This weekend, after a near-decade of COP wrangling, world leaders finally agreed on a framework for international carbon trading under Article 6 of the Paris Agreement.

The text — which guides countries on how to authorize and exchange Internationally Transferred Mitigation Outcomes (ITMOs) — will undoubtedly unleash a flurry of credit issuance and cross-border trading. It’s a major milestone for carbon markets, as for any voluntary developers and registries issuing UN-approved credits.

Nonetheless, there’s a long way to go before “in principle” integrity translates into “in practice” confidence.

First, the good. Central to negotiations were the rules governing accounting, reporting, and revocation, with new transparency requirements tackling double counting head on. Countries must disclose ITMOs approved for corporate buyers, such as airlines under CORSIA, and bilateral inconsistencies will also be made public.

But those buyers still face a plethora of real risks on the ground.

• The centralized registry will not arbitrate credit quality, and it remains unclear whether, and when, countries will disclose pertinent deal information (e.g. reversal and accounting adjustments).
• Even where countries do make their ITMO approvals and other relevant information public, it could land post-transfer — i.e. after companies have already purchased or even retired credits.
• There’s no failsafe if nations ignore the double counting rules, and no clear backstop for buyers in the event that project risks are uncovered or inconsistencies identified and credits revoked.

The text sets a standard for countries and ITMOs, but it doesn’t insulate credits themselves from political or project risks — nor, by extension, buyers from financial (and reputational) losses. In the absence of a centralized governing body enforcing the rules, registries, developers, industry bodies, and insurers can and must reassure buyers with dedicated (in design) and systematic (in application) risk solutions. 

As Erika Lennon (the Center for International Environmental Law) told Carbon Brief, “Saying something is Paris-aligned doesn’t make it so.” The burden of proof belongs to the sell-side — as do the consequences of failure.