4 of the Paris Agreement at COP29 in Baku, Azerbaijan last weekend, carbon market stakeholders applauded the update and prepared for the hard work in coming months needed to begin trading credits.

The nine-year period between when the Paris Agreement was negotiated and the outcome reached in Baku was "too long," said Bruno Carvalho Arruda, deputy head of climate action in the Brazilian Ministry of Foreign Affairs during a webinar hosted by the International Emissions Trading Association on Tuesday.

"I think [the outcome in Baku] was driven by a political understanding that it's time to start implementing," Arruda said. "We need to start implementing."

"I think that not everybody considered the decision to be perfect," Arruda continued. "But then, perfect depends on who you ask. And in multilateralism, everyone has their own definition of perfect."

"It allows the dust to settle," Pedro Carvalho, head of policy and markets at carbon project developer EcoSecurities, told OPIS. "Market actors can say, 'Look, those are the rules that we have to play with until at least 2028. So, let's try to work it out and see how the market can evolve.'"

Signatories of the Paris Agreement, known as the CMA, reached a decision on the first day of COP29 on Article 6.4, which will update and replace the international carbon market of the Kyoto Protocol, known as the Clean Development Mechanism. On Nov. 11, the CMA decided to allow the Article 6.4 Supervisory Body to oversee the establishment of the program, which has come to be known as the Paris Agreement Crediting Mechanism.

This work will involve authoring carbon credit methodologies, training technical experts to conduct verification and validation, developing the PACM registry and establishing PACM rules, modalities and procedures, among other functions.

It will also oversee the transition of CDM projects to the PACM.

Perumal Arumugam, manager of markets, non-markets and stakeholder interaction at the United Nations Framework Convention on Climate Change, said during the IETA webinar that projects could transition and register under PACM as soon as the first quarter of 2025.

"We are not starting from an empty slate," Arumugam said. "We have close to about 1,950 plus activities which have been assessed by the [UNFCCC] Secretariat as eligible to be part of Article 6.4" provided they adhere to the new PACM standards.

Article 6.2 sets out the methods for countries to trade carbon credits, known in the Paris Agreement as internationally transferred mitigation outcomes, on a bilateral basis. This proved to be a thornier subject for negotiators.

Delegates came very close to leaving COP29 without agreement on the subject, according to sources.

Just over an hour before a finalized text was passed, some negotiators "convincingly and knowingly said Article 6.2 agreements are dead," Resilient senior partner and CEO Lisa DeMarco said during the IETA webinar. "That should give you a sense of just how controversial those negotiations were leading into the final minutes of the COP."

The Article 6.2 text laid out content, timing and process details that are required for a host country to authorize an ITMO for use by a buyer country. It also established rules around ITMO transfers. For a host country to transfer an ITMO to a receiving country, it needs to authorize it for international transfer and issue a corresponding adjustment to its nationally determined contributions under the Paris Agreement.

One lingering question from carbon market stakeholders had involved what occurs in the potential event that a host country changes its mind about ITMO deals it has previously signed. The CMA decided that any changes to authorization "shall not apply to, or affect, mitigation outcomes that have already been first transferred, unless otherwise specified by the parties participating in the cooperative approach."

According to Carvalho, one key issue that remained unresolved involves who can purchase and retire ITMOs after they have been first issued. The text of the negotiated decision requires that the authorizing party names the "participating party(ies) and/or entities, if known, covered by the authorization."

This language could indicate that a host country could issue a broad authorization without naming who the end users will be, allowing the ITMO to be traded numerous times by intermediaries before it is retired, Carvalho said.

But a draft version of an authorization template in the decision's annex includes a place for "Acquiring participating party ID," indicating the end user would need to be named in advance and closing off the possibility that an ITMO could be traded like a voluntary carbon credit.

"I don't want to say that was just a typo, but maybe that was just a typo," Carvalho said. "But I think we will have clarity on this very soon because the technical expert review body will be reviewing reporting from countries. Noting that a lot of letters of authorization that are granted in the market today are unilateral, they will need to be very clear and say, 'Look, you need this information here.'"

Another key topic for Article 6.2 involved the registries that will account for these transfers. Many countries have established national registries that they intend to use for Article 6. Other delegates pushed for the use of the UN's Centralized Accounting and Reporting Platform (CARP) registry. Others had questioned whether CARP should simply account for ITMOs or if it should be able to issue ITMOs as well.

In the end, parties agreed to allow for both national registries and CARP, which will be able to issue credits itself should the host party choose to use it for that purpose.

Sources said that these decisions involved measuring transparency of the Article 6.2 process against accessibility and ease of use.

"It remains to be seen if were able to strike the right balance between transparency and usability," Arruda said. "We hope that the level of transparency that we are requesting should be enough to provide credibility to this tool, but not in a way that would suffocate its implementation."

Reporting by Henry Kronk, hkronk@opisnet.com
Editing by Jeremy Rakes, jrakes@opisnet.com

© 2024 Oil Price Information Service, LLC. All rights reserved.

COP29: Articles 6.2, 6.4 Adopted to Establish Global Carbon Market

November 23, 2024

Articles 6.2 and 6.4 of the Paris Agreement treaty have been adopted, establishing a new draft framework for an international carbon market, including the rules for cross-border bilateral trades of emissions credits.

During the 2024 UN Climate Change Conference (UNFCCC COP 29) closing plenary, COP29 President Mukhtar Babayev said that draft language for Article 6 was adopted.

The articles' adoption came nine years after the Paris Agreement on climate change treaty was adopted at COP21. COP 29 was held in Baku, Azerbaijan.

Article 6.4 establishes a primary international carbon market and essentially replaces the legacy Kyoto Protocol's Clean Development Mechanism (CDM). Article 6.2 instructs countries on how to trade carbon credits across borders as Internationally Transferred Mitigation Outcomes (ITMOs), a mechanism meant to safeguard against double counting.

Article 6.4 Supervisory Body (SB) Chair Olga Gassan-zade said in a LinkedIn post on Saturday that Article 6 "is the most tangible and measurable tool the world has to scale up climate investments in developing countries. It's time to demonstrate what it can do."

According to the UN, the SB will now work to create a sustainable development tool to allow 6.4 participants to prove they upheld "do no harm" principles and contributed to the 17 UN Sustainable Development Goals. It will also establish a registry and crediting methodologies and has developed a preliminary workplan for 2025.

Moving forward, SB will report annually on its progress to the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement (CMA). The CMA oversees the implementation of the Paris Agreement and meets annually during the COP.

Already, a series of deals under Article 6.2 were reached during the second week of COP29. Azerbaijan, Norway and Sweden had signed four bilateral agreements outlining the terms under which they planned to purchase credits from host countries Zambia, Nepal and Benin, OPIS reported on Wednesday.

COP29 was scheduled to run from Nov. 11 to 22, but it went into overtime Friday night as delegates hit an impasse negotiating the New Collective Quantified Goal on climate finance. That decision will determine the target annual funding that developed countries will provide to developing countries by 2035.

The world's largest annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Emmeline Willey, ewilley@opisnet.com 
Editing by Bridget Hunsucker, bhunsucker@opisnet.com 

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COP29: Top Climate Official Confident Pres. Lula to Sign Carbon Market Bill

November 21, 2024

BAKU, Azerbaijan - Brazil's national secretary for climate change told OPIS Thursday evening she is confident President Luiz Inacio Lula Da Silva would sign a bill creating the country's national emissions trading system before the congressional recess begins on Dec. 22.

Ana Toni, Brazil's national secretary for climate change, said that she hopes the president will sign the bill into law "very quickly."

"[The bill] passed the Congress," Toni told OPIS after an event at the Brazilian pavilion. "We will make sure that he does sign."

Toni's show of confidence comes just a day after the Brazilian lower house of congress, or Chamber of Deputies, approved a bill to create a national ETS, making one revision to up the environmental investment requirements for insurers.

Last week, Toni told OPIS at the U.K. pavilion that national carbon compliance markets were instrumental for reducing emissions.

"We need many tools on the financial and economic instruments and carbon markets are absolutely vital," Toni said at the time. "We hope that we're going to finalize the debate and negotiations [this week], but we need to have many more tools and I think, like the U.K., we will have our carbon market decided today in Brazil in Parliament."

The bill would require emitters of more than 10,000 metric tons per year of carbon dioxide to track and report emissions. Emitters of over 25,000 mt per year of carbon dioxide would be required to keep emissions below the law's cap through internal reductions or purchases of ETS-eligible offsets. Emissions caps have not been decided.

The Federal Senate had previously approved an amended version of the bill last week. Further major revisions were not anticipated at that point, sources told OPIS.

The bill passed the Chamber of Deputies on Tuesday with minimal edits. The Chamber of Deputies rejected an article from the senate's most recent version of the bill in favor of reinstating an earlier provision, which effectively raised insurance companies' minimum obligatory investment in environmental assets and funds from 0.5% to 1%.

A local market participant expected the ETS could be up and running beyond 2030. The bill's regulatory, reporting and testing phases would each take one year, and the source expected additional years would be needed to fully implement the bill.

Nature-based projects, such as REDD+ and afforestation/reforestation programs, would be eligible to supply credits for the ETS, according to the bill. Project eligibility would depend on which methodologies were approved during the system's regulatory phase.

REDD+ stands for reducing emissions from deforestation and forest degradation.

The world's largest annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Humberto J.Rocha, hrocha@opisnet.com & Emmeline Willey, ewilley@opisnet.com 
Editing by Jeremy Rakes, jrakes@opisnet.com and Michael Kelly, mkelly@opisnet.com 

© 2024 Oil Price Information Service, LLC. All rights reserved.

COP29: Flurry of Article 6.2 Agreements Decide Frameworks, But No Deals Yet

November 20, 2024

BAKU, Azerbaijan - Azerbaijan, Norway and Sweden have signed four bilateral framework agreements detailing the terms under which they plan to purchase carbon credits from host countries Zambia, Nepal and Benin during the second week of the United Nations Climate Change Conference.

Norway's agreements accompanied the launch on Tuesday of its Global Emissions Reduction Initiative, a NOK 8.2 billion ($740 million) fund dedicated to Article 6 capacity building and Article 6 credit purchases, known under the Paris Agreement as internationally transferred mitigation outcomes.

The country had signed bilateral framework agreements with Zambia and Benin and expected to do so with Senegal during the conference, said Martine Røiseland, head of communications at the country's Ministry of Climate and Environment. But these agreements only provided the legal framework for ITMO trades to occur and did not deliver any credits.

Article 6 of the Paris Agreement established means by which countries can work together to achieve their nationally determined contributions to reducing emissions. Article 6.2 relates specifically to bilateral trades. To transact an ITMO, the host country must make a corresponding adjustment to its NDC to ensure the credit is not counted by both the issuing and purchasing countries.

The full Article 6.2 text has yet to be negotiated by Paris Agreement signatories, but cooperative approaches have been allowed to proceed.

To date, Switzerland is the only country that has purchased ITMOs from host countries, the first of which was signed with Thailand and announced in January.NOGER will provide results-based payment for carbon reduction activities once host countries implement them, Røiseland said.

"Discussions with Senegal, Zambia and Benin are currently focused on the energy sector and developing renewable energy," Røiseland said. "The focus on energy is primarily driven by requests from countries themselves on where they wish to cooperate and make use of carbon finance. That does not mean that other sectors are excluded, such as waste, transport or wastewater.

"However, the NOGER Initiative is not planning to finance activities within the forest and land use sector. This is because we already have a significant, ongoing effort through the Norwegian International Forest and Climate Initiative."

Speaking at the NOGER launch, Zambian Ministry of Green Economy and Environment Secretary Douty Chimbamba said his country "is currently going through a punishing drought." The country's electricity grid relies heavily on hydropower and has seen its generation fall by more than 50%, Chibamba said.

"These bilateral agreements we have signed open up the power sector to the private sector in Zambia, so we expect a lot of interest in this space that will help us to diversify our energy generation," Chibamba said.

Norway has set a binding target to achieve 55% emissions reductions compared to its 1990 baseline by 2030 and has set a non-binding ambition to achieve carbon neutrality by the same year, but the country was not in a position to determine what volume of ITMOs it planned to acquire from its agreements, Røiseland said.Sweden has followed a similar approach. It concluded a bilateral framework agreement with Zambia on Monday and Nepal on Wednesday.

Nepal Ministry of Forest and Environment Secretary Deepak Kharal said he was grateful to sign his country's first Article 6.2 bilateral framework and hopes that Paris Agreement signatories will make progress negotiating the document's text.

"We are awaiting the decision from COP about establishing carbon markets," Kharal said, referring to Article 6.4, which replaces and updates the international carbon market created by the Clean Development Mechanism of the Kyoto Protocol.

"Bilateral agreement is equally important," Kharal said. "We are very happy to have an agreement with the Swedish government. Now, we are able to work together, and we want to sell our carbon to other parties, too. We are very hopeful that [negotiators] will come to a decision at this COP because at the next COP, we are not sure what will happen."

The world's annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Henry Kronk, hkronk@opisnet.com
Editing by Jeremy Rakes, jrakes@opisnet.com and Jeff Barber, jbarber@opisnet.com 

© 2024 Oil Price Information Service, LLC. All rights reserved.

COP29: Article 6 Deals Remain Elusive but Voluntary Demand is Gaining Steam

November 19, 2024

BAKU, Azerbaijan - While United Nations leaders stress ambition at the finance-focused COP29, host countries have millions of credits that remain unsold, sources told OPIS on the sidelines of the event.

"It's generally true that there are a lot of promises made, but only a few offtakers are there," said Noah Gyimah, chief investment officer of the Accra-based Jospong Group, which developed an Article 6-aligned carbon project in Ghana. The conglomerate brokered an Article 6.2 bilateral trade between Ghana and Switzerland in 2023 at COP28 in Dubai.

"We were fortunate to work with the Swiss government, and we are aware that they are able to take a bit more," Gyimah said. "But after the Swiss government, we haven't really identified [other buyers]."

So far at COP29, Benin and Norway have closed an Article 6 trade and Ghana and Singapore furthered their existing agreement, according to news releases from the respective countries. Outside of these agreements, several countries have announced plans and progress for Article 6 readiness.

But host countries still have credits, which represent millions of metric tons of carbon dioxide emissions reductions and removals, that they have yet to sell.

The private sector may begin to pick up some of the slack, said Michael Mathres, chief marketing officer of ITMO ltd. The company promotes UN Framework Convention on Climate Change REDD+ credits developed by members of the Coalition for Rainforest Nations. According to Mathres, his company has had over 200 conversations with interested buyers in recent months, the majority of which have been voluntary actors. ITMO ltd has been working to sell credits issued to Suriname since August.

"Our focus here at COP29 has been to find that first buyer," Mathres continued. "We have five very interested buyers and we have meetings with them today. So we're hoping we can announce something this week, fingers crossed."

Article 6 of the Paris Agreement outlined means by which countries could work together to pursue their nationally determined contributions (NDCs) to combatting climate change. Article 6.4 was designed to replace and update the Clean Development Mechanism, the international carbon market created under the Kyoto Protocol. Article 6.2 established methods for countries to bilaterally trade credits, known in the text as internationally transferred mitigation outcomes.

COP29 negotiators reached an agreement on Article 6.4 on Nov. 11 to allow the Article 6.4 Supervisory Body to author key aspects of the text and implement the mechanism. But until that comes to pass, Article 6.4 trades cannot occur.

Article 6.2 has not been fully negotiated either, but bilateral trades have been allowed to proceed. To trade ITMOs, host countries must make a corresponding adjustment to their NDC to ensure the credits are not counted twice.

Before COP29 convened, 20 Article 6.2 deals had been signed, up from 17 agreements in May, according to the UN Environmental Program Copenhagen Climate Center.

"This is not a huge global market," said Alexandra Soezer, director of the Doha-based Climate Action Center of Excellence, which works to facilitate Article 6 transactions. Article 6-aligned credits from individual countries "could satisfy all the demand from current government buyers," Soezer said. "Countries are displaying their identities," said Professor Joseph Malassi, who advises the Democratic Republic of the Congo's Ministry of Environment. The DRC is underway with preparations to facilitate Article 6 transactions, Malassi added.

"We have over 150 million hectares [of standing forest]," Malassi said. "That is very important. That is good news for the planet. But some countries are thinking about this as a business issue. They want to output as little as possible and gain as much as possible. That's not going to work."

The Article 6.2 transactions that have occurred have demonstrated price levels far above non-Article 6 credits that trade in the voluntary market.

Switzerland paid an average price of CHF27 ($31.40)/mt for ITMOs in 2023. Meanwhile, Sweden has transacted at around $40/mt, Soezer said. Singapore also accepts Article 6 credits to cover up to 5% of its carbon tax. The tax rate was set at S$25 ($18.85)/mt for 2024 and 2025 and will increase to S$45/mt in 2026.

Meanwhile, the OPIS calculated its REDD+ V21 Credits Average at $8.25/mt on Monday.

"This is a climate finance COP, right?" Mathres said. "Everybody's been talking about climate finance. What does the COP29 Presidency do at the beginning? [Make progress on] Article 6.4 to send a strong signal. Okay, fine. Now let's make it happen. There are Article 6 credits out there, so let's provide the liquidity."

The world's annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Henry Kronk, hkronk@opisnet.com
Editing by Rob Sheridan r.sheridan@opisnet.com 

© 2024 Oil Price Information Service, LLC. All rights reserved.

COP29: UK-EU ETS Linkage Could be 'Easy Thing', German Climate Official Says

November 18, 2024

BAKU, Azerbaijan -- Linking the United Kingdom and the European Union emissions trading systems (ETS) could be an "easy thing", a senior German government official told OPIS at COP29 on Monday.

Dirk Weinreich, head of the climate legislation and emissions trading division at the German Federal Ministry for Economic Affairs & Climate Action, told OPIS that he thought linkage between the two carbon markets could be possible as the U.K. was part of the EU's carbon compliance market prior to Brexit.

"The linkage with the U.K. ETS could be an easy thing because once we [were together]. There must be political will...maybe they [will] come together in the [near] future," Weinreich said on the sidelines of a German Pavilion event.

The German official added that global coordination between countries was also important through fora like the Climate Club, an intergovernmental initiative promoting industrial decarbonization. Weinreich's comments come at a time when the U.K.'s new Labour government has not publicly signaled an intention to link with the EU ETS.

Germany is the largest emitter of greenhouse gases in the EU, registering 673 million tons of carbon dioxide in 2023, according to the German Environment Agency. The country also has its own additional national carbon scheme, which covers the transport and building sectors and has been operational since 2021.

When the U.K. broke away from the EU ETS in the post-Brexit period and its ETS became operational at the start of 2021, UKAs initially traded above EU carbon allowances (EUAs) and were the most expensive carbon allowances in the world, trading at £97.75 ($123.49). But British carbon prices slumped to just over £30/mt at the start of this year.

Buying one allowance enables an entity subject to an ETS to emit one metric ton of carbon.

Large price differentials between U.K. and EU carbon allowances have become the norm over the last two years. On Friday, OPIS assessed the benchmark December 2024 EU emissions allowance at €68.15/mt ($71.97) and the equivalent U.K. allowance at £38.29 ($48.34).

U.K. media reports in April this year suggested that the Labour Party might examine relinking the two trading systems as part of a broader reset of relations with the European Union.

The potential for an agreement on relinking the two ETSs was made explicit in Article 392 of the post-Brexit EU-UK Trade and Cooperation Agreement (TCA) signed between the British government and the European Commission in April 2021, just a few months after the U.K.'s breakaway ETS became operational.

"The Parties shall cooperate on carbon pricing. They shall give serious consideration to linking their respective carbon pricing systems in a way that preserves the integrity of these systems and provides for the possibility to increase their effectiveness," the TCA states.

Industry trade associations in the U.K. such as UK Steel and Energy UK have advocated for linkage with the EU ETS, especially as the EU's carbon border adjustment mechanism (CBAM) will require EU-based companies to pay for certificates that represent their imported products' embedded emissions.

The CBAM will be phased in over an eight year period from 2026 and the price applied to those imported emissions will be based on the weekly average auction price of EU carbon allowances.

The British government has confirmed it will launch its own CBAM covering the same exact sectors as the EU tariff -- steel, iron, cement, fertilizers, hydrogen and electricity -- but its CBAM will start in 2027.

In the absence of linkage, varying EU and U.K. carbon prices will mean that parties wishing to import products in those sectors will have to calculate the spread between the two ETSs' prices to work out how many CBAM certificates they must buy.

Plethora of CBAMs Could 'Fragment' Trade: ICC

Andrew Wilson, deputy secretary general of the International Chamber of Commerce (ICC), warned that, with countries like the U.K., Australia, New Zealand and even the United States considering carbon tariffs or CBAM-like measures, global trade might be headed in a "dangerous direction", as developing countries could feel their efforts are being undermined by developed countries.

"We could be in a world...where we have a patchwork of border adjustment mechanisms with different calculation requirements, different compliance requirements and that will significantly accentuate the problem," Wilson told OPIS, whose employer represents over 45 million businesses in 170 countries. "Companies are already facing one very well-intentioned scheme," said Wilson, referring to the EU CBAM, "and there is a real risk, if we don't get this right, of fragmenting the trade system and undermining the cooperation that is needed here to tackle climate change."

Last Wednesday, Ed Miliband, the U.K.'s secretary of state for energy security and net zero, declined to answer questions from OPIS on whether he or his officials had discussed the possibilities of linkage with his EU counterparts.

"[The U.K. ETS] is one of the tools in the box. It's an important tool [and] I'm not going to sort of speculate about the path of prices, but it's one of our tools to make this transition happen. But we've got lots of different tools at our disposal," Miliband said.

The world's annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Humberto J.Rocha, hrocha@opisnet.com
Editing by Anthony Lane, alane@opisnet.com

© 2024 Oil Price Information Service, LLC. All rights reserved.

COP29: ICVCM Approves CCP Labels for Three REDD+ Methodologies from Verra and ART

November 14, 2024

The Integrity Council for the Voluntary Carbon Market (ICVCM) has found that three REDD+ methodologies meet the criteria for its Core Carbon Principles (CCP) quality benchmark, the organization announced Friday.

No projects under the approved methodologies have issued credits so far, but in-development and transitioning projects were expected to produce over 400 million credits during their first crediting period, ICVCM said in a news release.

Approved methodologies include Verra's VM0048 Reducing Emissions from Deforestation and Forest Degradation v1.0, its Jurisdictional and Nested REDD+ (JNR) Framework v4.0 and the Architecture for REDD+ Transactions' The REDD+ Environmental Excellence Standard (TREES) v2.0.

While several projects were in development under ART's TREES and Verra's JNR standards, jurisdictional data sets for VM0048 were not available for use as of the announcement. Just one country, Guyana, had issued credits under ART, but it used the registry's High Forest Cover/Low Deforestation module, which is still under consideration by the ICVCM for CCP eligibility.

ICVCM's decision gave the nod of approval for a project type that has drawn scientific scrutiny and viral criticism in recent years for generating credits that over-represented their real emissions reductions. But the methodologies approved are newer and apply frameworks that their authors have said remove the risk of over-crediting.

Verra and ART welcomed their REDD+ methodologies' approval.

"We appreciate this recognition of the rigor of our program," ART Executive Director Mary Grady said in a statement. "Tropical forest countries need finance to reverse existing rates of deforestation as well as to protect and restore forests. TREES offers jurisdictions conservative approaches to certify high-integrity emission reductions and removals at scale for these actions."

"Keeping forests standing is among the most immediate and effective tools we have in mitigating climate change impacts," Naomi Swickard, Verra senior director of REDD+ program development and innovation, said in a statement. "With deforestation accelerating worldwide, REDD projects are critical to delivering real and credible results, conserving biodiversity, and supporting local communities. This approval is a crucial step forward in scaling high-integrity, nature-based solutions when the world needs them most."REDD+ stands for reducing emissions from deforestation and forest degradation. Verra did not submit its older REDD+ methodologies, including VM0006, VM0007, VM0009, VM0015 and VM0037, for CCP consideration. These guide projects that avoid unplanned deforestation. VM0007 includes a module for avoiding planned deforestation.

Verra launched VM0048 to update and replace these older methodologies under a new, consolidated standard. The new methodology, among several changes, transfers the baseline-setting process from project developers to Verra itself.The registry will assess baselines based on jurisdiction-wide deforestation and forest cover data, instead of allowing project developers to compare their project to a nearby reference region of their choosing. According to REDD+ critics, this process allowed developers to game their baselines to indicate their projects had greater forest conservation effects than what was actually achieved, as OPIS has previously reported.

Verra has yet to publish any of its jurisdictional data sets, but an organization spokesperson told OPIS it plans to do so "in the coming weeks." Projects registered under older Verra REDD+ methodologies must transition to VM0048 during their next validation or verification following the publication of their respective jurisdictional data. Developers will also have the opportunity to verify previously issued active credits under VM0048.

Over 417 million credits have been issued under Verra's legacy REDD+ methodologies, of which just under 249 million had been retired and 168 million remained active.

Twenty-one projects using VM0048 were in Verra's development pipeline and had the potential to issue roughly 300 million credits in their first crediting period, ICVCM said.

No ART projects have issued CCP-eligible credits to date, but Costa Rica, Ghana and Vietnam were in ART's validation and verification process, while six additional jurisdictions were nearing readiness, ART said in a news release Friday.

"These nine jurisdictions are expected to be issued over 120 million TREEScredits," ART said.

REDD+ prices have fallen steadily since late 2022, when criticisms of the project type began to gather steam.The OPIS REDD+ Vintage 2020 Credits Average hit a historic high of $15.593/metric ton in mid-October 2022, a low of $5.933/mt in June and has remained below $6.50/mt since. The price assessment average has been weighed down by ongoing trades, bids and offers for some REDD+ credits below $1/mt, despite a resurgence of REDD+ trades in the $10/mt to $15/mt range during the second half of the year.

Several developers have told OPIS they intend to hold off on pursuing new verification rounds until VM0048 was available for use. Other sources have expressed optimism that CCP-labeled credits could command significant price premiums in the voluntary carbon market.

ICVCM's CCPs are intended to set a quality and integrity benchmark for the voluntary carbon market. They assess both carbon registries and individual methodologies. The Council has approved five registries at the program level: ACR, ART, Gold Standard, Verra and the Climate Action Reserve.

The organization previously approved seven methodologies involving landfill gas abatement and ozone-depleting substance destruction in June. The Council rejected renewable energy methodologies in August. At the time, the organization estimated that roughly 27 million credits were eligible for a CCP label. That number was unchanged as of Friday's REDD+ announcement.

The world's annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Henry Kronk, hkronk@opisnet.com
Editing by Jeremy Rakes, jrakes@opisnet.com

© 2024 Oil Price Information Service, LLC. All rights reserved.

COP29: Government Buys Can Scale Up Biodiversity Market, Australian NGOs Say

November 14, 2024

COP29: Government Buys Can Scale Up Biodiversity Market, Australian NGOs Say

BAKU, Azerbaijan - Purchases of voluntary biodiversity credits by the Australian government could help to scale up the Nature Repair Market (NRM), the country's incoming voluntary market, according to the chief executive of the Australian Sustainable Finance Institute (ASFI).

Kristy Graham, chief executive officer of ASFI, an organization that engages with the country's financial sector institutions, told OPIS on the sidelines of the Australian Pavilion that while financial institutions have shown interest in biodiversity credits, demand has yet to materialize on a substantial scale.

"What I suspect will happen is that there will be some kind of government support in terms of demand pool in the early days of the [voluntary biodiversity credit market], as happened in Australia with the [Australian Carbon Credits Unit Scheme]. It was sort of a government fund that was a buyer of [carbon] credits early on before corporate demand...stepped up, and I suspect the NRM will evolve in a similar way," Graham said.

The Australian government passed the Nature Repair Act in December 2023 to establish the world's first nationally legislated voluntary biodiversity market. Individuals or organizations can partake in nature restoration projects to create a "tradable biodiversity certificate".

The market is expected to begin in 2025, and the government has said that First Nations people, conservation groups and farmers can carry out nature restoration projects in the country's land or waters. The government is currently "collaborating with experts and stakeholders to develop methods" to monitor and verify biodiversity gains from these voluntary projects, according to the country's Department of Climate Change, Energy, the Environment and Water.

Graham said that reforms in Australian environmental legislation had been slower to progress than expected and that she believes there would be "very mixed views" on the merits of a biodiversity credit market scheme becoming mandatory or how this could contribute to achieving nature-positive commitments.

"I suspect there will be, over time, tighter environmental regulation, which may drive demand [in biodiversity credits]," Graham said. The ASFI chief added that she advises companies to think about biodiversity credits as part of their overall strategy on nature and consider their nature-related risks, impacts and opportunities.

Australia already has voluntary biodiversity credit project developers. Wilderlands, one such developer, is listed on the OPIS Biodiversity Market Report, with four projects across the country that offer Biological Diversity Units. Those BDUs represent a square meter unit of land that is protected and actively managed for at least 20 years.

Regulation and Voluntary Frameworks Driving Nature-related Disclosures

Skye Glenday, co-chief executive officer of Climate Friendly, a carbon farming project developer in Australia, told OPIS that she believes the government's intention is to see different biodiversity credit methodologies converge on a single version akin to the national framework for carbon farming.

Aside from the ongoing review of the NRM, Glenday believes there are important legal developments like the government's passage of a law mandating that both listed and unlisted companies disclose their material climate-related risks and opportunities in their annual financial statements, starting from 2025.

The new legislation -- known as the Treasury Laws Amendment Bill 2024 -- will be phased in gradually, with large companies required to report by 2025, medium companies in July 2026 and smaller companies by July 2027 based on consolidated revenues, gross assets and number of employees.

These types of legal obligations -- along with voluntary frameworks like the Taskforce for Nature-related Financial Disclosures (TNFD) that encourages businesses to report on the impact of their operations on nature -- have encouraged companies to seek advice from groups like ASFI and Climate Friendly, Glenday said.

Climate Friendly works with land managers across Australia, and Glenday said that this group is "interested in any financial mechanisms that will help them invest", such as biodiversity credits.

Glenday added that academic groups like Australia-based Accounting for Nature, an environmental accounting body that works with biodiversity credit developers like U.K.-based CreditNature, have been crucial in helping to develop and verify biodiversity credit standards. Bodies like these, Glenday said, are forces that could help the government eventually "have a regulated type of national framework as methods come out."

The world's annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Humberto J.Rocha, hrocha@opisnet.com
Editing by Anthony Lane, alane@opisnet.com

COP29: U.K. ETS an 'Important Tool' for Energy Transition Says Ed Miliband

November 13, 2024

BAKU, Azerbaijan - The United Kingdom's emissions trading system (UK ETS) is a "tool" for the energy transition U.K. secretary of state for energy security and net zero Ed Miliband told OPIS, but more ambitious carbon prices are necessary to meet the country's climate targets, according to an energy trade association representative.

OPIS asked Miliband during an event at the U.K. Pavilion how British carbon prices -- currently trading around £40/mt ($50.96) after peaking in August 2022 at £97.75/mt -- affect the country's climate goals and if government officials had discussed or were discussing potential linkage with the European Union
Emissions Trading System (EU ETS).

"[The U.K. ETS] is one of the tools in the box, it's an important tool [and] I'm not going to sort of speculate about the path of prices, but it's one of our tools to make this transition happen, but we've got lots of different tools at our disposal," Miliband said.

On Tuesday, British prime minister Keir Starmer said at COP29 that the U.K. is aiming for an 81% cut in emissions by 2035 based on 1990 levels.

Miliband declined to answer the linkage question, a topic that Energy UK, a trade association for the energy industry in the country, has advocated for given the low levels at which U.K. carbon allowances (UKAs) have traded throughout the last year.

"When it comes to [U.K. carbon prices], the first thing to say is that it has been really disappointing to see systemically low prices over the last year or two," Berman said. "Industry, not just the energy sector, has expressed concern that this simply does not send a robust signal to decarbonize."

Linkage with the higher-priced EU ETS would help bring carbon prices up in the UK ETS to a level that would be consistent with the country's climate ambitions, Berman said.

On Tuesday, OPIS assessed the December 2024 EU carbon allowance (EUAs) at €66.805/mt ($70.87) and UKAs at £38.355/mt. UKAs have traded at a discount to EUAs for the entirety of 2024, with a gulf of nearly $22 between both allowances.

When the U.K. broke away from the EU ETS in the post-Brexit period and its ETS started trading at the start of 2021, UKAs initially traded above EU carbon allowances (EUAs) and were the most expensive carbon allowances in the world. But British carbon prices slumped to just over £30/mt at the start of this year.

Adam Berman, director of policy and advocacy for Energy UK, the trade association for the domestic energy industry, told OPIS that the U.K. ETS "hasn't been the main area of focus for this government yet". However, with the government announcing more ambitious and tighter climate targets, an equally
ambitious carbon price will be necessary, Berman said.

Energy UK, according to Berman, has said that the "best way to try and stabilize" the carbon market is through linkage with the EU ETS, especially with the EU carbon border adjustment mechanism (CBAM) coming online in 2026.

The CBAM will require EU companies to pay the EUA price that will be applied to the embedded emissions of imported products in six sectors: iron, steel, cement, aluminum, fertilizer, hydrogen and electricity. The EU Commission has said that this measure will level the playing field for domestic industry and prevent carbon leakage, or domestic industry decamping to set up operations in countries without a carbon price.

The U.K. is also seeking to implement its own CBAM, which is slated to go online in 2027 and covers the exact same sectors as the EU tariff. The year 2026 could be "complete chaos" for how the UK trades with the EU given this gap between carbon tariff timelines, Berman said.

"We've told the previous [Conservative] government and this [Labour] government that linkage should absolutely be a priority," Berman said. "[The UK government] is not going to negotiate a linkage agreement within just a few months...we have been saying, the sooner you can instigate these negotiations with the EU, the more likely it is that we'll be able to agree to that in good time and avoid the impact of the EU CBAM in 2026."

The world's largest annual climate change conference, the United Nations Conference of the Parties, or COP29, runs Nov. 11 to Nov. 22, in Baku, Azerbaijan.

Reporting by Humberto J.Rocha, hrocha@opisnet.com
Editing by Anthony Lane, alane@opisnet.com

COP29: CMA Paves the Way for Supervisory Body to Put Article 6.4 in Action

November 11, 2024

Negotiators empowered a subgroup to proceed with the implementation of an international carbon market that would support collective action under the Paris Agreement on the first day of the United Nations Climate Change Conference in Baku, Azerbaijan.

During the opening of the meeting of the Parties to the Paris Agreement, known as the CMA, COP29 President Mukhtar Babayev advanced a decision supporting the recommendations of the Article 6.4 Supervisory Body finalized during a previous meeting in Baku in October.

The SB had recommended changing the Article 6.4 rule-making process. Instead of sending recommendations to the broader CMA, the SB proposed authoring Article 6.4 rules itself with the blessing of the CMA, OPIS previously reported.

"We want to reassure you that the proposed decision on the annual reports of the Supervisory Body and the Article 6.4 standards would not conclude our work
on Article 6.4 at this section," Babayev said before the decision. "This decision will in no way prevent parties from providing further guidance to the Supervisory Body [or] the CMA. Rather, the work of the CMA will continue under the contact group in which parties can consider any further guidance to the Supervisory Body."

The decision was adopted but with guarded support from some delegates. Speaking after the resolution, a representative of the Tuvalu delegation said they had agreed to support it "with some reluctance."

"We hope that adopting a decision at the start of the CMA does not create a precedent for future CMAs or COPs," an unidentified member of the Tuvalu delegation said. "Each body under the COP or CMA has a mandate to report back to the CMA or COP, time be given to have due consideration of these reports and the CMA and COPs to make decisions based on these deliberations. This respects a party-driven process.

"Unfortunately, the manner in which we have adopted this decision at the start of the CMA does not reflect this party-driven process. We are very uncomfortable with this trend and we sincerely hope [it] does not continue."

Article 6 of the Paris Agreement outlined avenues by which countries could collaborate to advance progress toward their nationally determined contributions. Article 6.4 was designed to replace and update the Clean Development Mechanism, which established an international carbon market under the Kyoto Protocol.

Progress on Article 6.4 had stalled at the last two COPs, preventing collective action to proceed under its terms. In the lead up to the present COP, several negotiators and stakeholders expressed an urgency in taking action on the Article 6.4 crediting mechanism, OPIS previously reported.

In addition to the proposal for a new decision-making structure, which the CMA approved Monday, the Article 6.4 SB adopted two measures during their October meeting. The first established requirements for methodologies that would be approved to supply credits to the Article 6.4 market. The second involved standards on removal project types.

The CMA resolution directed the Article 6.4 SB to "expeditiously elaborate the standards" on methodologies and removals and "report on the progress made on the application of those standards in its annual report ... including on the need for any further guidance."

Reporting by Henry Kronk, hkronk@opisnet.com
Editing by Jeremy Rakes, jrakes@opisnet.com & Christie Citranglo, ccitranglo@opisnet.com

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