The UN’s new carbon market will have a compulsory mechanism that aims to prevent developers of carbon credit projects from breaching human rights or causing environmental damage with their activities – a first for the UN climate process.

Developers of projects under the UN’s new Article 6.4 carbon crediting system will be required to identify and address potential negative environmental and social impacts as part of a detailed risk assessment under new rules adopted by technical experts in Baku, Azerbaijan, on Thursday.

Developers will also be asked to set out how their activities contribute to sustainable development goals like ending poverty or improving health, alongside their primary objective of reducing greenhouse gas emissions.

Maria AlJishi, chair of the Supervisory Body in charge of setting the rules, said in a statement that “these new mandatory safeguards are a significant step towards ensuring that the UN carbon market we are building contributes to sustainable development without harming people or the environment”.

‘Challenging’ balance

The risk reduction measures introduced by the so-called “Sustainable Development Tool” represent an attempt to grapple with widespread concerns over the harm caused by some carbon credit projects around the world.

The Clean Development Mechanism (CDM) – the previous UN carbon market set up to help richer countries meet their emissions-cutting pledges – was dogged by accusations of social and environmental abuses linked to its registered projects. They included, for example, toxic pollution from a waste-to-energy facility in India, forced relocations due to infrastructure like a hydropower dam in Panama, and villagers in Uganda being denied access to land they used to grow food as a result of a tree-planting project.

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The CDM had only a less-rigorous voluntary safeguarding mechanism that was heavily criticised by civil society.

The approval of the new Sustainable Development Tool this week marks the end of a two-year process to agree on the rules, which will work alongside an appeals and grievance procedure rubber-stamped earlier this year.

Kristin Qui, a Supervisory Body member closely involved in developing the tool, told Climate Home it had been “very challenging” to get it right. “Everyone wanted to find the right balance between making sure the tool can be used while at the same time being as stringent as possible,” she added.

Risk assessment

Under the new rules, project developers will have to fill out an extensive questionnaire designed to assess the risk their activities could pose in 11 areas, including land and water, human rights, health, gender equality and Indigenous Peoples.

They will have to describe how they are planning to avoid any negative impacts or, if that is not possible, the measures they are taking to reduce them, as well as procedures to monitor their implementation.

External auditors will review the risk assessment, check that local communities have been properly consulted and evaluate the appropriateness of the actions proposed by the developers. The rules will apply to both new projects developed under Article 6.4 and to over a thousand more that are seeking to transfer into the new market from the CDM.

Chinese wind farms are among the most prevalent CDM projects seeking transition. Photo: Asian Development Bank

Isa Mulder, a policy expert at Carbon Market Watch (CMW) and a close observer of Article 6 negotiations, said the tool “should go a long way in upholding rights and protecting people and the environment”.

She added there is still room for improvement on certain provisions and said the mechanism will need to be used as intended for it to be effective, but called it “a really good start”.

The Supervisory Body will review and update the safeguarding tool every 18 months, striving to improve it based on feedback from those involved.

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In addition to the risk assessment, the mechanism will require project developers to assess the potential impacts of their activities on country efforts to meet the 17 Sustainable Development Goals, adopted by the UN in 2015 and due to be met this decade.

Qui said the tool will make project developers reflect more closely on how they can share benefits with local communities.

“It poses the question of how the project is actually going to contribute to sustainable development in addition to simply avoiding harm and encourages a high level of engagement with Indigenous populations from the get-go,” she added.

Road to Baku

The approval of the Sustainable Development Tool is seen as an important stepping stone towards achieving the full operationalisation of the Article 6 carbon market at COP29 in November – one of the main priorities for the incoming Azerbaijani presidency of the talks.

CMW’s Mulder said the tool’s adoption was “very significant”, as having a human rights protection package in place was “probably a prerequisite” for many countries to even consider approving other carbon market measures at COP.

After extended and heated discussions stretching into the early morning on Thursday, the Supervisory Body also agreed on guidance for the development of carbon-credit methodologies and carbon removal activities aimed at ensuring that emission reductions claimed by projects are credible.

These key building blocks for the establishment of the Article 6.4 carbon crediting mechanism proved an insurmountable hurdle at the last two annual climate summits where government negotiators rejected previous iterations of the documents.

That prompted the Supervisory Body to take a different route in Baku this week by directly approving those documents as “standards” instead of simply presenting its recommendations for diplomats to fight over at COP.

Jonathan Crook, a policy expert at CMW, interpreted the move as “a risky take-it-or-leave it strategy” to avoid intensive negotiations. “I think this approach aims to ensure the texts won’t be reopened at COP29 for line-by-line edits,” he said.

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Climate Home understands that governments will still have the option of rejecting the body’s “standards” wholesale or directing it to make further changes.

Supervisory Body chair AlJishi said in written comments that “the adoption of these standards marks a major step forward in enabling a robust, agile carbon market that can continue to evolve”.

But a fellow member of the body, Olga Gassan-zade, voiced concerns over the process. “Personally I have huge reservations against creating a UN mechanism that can effectively evade the UN governance,” she wrote in a LinkedIn post, “but it didn’t feel like the SBM [Supervisory Body Mechanism] as a whole was willing to risk not adopting the CMA recommendations for a third year in a row.”

(Reporting by Matteo Civillini; editing by Megan Rowling)

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UN approves carbon market safeguards to protect environment and human rights