No Rules Were Better Than Bad Rules

Updated: Jan 28, 2021

Rather than concede to the demands of one country insisting on its right to sell CDM-style carbon credits internationally under Article 6.4 while still passively taking credit for the same emissions reduced towards its own national mitigation goals, negotiators decided to postpone development of rules for international cooperation until next year. In this way, the international community avoided a major loophole that would have resulted in significant double counting of emissions reductions and a slowdown of real progress towards meeting the imperative to stop the increase in global emissions by 2030.

While this postponement of rules for international cooperation will delay the participation in transfers for countries relying on a centralized infrastructure to approve ITMOs generated through Article 6.4, as described previously in Article 6 rules: are “bad” ones better than none?, cooperation can still proceed under Article 6.2. Absent rules or requirements, Article 6.2 transfers can move forward so long as the terms are acceptable to the participating parties, with the understanding that the terms will later be reviewed for consistency with the Paris Agreement. Similarly, with no formal end to CDM, these trades can also advance, subject to demand from prospective user countries.

From a practical standpoint, countries interested in purchasing ITMOs will be in the driver’s seat to determine methodologies and procedures they find acceptable. To limit transaction costs and support fungibility within and across linked emissions trading systems, the key decision makers will be the so-called “carbon clubs.”

As countries make progress towards internationally transferring MOs under Article 6.2, consideration should be placed on:

  • Transparency in how ITMOs address the required elements;

  • The fungibility of ITMOs across registries to prevent double counting;

  • How this initial period of innovation in ITMOs can lead to adoption of standardized good practices in 2019.