Are carbon markets a climate solution or excuse for more pollution?

A little-known part of the Paris Agreement to curb global warming has been thrust into the spotlight at COP29: Article 6. 

This section of the deal concerns a carbon markets system, which would enable nations to produce pollution if they offset emissions elsewhere by buying carbon credits.  

It has been a big sticking point at previous climate summits, as some parties fear it risks undermining the urgent need to cut global emissions. In a bid to make progress this year, a technical committee was tasked with writing the rules to get the carbon markets mechanism off the ground.

Last night, this version of Article 6 was quickly adopted by countries in what COP29 lead negotiator Yalchin Rafiyev called an early “breakthrough” for the summit.

“This will be a game-changing tool to direct resources to the developing world and help us save up to 250 billion dollars a year when implementing our climate plans,” he told a press conference this morning.

But the gavelling through of Article 6 was criticised by climate justice groups, who said carbon markets allow major polluters to keep emitting at the expense of people and the planet.

“It sends a bad signal to open COP29 by legitimising carbon markets as a solution to climate change,” says Ilan Zugman, Latin America and Caribbean director of global climate campaign groups 350.org. “They are not – they will increase inequalities, infringe on human rights, and hinder real climate action.” 

Here’s a look at Article 6 and the carbon credits system it aims to implement – and why it’s so controversial. 

What is Article 6?

Article 6 first made an appearance at the Paris climate talks in 2015, where world leaders agreed to try to keep global warming below 1.5 degrees Celsius from pre-industrial levels.

Its aim is to outline how countries and companies can trade emissions reductions to remove and stop more carbon pollution reaching the atmosphere. The idea is to set up carbon trading markets, allowing higher polluters to offset some of the pollution they produce by buying carbon credits from less polluting countries.

Article 6 offers two ways for countries to do this. The first is for two nations to set their own rules and standards for carbon credit trades. Some countries are already signing deals to do this, including Singapore with the Philippines, Costa Rica and Sri Lanka, Switzerland with Ghana, Peru and Ukraine, among others.

The second option creates an international, UN-governed market that anyone can purchase credits through.

Isa Mulder, an expert on global carbon markets with the research group Carbon Market Watch, says the idea behind Article 6 is for countries to find the cheapest way to cut emissions. By trading carbon credits, it makes cutting global pollution cheaper and more efficient.

But Article 6 is contentious, leading to years of delays. At COP28, negotiations crumbled after disagreements on transparency, rules on credits that could be traded, and what makes a good carbon removal credit.

“There are other problems like when local communities don’t have a say in the project and are forced to resettle,” says Mulder, referring to how some tree-planting carbon credit schemes can happen on inhabited Indigenous lands. “So there’s a lot of human rights concerns.”

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United Nations secretary-general Antonio Guterres urged negotiators to “agree to rules for fair, effective carbon markets” and “leave no space for greenwashing or land-grabbing.”

How might Article 6 help reduce carbon pollution?

The hope of Article 6 is that it incentivises countries to collaborate to reach their climate goals.

Countries could generate carbon credits based on projects aimed to meet their own climate goals, such as protecting existing forests from development or shutting coal-fired plants.

Private-sector players or other high carbon polluter countries could then buy the credits, which would allow them to emit a certain amount of carbon dioxide or other greenhouse gas. 

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Heavy-polluting companies would be important customers.

Each credit would equal a tonne of CO2 or the equivalent of other greenhouse gases that can be reduced in the air, sequestered, or avoided by using green energies instead.

Money from the credits generated would go to local projects. The per-tonne price of carbon would fluctuate in the market, meaning that the higher it rises, the more green projects could fetch through new credits generated.

Under carbon markets, countries that lower their emissions can sell carbon credits. Countries that sell credits can use them for clean energy projects, such as installing solar panels or electrifying public transportation systems.

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But critics question whether it will be effective and worry it could lead to similar problems seen with the Kyoto Protocol, a 1997 pact for developed nations to reduce their heat-trapping gas emissions to 1990 levels and below. The deal was dealt a hammer blow when the then US administration withdrew from it.

“There’s a lot of concerns about whether that credit actually represents what it stands for,” says Mulder from Carbon Market Watch.

What could happen at Baku climate talks?

Monday’s decision signalled early momentum on establishing Article 6, which the COP29 presidency said it would prioritise this year.

But leaders still need to agree on other sections of the issue, including rules on two-nation carbon credit trading and the final details of the international, UN-governed market.

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Once finalised, Article 6 could reduce the cost of implementing national climate plans by $250 billion (around €236bn) annually according to UN estimates. The COP29 presidency will then encourage countries to participate in carbon trading.

But concerns remain about how the mechanism will work, given how it was developed.

“Communities’ consent and ownership over these initiatives are not just essential, but also a matter of respect and inclusion,” says David Nicholson, chief climate officer at Mercy Corps, a nonprofit that works on poverty, climate and other issues.

“We are concerned that the agreement lacks adequate protections to human rights and undermines the goals of the Paris Agreement, rather than supporting them. If these concerns aren’t addressed, the decision could allow carbon trading to take the place of genuine, much-needed climate finance commitments,” Nicholson adds.

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The approval of Article 6.4 “represents a violation of human rights and the original rights of Indigenous peoples,” comments Cacique Ninawa Huni Kui, President of the Federation of Huni Kui People of the State of Acre, from the Amazon, Brazil.

“Turning environmental protection and biodiversity into a commodity ignores the sacred value that these beings represent for Indigenous communities.”