Right at the beginning of the Climate Conference COP29 in Baku, a decisive step was taken towards a regulated international CO2 market. The agreed new framework for Article 6.4 of the Paris Agreement aims to increase transparency, quality and accountability for globally tradable emissions reductions. This creates important prerequisites for an effective market-based instrument that promotes global climate action and directs financial resources to project countries.
This decision brings important innovations for players in mandatory CO2 markets, such as states, regions or industry commitments such as CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). However, Article 6.4 and projects arising under it may also provide companies with scope for action.
What is Article 6 of the Paris Agreement? Importance and role in global climate protection
Article 6 of the Paris Agreement allows Parties to cooperate internationally to achieve their climate targets. This includes regulating the use of market-based instruments that are intended to contribute to an efficient reduction of global greenhouse gas emissions. Article 6 consists of several parts, with Articles 6.2 and 6.4 describing the key mechanisms.
What both mechanisms have in common:
- Countries can credit each other’s emissions reductions.
- This requires far-reaching transparency, clear measurement targets and regular reporting to ensure that CO₂ savings are effective and additional.
- Double counting is avoided because emissions reductions are recorded in a “corresponding adjustment”, which ensures that they are clearly recorded and set out in the respective greenhouse gas inventories of the countries in question.
The mechanisms are designed to promote international cooperation so that countries that go beyond their climate targets can sell their excess emissions savings to countries that are struggling to meet their own targets.
Article 6.2 of the Paris Agreement: The bilateral approach to international climate protection
Article 6.2 allows countries to cooperate bilaterally on a voluntary basis to support each other in achieving their National Determined Contributions (NDCs). In doing so, they can exchange emissions reductions on the basis of bilateral agreements, known as “International Transferred Mitigation Outcomes” (ITMOs). Under the auspices of the FOEN, Switzerland is leading the way in applying the mechanism and is setting high quality standards. Amongst other things, biological carbon sequestration measures (soil carbon, afforestation/reforestation) are not permitted and the alleviation of suppressed demand is severely restricted. Switzerland will only credit the resulting proven emissions reductions until 2030.
Article 6.4: a global market mechanism – the Paris Agreement Crediting Mechanism
Under the supervision of the United Nations, the Paris Agreement Crediting Mechanism (PACM) creates a central global mechanism for the trading of carbon credits that can be used by states and private actors.
Explanation of Both Mechanisms:
- The mechanisms allow countries to credit each other's emission reductions.
- This necessitates robust transparency, precise measurement criteria, and consistent reporting to guarantee that CO₂ reductions are effective and genuinely additional.
- Double counting is prevented by documenting emission reductions through a «corresponding adjustment», ensuring accurate inclusion and removal in the respective greenhouse gas inventories of participating countries.
The mechanisms are designed to foster international collaboration by enabling countries that surpass their climate targets to sell surplus emission reductions to nations struggling to achieve their own goals.
Why Article 6.4 is crucial for climate protection
Article 6.4 of the Paris Agreement aims to enable countries and companies to achieve emission reductions more efficiently by participating in international emissions trading.
However, the rules by which this mechanism should be implemented have been hotly debated so far. There was criticism that earlier rules on transparency and quality were not fully developed. The current decision at the Climate Conference COP29 takes a big step forward in this regard, so that credible markets can emerge with climate measures that have integrity.
The regulations adopted by the Supervisory Body target the following areas:
-
Increased transparency and reporting: All projects registered under Article 6.4 shall disclose detailed information on the origin, monitoring and use of emission credits. This is to avoid multiple counting or insufficient monitoring of certificates.
-
Strict quality requirements for emissions reductions: Projects must demonstrate that they are achieving additional and sustainable emission reductions that would not have been possible without the project. This is ensured by regular audits and evidence of the actual impact.
-
Responsibility throughout the entire life cycle: Even after emission certificates have been issued, responsibility for their impact remains. This includes measures to avoid reversals, i.e. the subsequent release of previously saved CO₂.
These measures were adopted with the aim of strengthening confidence in the market mechanism and ensuring that emission reductions are real, measurable and sustainable.
Why the latest resolutions are also important for companies
For companies that want to reach their climate targets within the Beyond Value Chain Mitigation (BVCM) mechanism, nothing will change on the surface. However, the new regulations provide a basis for the establishment of certified reduction measures that conform to a high level of quality and integrity, because they are state-certified (in some cases twice, by both transferring and receiving countries). The idea behind the projects is to address high hanging fruits in transferring countries (i.e. the countries in which the projects will be implemented) in order to sometimes support measures that are not a priority for achieving their own country’s goals. The resulting tradable climate protection confirmations could open up new opportunities in the future for companies interested in credible climate protection beyond their own value chain.
For the obligations market, in which myclimate is also active, the new regulations provide an institutionalised and therefore trustworthy basis for investment in high-quality projects. It will be essential for the success of the market that the balance is struck between the demands of politics and civil society and the conditions that are feasible for project developers and attractive to investors.
Confidence in carbon markets has been weakened in recent years by media reports about inadequate project standards and accusations of greenwashing. The new rules now aim to ensure that only high-quality projects with a demonstrable positive impact on the environment are certified.
What does the future hold?
The Climate Conference COP29 decisions on Article 6 may be an important step towards regulating future global carbon markets and ensuring that climate protection projects are demonstrably effective. It is important that in the final negotiations on the design, both the demands for accessibility, transparency and quality (as they were articulated amongst others on the first day of Carbon Market Watch), and the desire for implementable rules on the part of the project developers are sufficiently taken into account. The new rules will make the carbon market more transparent and predictable – a development that benefits both the environment and the economy.
myclimate: a pioneer in the drive for stricter market regulations
Even before the new decisions were adopted, myclimate was one of the first organisations to strongly advocate stricter controls and greater transparency in the carbon market. Kai Landwehr, Co-Managing Director of myclimate, emphasised in an article in the Neue Zürcher Zeitung that state-organised control bodies are necessary to push dubious providers out of the market and secure the credibility of the market.
myclimate is already committed to the highest quality standards and supports companies in their commitment to climate protection without compromising on the integrity of their projects.
Read more about this: What Companies Need to Know when Selecting Effective Climate Protection Projects
Sources:
https://carbonmarketwatch.org/publications/article-6-carbon-markets-at-cop29/
https://unfccc.int/process-and-meetings/the-paris-agreement/article-64-mechanism
