By Shashank Pandey
In the run-up to the Conference of the Parties (COP29), the carbon credit framework under the Paris Agreement is seeing considerable development. Negotiations are on to operationalise Article 6 of the agreement, which sets out a crediting mechanism where countries can voluntarily cooperate to meet climate targets. On October 7, in the 14th meeting, the supervisory body, a key entity set up under Article 6.4 to oversee and regulate the credit framework under the Paris Agreement, agreed to incorporate environmental and human rights.
This means that under the United Nations (UN) carbon crediting system, Paris Agreement Crediting Mechanism (PACM), project developers will be required to identify and address potential adverse environmental and social impacts as part of a detailed risk assessment. This will be done through the sustainable development tool developed under the PACM, regularly updated to conform to the changing requirements.
Article 6 conceptualises two sets of engagements to operationalise the carbon market set-up. First, under Article 6.2, a more flexible bilateral and multilateral approach is conceptualised to allow countries to devise their protocols, policies, and methodologies for the generation, trade, and counting of carbon credits. Article 6.4 has established the PACM, a carbon crediting mechanism that provides countries a more affordable means to enhance their climate ambition and implement action plans. The PACM’s objective is to provide for a more globalised and uniform carbon market set-up, allowing companies and governments to buy verified carbon offset credits to fulfil nationally determined contributions and net-zero targets.
The negotiations on the PACM have been long-drawn and often conflicted because of the myriad interests of parties to the Paris Agreement, especially the divergence between developed and developing countries. The COP26 at Glasgow saw agreement on the rules, modalities, and procedures for the mechanism under Article 6.4. But its operationalisation still awaits final approval by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement. The aspect of environmental and human rights safeguards within the PACM was acknowledged by both sides, albeit for different reasons. For instance, the developed nations wanted incorporation to ensure the non-exploitation of human rights, especially labour rights. The developing countries wanted more security on the environmental aspect, ensuring local resources wouldn’t be exploited to generate carbon credits for sales in a global market. For instance, there was a forced relocation of residents in Liberia by selling forestlands for carbon credit generation.
Under the newly launched sustainable development tool initiative, project developers are mandated to fill a detailed questionnaire to evaluate the potential risks of their activities across 11 categories, including land and water use, human rights, health, gender equality, and the rights of indigenous peoples. Developers must explain their approaches to prevent any adverse impacts or, when prevention is not feasible, detail their mitigation strategies and procedures to monitor their effectiveness.
Independent auditors will scrutinise the risk assessments, ensuring local communities have been adequately engaged and assessing the suitability of the developers’ proposed measures. These regulations are set to be applied to all upcoming projects under Article 6.4 as well as to over 1,000 existing ones transitioning to the new market from the previous UN carbon market set-up (Clean Development Mechanism).
This is also significant for India, which is developing its domestic carbon credits system and must align with these principles. Also, India’s existing regulatory set-up like the Environment Impact Assessment, which encompasses many aspects of the sustainability development tool, shall be strictly implemented to make domestic project developers more competitive in the global market.
The new rules will be effective when their compliance is transparent and equitable for the developing and least developed countries. There was a persistent demand to set up a redress mechanism within the PACM to preserve the interests of communities and such nations. In May, the supervisory body adopted the appeals and grievances procedure, allowing communities to appeal against any decision of the supervisory body related to PACM. The sustainability development tool and the redress mechanism are intended to be functional in alignment.
The contours of the environmental and human rights-based safeguards within the PACM must be examined from the perspective of ensuring high-integrity carbon credits. Recently, the integrity of carbon credits issued in renewable projects has been questioned, and the Integrity Council for the Voluntary Carbon Market also stripped many carbon credits of such tags. The success of the carbon credits market underpins this basic fundamental principle of the integrity of credits generated. Compliance with environmental and human rights safeguards will protect vulnerable communities and countries from exploitation, and the focus of the sustainability development tool on the 2030 sustainable development goals might assist in ensuring an equitable global carbon market.
The author is a research fellow, Vidhi Centre for Legal Policy.
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