COP 7 Nov 2024
COP16 Biodiversity: Despite the enthusiasm, a mixed picture for implementing commitments
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COP29 has been branded the “Finance COP” due to the expected focus on bolstering mechanisms for channelling funds towards climate action. This will involve complex negotiations on how to strengthen activity in the evolving voluntary carbon market, facilitate financial flows between countries, and realise the COP28 commitment to triple global renewable energy capacity and double energy efficiency by 2030. With the US election result likely to slow international climate legislation, attention turns sharply towards actors in the private sector to produce the innovation and intensity required to limit warming as far as possible.
Article 6 defines rules for the international trade of carbon credits among countries and companies. By establishing UN-endorsed market standards, Article 6 is on track to become a critical framework for incentivising the transfer of finance to high-quality carbon avoidance, reduction and removal projects, particularly in developing countries.
In a surprisingly early development at COP29, diplomats have approved key rules governing the trade of carbon credits under Article 6.4 of the Paris Agreement, breaking years of deadlock. This swift approval, achieved on the first day of the conference in Azerbaijan, represents both a significant milestone and a source of controversy.
The Article 6.4 Supervisory Body had taken the unusual step of finalising two key standards in October 2023, related to carbon removal and project assessment methodologies. The new framework is expected to provide clarity for trading emissions within an UN-supervised global carbon market, include stronger human rights safeguard and create standardisation for carbon dioxide removal (CDR) project methodologies.
While this represents significant progress, several technical challenges remain to be addressed in 2025 and beyond. The success of these market mechanisms will determine not only the scale of direct climate action but also the availability of funds for adaptation commitments.
Also central to Article 6 credits are corresponding adjustments, an accounting exercise to ensure that carbon credits are not double counted. Negotiations this year will centre around how and when governments can modify authorisations for credits generated within their jurisdictions. While market response may not be immediate, this regulatory clarity is crucial – current uncertainty about potential authorisation changes creates hesitancy among potential credit buyers, as such changes could significantly impact credit values. Establishing these rules will enable the development of robust risk assessment frameworks and specialised insurance products, gradually building market confidence and participation. This will also help boost the supply of credits eligible for CORSIA, the scheme for offsetting emissions from international aviation.
Under Paris Agreement terms, 2025 is the deadline for countries to agree upon a New Collective Quantified Goal (NCQG) on Climate Finance, which refers to annual financial support for climate change mitigation in developing countries. Most eyes will be on controversy surrounding headline figure, which will build upon the existing annual commitment of $100 billion, set in 2009.
However, those interested in impact should focus on details regarding activities eligible to receive funding, how funding will be split between public and private sources, which countries will be expected to contribute, if portions will be allocated for specific activities (e.g. compensating for Loss and Damage), and even whether finance will flow in the form of grants or loans. Given the state of public finances around the globe, developing countries will likely face challenges in securing the desired scale of funding from wealthier nations.
A major win from COP28 was the establishment of the UN Fund for responding to Loss and Damage, which helps countries recover from climate impacts where they cannot be mitigated or prevented. As yet, countries have not added to the $700 million promised when the fund was announced in 2023. Given that hurricanes Helene and Milton alone caused an estimated $55 billion of damage in the US this year, the available UN resources appear well short of what could be needed.
The Global Goal on Adaptation was also introduced in Dubai, with the intention of enhancing adaptive capacity, strengthening resilience, and reducing vulnerability to climate change. To build out this framework, negotiators will need to identify mechanisms to address a huge financing shortfall of $194-366 billion per year, according to the UN’s 2023 Adaptation Gap Report.1
2025 is also the deadline for countries to submit new climate targets, known as Nationally Determined Contributions (NDCs), ideally going beyond their original Paris Agreement pledges. Leading into this week, most countries have not yet submitted new NDCs. Moreover, the NDCs that have indeed been updated do not necessarily reflect enhanced climate ambition.2 Countries are also required to share their new National Adaptation Plans (NAPs). As we emerge from this year’s COP16 biodiversity summit, there is hope that more NDCs and NAPs will integrate nature, both as a resource for climate mitigation and adaptation, and as a critical recipient of Loss and Damage compensation. One can expect a flurry of activity around these plans during and in the wake of the conference.
As usual, the international climate community approaches another COP with a blend of anticipation and apprehension. A key reason for optimism? Alongside the top-level debates, there will be exciting discussions on how climate frameworks can incorporate judgements from the Integrity Council for the Voluntary Carbon Market (ICVCM), which has emerged as the long-awaited arbitrator of quality carbon project methodologies. As the private sector grows increasingly influential, COP29 can facilitate the evolution of the voluntary carbon market into a mature system that both advocates and businesses can rely upon to deliver effective climate impact.
[1] https://www.unep.org/resources/adaptation-gap-report-2023
[2] https://climateactiontracker.org/climate-target-update-tracker-2022/
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