Key Takeaways from COP27

While COP27 was a disappointment to many climate activists, some important progress was made, including on issues that have seen disagreement between parties for many years. As always, there were also a whole host of announcements made at and around COP. 

It’s tough to keep track of all the developments, between the highly technical negotiations and the tsunami of headlines. Here we’ve picked out 4 high-level takeaways for Voluntary Carbon Market players.‍

1. Negotiations focused more on impacts than mitigation

The theme of this year’s COP chosen by the Egyptian Presidency was ‘together for implementation’. Unlike in previous years, which have seen a lot of focus on agreeing emissions targets and increasing their ambition, this year the focus moved to how to achieve these previous agreements. 

 In the end, the main agreements related to coping with the effects of climate change. These are already being felt across the world, but are especially severe in countries least able to cope. Richer countries had previously committed to deliver $100 billion for adaptation each year from 2020,  but are yet to meet this target. An update to the New Collective Quantified Goal on Finance is due by 2024, and is expected to highlight the much greater scale of climate finance needed for adaptation. Parties have also agreed that the work plan for the Global Goal on Adaptation will be finalized next year.

Most significantly, after decades of trying by some small island states, an agreement was reached on a loss and damage fund. Fraught issues, such as exactly who will pay into the fund and who will benefit, are still to be resolved, but a transition committee has until next year’s COP28 to work on this.

Much of these agreements and debates are unlikely to directly affect the private sector, but it is likely that governments will look for ever more creative ways to raise the promised climate finance over the coming years, with the private sector seen as a major untapped resource.

2. Article 6.2 is in action!

The topic being most closely watched by carbon market players was of course the negotiations around operationalizing Article 6. Although we saw no major breakthroughs, some progress was made. 

For a recap on what Article 6 is, and the confusing vocabulary around it, check out our Article 6 ebook. 

Due to the high-level nature of Article 6.2, which allows for the trading of emissions reductions between two countries’ national carbon accounts, it was difficult to agree universal rules. Controversial issues included revocation of authorization, meaning whether and if so how a country could change its mind about selling their emissions reductions,  and confidentiality vs transparency.

In positive news, the first Article 6.2 transfer was authorized from Ghana to Switzerland. This reflects that although the exact details of the mechanism are still being ironed out, there are no barriers to Article 6.2 cooperation starting now.

‍3. Article 6.4 saw incremental progress

In contrast, Article 6.4, which establishes a new global crediting mechanism, is still a while off being operationalized. It now seems that 6.4, ERs (emission reductions) are unlikely to be issued before 2025. There still remains a lot to be agreed before then, though some practical decisions were taken at COP27, such as details of the transition to the 6.4 mechanism from the CDM - the original global crediting mechanism, which the 6.4 mechanism is replacing. 

Some of the trickiest discussions were rooted in more philosophical debates, such as whether 6.4ERs should always be authorized by the host country to have a corresponding adjustment (CA) applied, meaning that the host country would add to their carbon accounts the amount of ERs they sell, to ensure there is no double claiming. Current agreement is that any 6.4ER used towards an NDC or international compliance purpose such as CORSIA, the offset mechanism for the aviation sector, needs a CA. Unauthorized ERs, now referred to as ‘mitigation contribution’ ERs, are more restricted in their use, although a definitive list has not been agreed. 

These discussions are more relevant to the VCMs than the 6.2 agreements. It is still unclear exactly how 6.4 will align with VCMs - will it be a parallel mechanism, or will it seek to differentiate itself from what some perceive as the VCM wild west? The issue of CAs is also ongoing in relation to VCMs. Over the last year it has seemed that CAs would not be required for voluntary uses of credits, but this is far from finalized. Nothing at COP27 will change this immediately, but it is a signal that the effects of Article 6 on VCMs are ongoing and as of yet, unclear.

Download our Article 6 e-book for deeper insights.

‍4. Other announcements at COP demonstrate a clear direction of travel

A consistent theme to many of the announcements made around COP was the increasing importance of high integrity net zero commitments. There were dozens of major announcements at COP, but here are some of the most important:

• A UN High Level Experts Group released a report outlining guidance for non-state actors claiming net zero. This is aligned with SBTi net zero guidance in terms of emissions reductions, but also goes further to talk more explicitly about the use of credits, lobbying, and investment in a just transition.
• The International Standards Organization released a net zero standard aiming to promote global alignment.
• The UK Transition Plan Taskforce launched, aiming to set a net zero gold standard.
• The US Government announced that all major suppliers will need to set SBTi net zero targets and make climate-related disclosures through CDP
• CDP announced it will require disclosure of scope 3 emissions and use of offsets

These announcements build on many more related developments over the last years and months, from the Taskforce for Climate-related Financial Disclosures, SEC, SBTi and more. It’s clear that organizations will continue to come under increasing pressure to develop high integrity climate strategies and disclose more and more information on climate-related risks. 

Stay on top of climate policy developments

Of course this is only the very tip of the iceberg when it comes to all that happened at COP! It’s impossible to cover it all, but we expect these are the points most likely to have impacts on VCMs and the private sector.

Download our Article 6 e-book for deeper insights.

‍For a deeper dive into these effects, watch our COP27 debrief: