Hits and Misses of COP28 - The FACT FILE

2023 has been the hottest year on record owing to Climate Change vagaries, but the talks about Article 6.4 Mechanism and operationalization of a UN Supervised Carbon Market at COP 28 Dubai remained less than tepid.

Agreement was achieved on Tripling of Renewable Energy Targets by 2030.

Agreement was achieved on Doubling of Energy Efficiency Goals by 2030.

An end-to-end integrity framework was established that will create uniform standards in the Voluntary Carbon Market as priority is given to at-source decarbonization.

In the Global Stock-take at COP28, the parties agreed to “transition away from fossil fuels in energy systems.” This explicit reference to fossil fuels, linking them to the climate crisis, is a first in global climate negotiations. Though the Global South rallied for “systematic phase out of fossil fuels” these magical words did not find place in the Final Global Stock Take Text. COP 28 Agreement heralds “Beginning of the End” of the Fossil Fuel Era.

Though at COP 28 an in-principal consensus among standards organisations, international bodies, civil society, governments, and corporations did emerge that an effective carbon market is an irreplaceable and critical component of addressing the Climate Challenge, but clearly that’s not enough.

The carbon market is at an inflection point, and it deserves a scientifically robust assessment and integrity push to support its continuous improvement and ultimate success.

EU backed by African and Latin American States locked horns with the US at COP 28 and failed to agree on key rules to trade offsets bilaterally and to kickstart a long-awaited global UN supervised market under Article 6.4 Mechanism.

US wanted the text related to Article 6.4 Mechanism’s negotiations to include a prominent role for Private Sector Players in deciding the rules for Voluntary Carbon Markets, but EU clubbed with African and Latin American States wanted stronger checks and balances and a loosening of confidentiality clauses could have prevented scrutiny. Thus, a consensus could not be reached upon.

12 months and several meetings later, the technical body (SBSTA – Subsidiary Body for Scientific and Technological Advice) had drafted rules on methodologies underpinning projects and on the eligibility of removal activities. But countries did not adopt the Body’s recommendations with several countries clashing on carbon removals and issues of transparency and climate ambition in the proposed text.

The breakdown in talks also sent rule-makers for devising a new Global Carbon Market back to the drawing board.

For the Market to fully develop in the next two years (i.e., by January 2026) as the UN and Governments have called for, policymakers will have to draw on the foundational work of the VCMI and IC-VCM to accelerate the transparency and integrity agenda, developing high-integrity VCM and Article 6 Markets that deliver the finance that makes ambitious global action possible.

Negotiators will have to try again to land a deal at COP 29 to be held in Baku (Azerbaijan) in November 2024.

There was a lot of optimism at the start of COP28 that a deal on the guidelines of project methodologies and removals around Article 6.4 would be agreed in Dubai.

The operationalization of Article 6.4 would have provided a new structure for a Global Carbon Market, opening-up fresh demand for credits, with the UN deciding the rules on eligibility, but unfortunately that did not happen!

One of the main sticking points for Article 6.4 was the rules around carbon removals, with many saying the guidance on environmental integrity wasn’t strong enough.

Avoidance Emissions will not be included in the ambit of Article 6.4 Mechanism.

The process for overseeing carbon removal credits has faced strong scrutiny, with some of the current methodologies perceived as not being scientific enough, raising integrity concerns.

The International Emissions Trading Association went on records that ‘Lack of Consensus; reflects the Unfortunate Politicization of Carbon Markets.

COP28 did not adopt any decision on rules for carbon markets (covered under Article 6 of the Paris Agreement), leaving major questions on international carbon trading unanswered.

Fossil-fuel subsidies surged to a record $7 trillion in 2022 as governments supported consumers and businesses during the global spike in energy prices caused by Russia’s invasion of Ukraine and the economic recovery from the Pandemic COVID -19. Apart from using the phraseology “transitioning away from fossil fuels”, the nations did not arrive at any consensus on phased reduction of subsidies to fossil fuels.

The UAE Consensus or the Outcome Document of the Global Stock Take at Dubai lends support to “transitional fuels,” which is widely understood to be a reference to natural gas, the third-most carbon-intensive method of generating electricity. And the outcome fails to recognize the limitations of carbon capture and storage (CCS) technology (though it does say the technology should be focused particularly in hard-to-abate sectors).

After months of intense talks throughout 2023 the Loss and Damage Fund was fully operationalized on the first day of the Dubai summit in 2023. The fund is designed to help climate-vulnerable countries deal with climate impacts that go beyond what people can adapt to. Getting the fund set into motion was a hard-fought journey where developing nations were forced to make significant concessions in order to reach a deal. Several countries also stepped forward with roughly $700 million to fill the fund. Though welcome, this is a drop in the ocean compared to the $580 billion in climate-related damages vulnerable countries may face by 2030.

The COP28 outcome deferred most finance issues to COP29 to be held in Azerbaijan (Baku) in November 2024, with the adoption of a new climate finance goal — called the New Collective Qualitative Goal (NCQG) — being the big-ticket item for 2024. This new goal will replace developed countries’ current commitment of providing $100 billion annually in climate finance to developing nations, first agreed to in 2009. The new goal will need to take into account developing countries’ needs and priorities, estimated at $5.8 trillion - $5.9 trillion up until 2030.

COP28 also brought an additional $3.5 billion in new pledges to the second replenishment of the Green Climate Fund, the largest international fund dedicated to supporting developing countries in tackling climate change. The second replenishment now totals $12.8 billion, 28% more than the first replenishment. The challenge now will be ensuring pledges become actual financial disbursements to developing countries, with high quality investments that meet countries’ needs and leverage private finance.

Five Major Points that Countries could not agree upon during COP 28 in Dubai are:
1. The process of authorizing emissions reductions for transfer to other countries, and when authorization could be revised or revoked.
2. The process for reviewing confidential information and correcting inconsistencies in country reports.
3. The scope and definition of “cooperative approaches,” which refers to how carbon trading can help countries to meet their NDCs;
4. Which activities are eligible to be included in carbon markets under Article 6?
5. Negotiators also did not adopt recommendations on methodologies and removals from the UN’s Article 6.4 Supervisory Body. They deferred these and other outstanding topics to COP 29 to be held in Azerbaijan in November 2024.