Green trees in forest

COP28 produced milestone agreements and pledges across food and ag, fossil fuels, catalytic capital and more under the umbrella text named the UAE Consensus.

“A heady mix of optimism and skepticism, with some pragmatic undertones,” is how Commonwealth Bank general manager for climate strategy and commitments Alex Matthews characterized the event, as he spoke from Dubai, virtually, at the Carbon Market Institute’s COP28 Symposium in Sydney.

The voluntary carbon has continued to grow in importance to farmland and forestry strategies, so the failure to find agreement on the all-important Article 6 from COP21 in Paris – which would clear the pathway to the establishment of a global carbon market – will be a disappointment to market participants.

International Emissions Trading Association policy advisor Bjorn Föndén, also speaking from Dubai, said he had hoped for clarity on the article sooner.

“It’s been eight years since the adoption of the Paris Agreement.

“It took six years to find a consensus in Glasgow and now we are two years down the line from Glasgow, and it seems like we are still reopening old texts, or redefining what parties agreed to eight years ago.

“This gives a lot of uncertainty to parties involved.”

Föndén said IETA was constantly fielding questions from the private sector about when it could start engaging with Article 6, and how to know whether to continue with an independent crediting program or wait for more certainty.

Article 6.4

Agreement on Article 6.4 would create a mechanism for trading GHG emission reductions between countries under the supervision of the Conference of Parties – the decision-making body of the UN Framework Convention on Climate Change.

“If this is not approved or adopted this CMA [meeting of the body overseeing the Paris Agreement], we will have to wait at least one more year – until COP29 – for this recommendation to come through, and then at least half a year before methodologies are approved by the supervisory body.

“So, the first projects being able to register may be Q2, Q3 in 2025.”

Comhar Group director Emily Gerrard said so far in COP28 negotiations, there had been a tendency toward more complexity, which could serve as a disincentive to investment.

“If you think about what makes this attractive or unattractive from an investment point of view, it is those things that we like as a private sector – the predictability, the certainty, the understanding of how things will work, transparency, ease of transaction, efficiency and the like,” Gerrard told Agri Investor.

Gerrard said decisionmakers needed to strike a balance between regulation and clarity, allowing participants to have trust in the scheme while not getting bogged down in the details.

“There are participants in the private sector that want to get going and make use of these markets, but while there is still a lack of clarity with Article 6.4, you can’t participate in it.

“You can get a bit ready, but you can’t launch into it until it operates.”

Integrity of voluntary markets

In the meantime, other opportunities exist for investors through the voluntary carbon credit standards.

Carbon Market Institute chief executive John Connor said companies are keeping a close eye on the integrity of these markets.

“The carbon markets as a tool for driving investment towards climate solutions have taken a hit in the last 12 months to two years, so there are both investor and community confidence issues,” he told Agri Investor.

In Australia, an independent analysis of carbon credit units found the framework was “essentially sound”, although there was still room for extra checks and audits.

“Those things we hope will start to flow back through in terms of the actual investor confidence, but also a little bit of realization that integrity is a journey, not a destination,” Connor said.

“We’ve got to continue to build and not throw away this tool that can be a way of crowding in investment to climate solutions.”