By Toby McIntosh
In the not-to-distant future, when governments start buying and selling greenhouse gas emission credits from each other, one casualty may be transparency.
The hope is that credible bilateral deals will reduce overall greenhouse emissions, but there’s concern that secrecy will mask problematic transactions.
The way it will work is that governments looking to reduce their emissions numbers will buy emission reductions credits from other governments. In an example to be discussed below, Switzerland will pay rice farmers in Ghana to reduce the emission of methane. Switzerland will apply the reductions to its greenhouse gas numbers.
These transactions are known as “ITMOs,” Internationally Transferred Mitigation Outcomes, and were authorized under Article 6.2 of the Paris Agreement.
Verifying the validity and credibility of the deals is considered vital to the credibility of the process.
Parties to these deals will be required to provide international reviewers with information on how the transactions will safeguard environmental integrity, details about how the emission reductions will be achieved, and the emission reduction calculations.
However, some of this information may not be made public, at the discretion of the individual governments involved.
In addition, the early indications are that there will be limited transparency about what the financial arrangements for ITMOs.
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Confidentiality Without Justification Approved
At the 2022 COP27 climate meetings in Egypt, it was decided that governments will be allowed to claim “confidentiality” for information about the ITMOs, without having to provide any explanation.
Providing a justification was made optional by the wording of the COP27 agreement, which says governments that make confidentiality claims “should” provide the basis for protecting such information.
Opposition to granting this latitude came from the European Union and environmental NGOS. They argued unsuccessfully that a rationale for nondisclosure should be stated.
The main supporters of the confidentiality clause were members of the “like-minded developing country negotiating group,” with Saudi Arabia as the lead negotiator, according to several persons who followed the talks closely.
No specific reason for wanting confidentiality was articulated during the negotiations, according to the observers.
Alexandra Soezer, UN Development Programme expert on Article 6.2, who doesn’t expect information to be kept confidential, said, “This is probably extreme cautiousness by countries to ensure they keep their sovereign oversight over bilateral cooperation under Article 6.2.”
This decision is unlikely to be reversed, according to several persons who followed the issue closely. Although negotiations on ITMOs will be continuing, they will concern other matters, particularly about the workings of the ITMO review process. The talks are conducted by the Subsidiary Body for Scientific and Technological Advice (SBSTA) under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC).
Under the review process, UNFCCC-appointed expert examiners will get to see all the material submitted about the transactions, including any confidential material.
Concerns About Accountability
However, the concern by transparency advocates is that the quality of the ITMO transactions may go unassessed in the absence of public disclosure.
“The fear is that evoking confidentiality may hide emission reduction credits of questionable integrity,” wrote Max van Deursen in his summary of the negotiations for TRANSGOV, a Dutch research group financed by the Netherlands Organisation for Scientific Research.
A similar worry was expressed by Jonathan Crook, a staffer with the Carbon Markets Watch, an international NGO. His summary states, “Rather than clarifying the ambiguity surrounding conditions for ‘confidentiality’ in country-to-country carbon credit trades, the poor outcome at Sharm el-Sheikh failed to establish any meaningful guardrails.”
Crook added: “This transparency loophole risks being exploited by countries seeking to shroud their emission trades in secrecy. If a country wants to be clandestine about their engagement in Article 6.2 bilateral agreements and carbon credit trades, they now have a free pass to do so.”
Disclosure of the Costs of ITMOs Not Required
When countries make ITMO agreements, they will be not required under the UNFCCC rules to reveal the cost of those deals, although such disclosure isn’t prohibited.
It’s possible that disclosure of the financial details might be pursued through national freedom of information laws, however, governments might still prevent such disclosure.
“Based on experience, Parties would rarely reveal price related information for individual contracts,” according to one long-time participant in UNFCCC negotiations. He continued, “This is partly because such information could weaken the negotiating position when they engage in new contracts.”
Another person commented, “I also doubt that countries, whether buyer or seller, will disclose this type of information.”
The lack of such financial information gap would make it hard to know whether governments had paid or received too much or too little.
So far, although only a few ITMO deals have been made, it appears that secrecy around financial arrangements is the norm.
For instance, Switzerland is underwriting a project in Ghana to grow rice in ways that will reduce methane emissions. The 2022 bilateral agreement (see here) involves the promotion of “climate smart agriculture practices for sustainable rice cultivation in Ghana.” Switzerland will harvest the reduced emissions.
Many details are spelled out in lengthy documents about the transaction, including a “Validation Assessment” done by a Spanish consulting firm. The documents are viewable here on a Swiss government site. Switzerland has made about a dozen emission deals with various countries.
Switzerland’s investments are managed through the United Nations Development Programme (UNDP). The effort is part of the UNDP’s Carbon Payments for Development (CP4D) initiative (described here). UNDP is supporting Peru, Senegal, Georgia, Ukraine, Uruguay and Ghana to prepare them to develop and operationalize ITMO projects.
In March of 2022, the UNDP and Switzerland announced “a $42 million pay-for-results collaboration to unlock the development benefits of private climate investments in developing countries.” The collaboration involves a number of different ITMOs, including the rice farming project, but the announcement did not reveal the cost for each one. The UNDP/Swiss framework agreement was not released, consistent with a UNDP policy of not disclosing financing agreements with donors, an official said.
The rice farming project is described in a 31-page UNDP document, the project design document (found on the Swiss website). It states, “The primary financial incentive provided by the programme is the payment for ITMOs delivered.” Incentive payments will go to farmers, the document explains. However, no budget for the project is provided.
The UNDP document defines the roles of the participants. Among other things, Switzerland “[P]ays UNDP ex‐ante for facilitation of development services to obtain ITMOs,” and “[P]ays UNDP ex‐post for third party verified ITMOs.” The UNDP “facilitates ITMO payments to farmers’ associations” and “facilitates transfer of ITMOs to Switzerland.”
Asked about the importance of financial disclosure, Crook of Carbon Markets Watch said, “Transparency on transaction costs in Article 6.2 deals is important, but perhaps even more important is transparency on the actual details of the underlying mitigation activities, on how many credits trade hands and for what purposes they are used.”
He elaborated, “Cost transparency would be especially important in two cases: i) if countries were to present their engagement in Article 6.2 as a great way to channel climate finance but then refuse to disclose pertinent details such as the amount of finance actually directly supporting the mitigation activities; ii) if wealthy countries were to use their engagement in Article 6.2 as an excuse to reduce their climate/development finance commitments, which of course must not happen.”
Crook also commented, “It’s important to recall that the climate finance discussion must be kept separate from the carbon markets discussion: use of carbon markets by wealthy countries must always come in addition to, but not in replacement of, their climate finance commitments which they continue to fail to meet.”
Some Consider the Review Provisions Weak
The confidentiality provision will not affect the UNFCCC review process. The expert reviewers who examine the ITMOs will see all the information, and be bound by any assertions of confidentiality.
These experts, to be chosen by the UNFCCC, will be a key part of ensuring the integrity of the system. Another set of rules will apply to trades involving the private sector, created under Article 6.4.
The drafting of all the rules and procedures for the Article 6.2 reviews has not been completed, but it was agreed in Egypt that the reviewers must not disclose any confidential information.
The SBSTA will further discuss “modalities of review of confidential information at the next session,” to be held in June of 2023.
Some critics fear that the exams will be superficial. One person predicted, “A tick the boxes exercise.”
At meeting of the SBTSA in June 2022, the parties “expressed diverging views,” about the scope of the reviews, according to a summary prepared by the Earth Negotiations Bulletin, an independent source of information about UN meetings.
The ENB article said that many developing countries asserted that the Article 6.2 review should be primarily qualitative and focus on the consistency and completeness of information submitted by the parties. Several developed countries disagreed, according to ENB, stating that the reviews under Article 6 should be both quantitative and qualitative.
UNFCCC Registry Planned
The UNFCCC is continuing to develop guidelines for national registries of ITMO information and for an international registry. It will be optional for national registries to connect with the international registry.
It appears that information in the international registry will be made public. The Egypt decision document states, “The international registry shall make non-confidential information publicly available and provide a publicly accessible user interface through the web portal of the centralized accounting and reporting platform.”
Further deliberations on the registry systems are to continue at the next SBSTA meeting in June. The target date for implementation “no later than 2024.”
Specific Language and Citation
The specific language on ITMO confidentiality says:
- Decides that a participating Party that identifies information as confidential, pursuant to decision 2/CMA.3, annex, paragraph 24, should provide the basis for protecting such information;
This clause is contained in a document located in this UNFCCC compilation of documents. Scroll down to “CCC/PA/CMA/2022/L.15,” titled “Matters relating to cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement. Draft decision -/CMA.4.”
