Article 6 of the Paris Agreement sets out the principles for carbon markets. At COP29, governments must fix all the outstanding issues so as to ensure that Article 6 advances, rather than sets back, the climate agenda. This detailed guide explains what is at stake.
Article 6 of the Paris Agreement deals with carbon markets and emissions trading. It consists of nine paragraphs providing principles for how countries can “pursue voluntary cooperation” to reach their climate targets.
These high-level principles were intended as a basis for countries to develop detailed rules on how to implement Article 6 in practice. However, they proved contentious, leading to years of delays.
At COP26 in Glasgow in 2021, following several years of inconclusive negotiations, countries agreed on a package of rules to govern and implement international carbon market mechanisms under the United Nations Framework Convention on Climate Change (UNFCCC).
Negotiations to hammer out the rules governing these carbon markets and how they will function have continued into COP29.
Article 6.2 of the Paris Agreement allows countries to trade emission reductions and removals through bilateral, multilateral and, by some interpretations, even unilateral agreements (called “cooperative approaches”). These traded carbon credits are called Internationally Transferred Mitigation Outcomes (ITMOs). They can be measured in tonnes of carbon dioxide equivalent (CO2eq), or using other metrics, such as kilowatt-hours (KWh) of renewable energy.
Article 6.4 will create a global carbon market overseen by a United Nations entity, referred to as the Article 6.4 Supervisory Body (SBM). Once the market is operational, project developers will apply to register their projects with the Supervisory Body. A project must be approved by both the country where it is implemented and the Supervisory Body before it can start issuing UN-recognised carbon credits. These credits, known as Article 6.4 emission reductions or A6.4ERs, can be bought by countries, companies, or even individuals.
Internationally Transferred Mitigation Outcomes (ITMOs), the carbon credits under Article 6.2, can already be traded between countries. Countries such as Japan and Switzerland already have concrete frameworks in place to buy this variety of credits and count them towards their so-called nationally determined contributions (NDCs).
It is typically a lengthy process for countries to conclude Article 6.2 agreements (cooperative approaches). In addition, further requirements for reporting information about these approaches and for providing government authorisation to trade ITMOs still need to be hammered out, so it may still be some time until ITMOs are widely traded.
However, deals and trades are getting underway. In May 2023, Switzerland submitted the first “initial report” of any country to the UN platform, which focused on deals it had struck with Ghana, Thailand and Vanuatu. On 8 January 2024, Switzerland acquired the first ITMOs (1,916) from Thailand for a programme seeking to replace conventional buses with electric buses in Bangkok. This programme has faced criticism for not delivering additional emission reductions. Carbon market projects are meant to satisfy additionality requirements in order to demonstrate that the mitigation is not already mandated by law or policy and would not have happened without the incentives from selling carbon credits – in other words, if a project is not additional, then purchasing its carbon credits does not lead to additional mitigation.
As for the credits created under Article 6.4 (A6.4ERs), it’s unlikely any will be issued or traded until 2026 at the earliest (though projects from the Clean Development Mechanism that transition to Article 6.4 may be able to issue credits in 2025, which is problematic, given the low to non-existent climate impact of many CDM project).
This UN-mandated carbon-trading system is overseen by the UN Supervisory Body mentioned above. A6.4ERs cannot be traded until a centralised registry is in place, which is yet to be established as of October 2024 and is partially linked to negotiations on registries in Article 6.2.
Detailed rules still need to be hammered out. These include rules to govern how projects will be assessed before being registered, how emission reductions will be estimated against a counterfactual scenario and measured, and more. Significant work is still needed.
Article 6 rules largely reduce the risk of double counting, but are not completely airtight.
The main tool for avoiding double counting is to apply “corresponding adjustments”, which are required for all authorised carbon credits. Rather like in double-entry bookkeeping, this involves the country selling carbon credits deducting sold units from its own greenhouse gas inventory so that the country (or airline) buying them can count them towards its own climate targets. This clearly signals that double counting will not be tolerated in the official system.
However, “voluntary” credits purchased by private companies do not have to go through the Article 6 system. This means that largely unregulated private schemes can still allow double counting, even though this defies logic and environmental integrity. It remains unclear whether buyers will even want double-counted credits when properly adjusted credits will be available.
In addition, the way in which these adjustments will be applied to some varieties of credits may be problematic. This is primarily the case when it comes to accounting for Internationally Transferred Mitigation Outcomes (ITMOs) under CORSIA, the carbon offsetting scheme for aviation. Countries with a 2030 target, but without intermediate target dates, for their nationally determined contribution (NDC), which is the case of most countries, will apply adjustments in the target year as an average of all credits sold and purchased over the entire NDC period, rather than for each individual credit.
In practice, this means that some ITMOs will not have a corresponding adjustment, leading to double counting. This is especially a risk when a country selling credits for CORSIA use has a single-year NDC target and uses an “averaging” approach for corresponding adjustments. Take a country that sells 0 credit over the first nine years of its NDC period, and then sells 100 credits to an airline for compliance under CORSIA during the 10th and last year of its NDC period. The airline will count 100 credits, but the selling country will only correct for the average quantity of credits sold over its NDC period, i.e. 100/10=10 credits. This means that 90 credits are double-counted. A future work programme is planned to address this problem, but some countries are problematically either contesting whether this programme should take place, or trying to delay it such that this issue is not resolved in time.
No, Article 6.2 trades will not be subject to meaningful oversight. This is because there is no independent body that oversees the Article 6.2 market and only minimal requirements are in place, meaning the quality of emission reductions or removals transferred will not necessarily be easily measurable or verifiable.
Under Article 6.2, it is largely left to countries’ discretion to self-define “environmental integrity”, social safeguards, and other core criteria for their Internationally Transferred Mitigation Outcomes (ITMOs), such as baseline setting and the conditions to determine whether a climate project would have happened anyway or not (“additionality”). As long as participating countries can come to agreement and provide relatively basic justifications, a huge range of project types can potentially qualify under Article 6.2: whether from a little-known or major private voluntary carbon market standard, from the Article 6.4 carbon market, or potentially from self-defined and unvetted approaches.
While a review team composed of UN technical experts will analyse countries’ ITMO trade agreements, this may largely amount to a tick-the-box exercise. At COP27, countries severely weakened the review team’s regulatory oversight by forbidding it from: “Review[ing] the adequacy or appropriateness of: i) a cooperative approach in which a Party is participating and associated descriptions; ii) The activities under the cooperative approach” (Decision 6/CMA.4, Annex II, Paragraph 10).
This means that the review involves, for example, checking if countries report that environmental and social safeguards are in place but does not extend to actually assessing if these safeguards are robust. Moreover, countries may not be required to implement the review team’s recommendations and there may be no meaningful consequences if they submit inconsistent information to the review team, which they are told to correct but decide to ignore. These, and other issues, are up for further negotiation at COP29, as described further below, underscoring the importance to correct these loopholes in Baku.
Finally, countries are allowed to classify any and all information regarding their bilateral trades as “confidential”, in which case key data about such transactions and the underlying mitigation projects would never be made available to the wider public or independent watchdogs. Countries may not actually exploit this transparency loophole, since this would justifiably raise significant concerns, but they troublingly have the option to be secretive if they wish. This can give free rein to countries that do not wish to be scrutinised for trading credits they may know are of poor quality or that fail to uphold human rights to do as they please.
The problematic Clean Development Mechanism (CDM), which was established under the Kyoto Protocol, will continue for a transitional period under Article 6.
CDM project transition: the Article 6 deal allows CDM projects to transition to the 6.4 mechanism if it is approved by the country where the project is located, and if the project meets the new rules, with the exception of rules on methodologies. Projects can continue to use the same old, and often deeply flawed, CDM methodologies until 31 December 2025, or the end of their current crediting period, whichever comes first. From 2026 on, they are meant to be fully compliant with Article 6. Given the delays in implementing Article 6.4, some countries may push for relaxing this rule, which could facilitate the rebranding of even more largely junk CDM credits as A6.4ERs.
For example, a study concluded before the Article 6.4 rulebook was agreed in Glasgow estimated that up to 2.8 billion credits could become eligible for issuance if all CDM projects were to transition. While this nightmarish scenario has improved, in part due to delays in implementing Article 6.4 and because not all CDM projects requested to transition, there could still be an estimated 900 million credits rebranded as A6.4ERs over 2021-2025 while using the same CDM methodologies.
Use of CDM credits: CDM credits (known as CERs) from projects registered on or after 1 January 2013 can be used towards countries’ first nationally determined contributions (which ends in 2030 for most countries). Previous estimates indicated up to 300 million CERs could be eligible. It would be highly problematic for countries to use CERs to achieve their NDCs from an environmental integrity perspective. No credits from the Kyoto Protocol’s Joint Implementation mechanism (ERUs) are eligible under Article 6.
Overall, the CDM will eventually expire. It can no longer accept requests for registration, for crediting period renewals, or for issuance of CERs relating to emission reductions from after 31 December 2020. However, in the meantime, it can inflict significant damage to the credibility of Article 6 and to efforts to achieve real-world emissions reductions. The CDM’s remaining funds will likely be repurposed for the future Article 6.4 mechanism, though this has been a subject of contention with no final decision still having been taken as of June 2024.
Any project seeking to register under Article 6.4 will need to comply with all 6.4 rules, regardless of who buys the credits (a company or a country). All credits authorised by countries must be accounted for, including when sold to private companies.
There is also a separate category of credits under Article 6.4, called a “mitigation contribution” unit, which will not have a corresponding adjustment and which, thus, must not be used for offsetting purposes. It was no coincidence that countries named these mitigation contribution units and specified that they “contribute to the reduction of emission levels in the host Party” (Decision 7/CMA.4, annex, para29b), meaning that the country where the reductions happened will count this towards its own target. The careful language around these units refers to the “contribution approach” – where a company retires carbon credits to support mitigation efforts but without claiming to compensate for or to offset its own emissions or to advertise its products or services as carbon neutral – an approach which Carbon Market Watch, WWF, and others have promoted for many years.
In addition, other decisions will send a signal to the voluntary carbon market. Actors in these markets should take note that all countries who have ratified the Paris Agreement have agreed that simple offsetting is no longer acceptable (2% of all A6.4ERs will be cancelled without anyone using them), and that credits must deliver climate adaptation finance (5% of all A6.4ERs will be transferred to the Adaptation Fund, which can sell them to generate revenue, and 3% of the issuance fee in Article 6.4 will also be transferred to the fund).
More and more voices are calling for the voluntary carbon market to get in line with Article 6 by adopting this mandatory minimum 2% cancellation of credits (referred to as overall mitigation in global emissions, or OMGE), and this mandatory minimum 5% share of credits to support adaptation (referred to as share of proceeds, or SOP). Two UN negotiating groups representing 85 countries that are highly vulnerable to climate change, the Alliance of Small Island Developing States (AOSIS) and the Least Developed Countries (LDCs), have publicly called on the voluntary market to adopt mandatory minimum 2% OMGE and 5% SOP rates.
Emission avoidance – whereby a project attempts to estimate how its existence could lead to future emissions being avoided – does not qualify as a basis for generating any kind of carbon credits under Article 6. While it was already clear that emission avoidance was not eligible, during a recent UN climate conference in June 2024, countries re-confirmed that it does not qualify as a category for generating carbon credits under either Article 6.2 or Article 6.4.
This clarification was important since many dubious types of crediting projects might be justifiable under the guise of emission avoidance. For example, a fossil fuel extracting country or company could say they will pump less oil and gas or do less exploration, quantify the potential avoided emissions, and sell these as carbon credits for offsetting purposes, even though such assumptions and claims might be impossible to verify and may be completely unrealistic.
There are other questionable examples that opportunists might try to justify under the rationale of emissions avoidance, which could potentially amount to gigatonnes of greenhouse gases. This would blow apart the Paris Agreement if ever accepted under Article 6, since these hot air credits could be used by another country or company to “reach” a climate target, even if such credits would be environmentally worthless.
While especially egregious forms of emission avoidance crediting projects may thus be averted, the distinction between emission reductions and emission avoidance sometimes remains murky. This can lead to differing interpretations on what may qualify under Article 6. For example, projects that seek to avoid deforestation, which have been in an unflattering spotlight in recent years, may materialise under Article 6.2.
Countries might define these projects as representing emission reductions relative to a historical baseline, though such projects often entail exaggerated assumptions about projected deforestation levels – moreover, in cases where there has been little historic deforestation, the baseline may rely heavily on future assumptions, rendering the resulting credits particularly inappropriate for offsetting purposes. In Article 6.4, which has more oversight and rule-making, it is not yet clear whether avoided deforestation projects would qualify.
Positive
6.2 and 6.4:
- Mandatory corresponding adjustments for all carbon credits authorised by host countries.
- All authorised credits have a de facto expiration date, since they normally must be used (and adjusted for) in the NDC period in which they occurred.
6.4:
- Mandatory “in-kind” and monetary levies on each carbon credit traded under Article 6.4 (6.4ER) support climate adaptation in developing countries: respectively, 5% of all issued credits must be transferred to the Adaptation Fund for it to sell in turn, and 3% of the issuance fee (USD 0.15/credit) paid by project developers must also be annually transferred to the Adaptation Fund.
- Mandatory cancellation of 2% of all A6.4ERs so as to help deliver an overall mitigation in global emissions (OMGE) – but the 2% cancellation rate is too low.
- A tool to comply with a broad range of environmental and social safeguards (sustainable development tool) is mandatory for all activity participants. The tool also outlines that project developers in Article 6.4 are not to access or utilise the cultural, intellectual, religious and/or spiritual property of indigenous peoples without free, prior, and informed consent.
6.4:
- Possible grievances flagged by indigenous peoples and communities negatively affected by carbon crediting projects can be addressed through a central grievance mechanism. This mechanism sets out comprehensive rules, but still contains critical room for improvement.
- Stakeholders, like civil society organisations and indigenous peoples, have the right to appeal Supervisory Body decisions, but it is not possible for civil society organisations to obtain a fee waiver for this unless they fall under ‘vulnerable groups’. The appeal fee is $30,000.
- Provisions for the baselines used to determine the number of carbon credits a project can issue are largely governed by the right principles from the COP26 decision. However, these will need to be implemented effectively and transferred into concrete technical provisions, which is not guaranteed and will depend on negotiations at the Article 6.4 Supervisory Body and COP29, as further detailed below.
- Provisions for additionality, i.e. that a project leads to emission reductions that would otherwise have not occurred, also appear to be based on the right set of principles. However, these will need to be implemented effectively and transferred into concrete technical proposals, which is not guaranteed and depend on negotiations at the Article 6.4 Supervisory Body and COP29, as further detailed below.
Negative
6.2:
- There is virtually no oversight in Article 6.2 due to a poor outcome at COP27. This means that countries are permitted, on the whole, to trade whatever ITMOs they wish with one another. In addition, the official review of these deals may have no real consequences for the trading countries. Moreover, countries are even permitted to keep the details of their deals and trades secret – partially or in their entirety – without even needing to provide a justification (information flagged as confidential is never made public).
- The possible inclusion of carbon removal projects with short-lived storage (such as most nature-based activities), which do not lead to permanent emissions reductions but can be used to offset real emissions. Countries and companies must resist pressure to use temporary carbon storage for offsetting purposes.
- ITMOs can be generated by certain countries on the basis of quantifying “policies and measures” in terms of carbon dioxide equivalent (CO2eq), which is vague and potentially subject to abuse.
- Double counting is not fully ruled out (see above question about double counting).
- No mandatory partial cancellation of ITMOs (“OMGE”) – it is purely voluntary.
- No mandatory levy on each ITMO to support climate adaptation in developing countries.
- There are no rules on minimum environmental and social safeguards, including no specific requirement to obtain free, prior and informed consent from indigenous peoples for activities that impact them.
- Internationally Transferred Mitigation Outcomes (ITMOs) can be in “non-GHG” metrics (e.g. kWh of renewable energy, hectares of forest), which is methodologically complex and vague, potentially leading to abuses. However, reporting on the non-GHG trade will have to include information on how it can be converted to CO2eq. No country has yet proposed to pursue this approach.
6.4:
- The possible inclusion of carbon removal projects with short-lived storage (such as most nature-based activities), which do not lead to permanent emissions reductions but can be used to offset real emissions. Countries and companies must resist pressure to use temporary carbon storage for offsetting purposes.
- Clean Development Mechanism (CDM) projects transitioning to the Article 6.4 system can continue to use outdated and flawed methodologies until as late as 2025, in some cases. The nightmarish prospect of up to 2.8 billion largely dud credits being issued from CDM projects eligible to transition seems to have been averted, though as many as 900 million credits still risk being rebranded as A6.4ERs over the period 2021-2025.
About 300 million CDM credits (CERs) could be used to reach countries’ NDCs until as late as 2030 (see above question about the CDM).
At last year’s COP28 in Dubai, there was no outcome on Article 6.2 and 6.4, raising the stakes for COP29 in Baku.
Closing a deal on Article 6 is a priority for the COP29 presidency. However, the central focus of the COP will be negotiating a new climate finance package through which substantial funds from wealthy countries must flow to vulnerable countries. However, there must be a strict firewall between negotiations on the new climate finance package and Article 6. Carbon credits used for offsetting, whether under Article 6 or the voluntary carbon market, should not feature in the climate finance package.
Countries and other entities with a financial interest in Article 6 have also exerted heavy pressure on countries to advance implementation. Heads of delegation (senior negotiators in charge of overall negotiations for their countries) have regularly convened this year, and a Singapore-New Zealand ministerial pair for the Article 6 negotiations was announced in October. While this may help to find landing ground in the negotiation room, it must not lead to questionable trade-offs for the sake of securing an agreement.
These factors, coupled with the fact that some countries are already starting to engage in Article 6.2 and that many want Article 6.4 to become operational soon, are placing immense pressure on countries to agree to a package on Articles 6.2 and 6.4 at COP29.
To be sure, there is a critical need for further rules. This is especially the case for the loose bottom-up framework of Article 6.2, where cooperative approaches and trades can already take place despite a critically weak review process (see above question) and the absence of essential rules on transparency and accountability. In Article 6.4, the level of rigour must be very high regarding methodological requirements and rules around removal activities (and reduction activities facing reversal risks), where there are certain shortcomings to address when they are considered for adoption at COP29.
Our views on what’s at stake on Article 6.2 and 6.4 are summarised below and are further detailed in our full COP29 recommendations.
The main issues related to Article 6.2 at COP29 concern transparency and accurate accounting.
- Will countries improve authorisation and transparency provisions?
In recent years, countries have debated the process of providing government authorisation in Article 6.2. While it is a given that Internationally Traded Mitigation Outcomes (ITMOs) must always be authorised, there are different opinions on whether countries must also authorise the overarching cooperative approaches governing the generation of ITMOs (e.g. the overall agreement framework, terms and conditions of the countries, the methodology under which credits will be generated).
At COP29, it is necessary to clarify that cooperative approaches must be authorised in addition to ITMOs, and require upfront disclosure of information about cooperative approaches in a comprehensive mandatory authorisation statement, to be provided at the same time as the authorisation of the cooperative approach.
There are two main reasons why it is essential for countries to do this.
First, the process of authorising a cooperative approach, accompanied by the publication of an authorisation statement, can serve the involved government(s) in conducting due diligence about the approach they plan to undertake. Among other things, this can particularly incentivise host countries (sellers of credits) that are likely to predominantly be developing countries, to establish or refine clear carbon market frameworks and regulations domestically before engaging in bilateral ITMO trade deal negotiations and deciding to authorise ITMOs.
This can support host countries in setting out clear terms and conditions under which they would engage in Article 6.2 trades well ahead of time, such as determining which types of activities to authorise, how much mitigation to sell versus to retain in order to still achieve their NDCs, and how to share liability and costs for conducting monitoring and for remediating reversals between buyer and seller of ITMOs. Going through this process before authorising ITMOs can help minimise unforeseen negative outcomes and establish a more level playing field when host countries negotiate their terms with project developers and buyers (whether countries or companies).
Second, authorising the cooperative approach is important to deliver transparency to all stakeholders regarding how countries intend to use Article 6.2, and should be accompanied by a mandatory authorisation statement detailing core parameters around the planned framework. If there is only a requirement to authorise ITMOs, with no provision to authorise cooperative approaches, this can have negative consequences for transparency and the application of corresponding adjustments.
Due to the complex set of rules in Article 6.2, key information about countries’ engagement in Article 6.2 comes in an “initial report”, which countries can choose to submit once they have authorised their ITMOs. When ITMOs will be used for “other international mitigation purposes” (such as by airlines for CORSIA or by companies for compliance or voluntary purposes), the problem is that countries can effectively decide to authorise the ITMOs whenever they would like – potentially as late as when the ITMO is used or cancelled. In such a scenario, the initial report detailing key information about the cooperative approach and ITMOs may not be made public until after the fact, leaving no room for scrutiny.
This means that the Article 6.2 technical expert review team would then only review the initial report after the ITMOs have been used, raising significant governance and accountability problems. For example, if the review team determines the ITMOs are not actually in compliance with Article 6.2 rules, it will be extremely complex, and potentially impossible, to rectify the situation. For more on the review process, please see point 3 below.
It is thus crucial for countries at COP 29 to clarify that cooperative approaches must be authorised in addition to ITMOs, and require upfront disclosure of information about cooperative approaches in a comprehensive mandatory authorisation statement, to be provided at the same time as the authorisation of the cooperative approach. It is worth noting that the first batch of submitted initial reports all have effectively decided to authorise the cooperative approach as a first step, and will authorise individual ITMOs in the future.
- Will countries establish a logical sequence of steps before ITMOs can be used?
Closely related to the topic of authorisation is a debate surrounding whether to establish clear compliance steps that must be followed. These would ensure that countries report information about their Article 6.2 cooperative approach and this information is verified by the Article 6.2 technical expert review team. If the information is fully compliant with Article 6.2 requirements, then ITMOs from the approach can be used. However, if the information is non-compliant, or if there is ambiguity, then any “inconsistencies” detected by the review team need to be resolved before any ITMOs can be used, and if they are not resolved then these need to be publicly flagged and additional consequences may be necessary (please see point 3 below).
It should be a no-brainer for Article 6.2 to require such a clear sequence of steps, but some countries object to this. This is especially puzzling since these measures seek to ensure ITMOs are in compliance with Article 6.2 rules in order to avoid an outcome where unvetted or low-quality approaches go ahead without any sort of checks or balances, which ironically would wreck trust in the very market that the countries expressing these objections wish to scale up. Some countries object to sequencing on the grounds that requiring it will delay implementation of their Article 6.2 projects in the event the review process is slow. However, this is not a compelling line of argumentation since resources, staffing, and the mandate for the review team could be increased to tackle this risk.
- Will countries define clear consequences for non-compliance with Article 6.2?
In Article 6.2, a technical expert review team reviews all information reported by countries. The expert team checks if countries have provided information about the high-level requirements in 6.2 but without meaningfully assessing the quality of the submitted information. The review team itself has a very limited scope, since its ability to actually review content was greatly watered down at COP27.
At COP29, countries will discuss what happens when there are “inconsistencies” in countries’ reporting. These inconsistencies could range from minor issues, such as a typo in the name of the deal, to bigger issues, including:
- A country did not provide any information regarding key details about their baseline-setting and additionality assumptions or how the deal upholds human rights
- A carbon credit has been transferred to the wrong entity or used for the wrong reason (for example, Article 6.2 credits can be used towards NDCs or by companies, which needs to be previously identified)
However, for now it remains unclear how any inconsistencies will be addressed and what consequences there might be if countries fail to or refuse to address these inconsistencies.
Therefore, at COP29, countries need to define what counts as “inconsistencies”, specifically delineating inconsistencies that are significant in nature. Countries should also define what happens if inconsistencies are not resolved, i.e. if they remain unaddressed after two reviews. In such cases, the expert team should tag them as “persistent inconsistencies” and report these transgressions on the public platform for information about Article 6.2 trades (the centralised accounting and reporting platform). For severe issues, such as failure to report on, or non-compliance with, environmental integrity and human rights issues, there should be stronger consequences, such as cancelling or freezing the ITMOs, or referring the case to the Paris Agreement Implementation and Compliance Committee (Article 15) which oversees wider compliance with the Paris Agreement.
- Will countries allow Article 6.2 credits to be revoked or revised after they have already been traded?
Any credit under Article 6.2 must be officially authorised by the selling country, which triggers the application of a corresponding adjustment to avoid double counting. This is a key principle required under Article 6 to ensure no double counting can happen between the buyer and the seller. However, it means that selling countries will exercise caution in how many credits they authorise, since they will need to subtract all authorised credits from counting towards their own nationally determined contribution (NDC).
At COP29, countries will discuss whether they are allowed to revoke or revise any credits that have been previously authorised. Some countries wish to reserve the right to revoke or revise authorisation for several reasons, including in case it turns out they will not reach their NDC because they authorised too many credits. However, allowing revocations or revisions to an ITMO risks leading to double counting, especially if the ITMO has already been transferred or used by a buyer.
Therefore, if countries were to agree at COP29 to allow revisions/revocations to authorised credits, then they need to agree that this cannot affect any credits that have already been transferred/used. In this way, revisions/revocations might be applicable to future credits not yet issued or traded, but not to any that have already been in circulation.
- Will countries rein in the loose rules on Article 6.2 confidentiality?
At COP27, countries agreed to very weak rules that would allow a country to claim that some (or potentially all) information concerning its Article 6.2 deals and credits is “confidential”, which means the information will never be made publicly available. They are also not required to provide any justification for why they would designate information as confidential.
At SBSTA 60 in June 2024, which took place during the Bonn climate conference, countries requested the UNFCCC to develop a code of conduct for Article 6 technical expert review teams “for treating and reviewing information identified as confidential by participating parties” (completed in August 2024) and have tentatively recommended to close discussion on this topic at COP29.
Countries must not conclude discussions around confidentiality at COP29. This is because the current code of conduct solely deals with how to handle confidential information and provides no further specifications around how, when and why they should invoke confidentiality.
Discussions on this topic must continue, including into 2025 if needed, such that countries are required to provide a justification to the review team for why they deem something to be confidential, which the review team should then be able to freely assess. If the review team has questions about the country’s justification, or finds it to be unconvincing, then they should have the power to require the country to justify or remove the designation of confidentiality.
If the country were to ignore this or fail to provide a valid justification for the designation of confidentiality, then the review team should categorise this as an inconsistency and publicly signal that the country’s reporting on confidential elements is deficient. This can be done in a way that does not compromise the confidential nature of the underlying information. However, it is worth noting there have been no compelling explanations from countries concerning why information might qualify as confidential and, in fact, many countries see no need to designate information as confidential.
- How will countries design Article 6.2 registry arrangements?
Lastly, the design of the international registry in Article 6.2 has been a major point of contention. The COP26 decision on Article 6.2 mandates the UNFCCC to establish an international registry “for participating parties that do not have or do not have access to a registry”. Many countries, especially developing ones, may not have their own national registry in place or the means to establish one in the near term, meaning they will resort to using the international registry. As a result, the rapid establishment of this international registry is a priority for many countries that also want its design to allow for the transaction of internationally traded mitigation outcomes (ITMOs).
However, not all countries share the view that the international registry should be able to perform transactions. This in turn ties back into a more fundamental debate about whether ITMOs are carbon credits (and/or ETS allowances) that are directly traded as assets, or whether ITMOs rather represent an “accounting amount” that records and mirrors the trade of credits/allowances happening elsewhere in other registries (called “pulling and viewing”).
The disagreements on this issue are complex and the reasoning is not often clearly expressed. A decision on whether ITMOs are credits or accounting amounts may have legal implications at home for some countries, which may partially explain their sensitivity on the matter. A system that allows for transactions may also increase costs and security considerations for the design and operation of the international registry, to which some also object. Some have also argued that allowing the international registry to issue and transact ITMOs will create environmental integrity concerns, since it may facilitate the inclusion of credits in Article 6.2 that are not backed by a robust underlying mechanism or framework.
It is worth noting that a decision to limit the functionality of the international registry only to “pulling and viewing” will not actually prohibit countries from issuing and transacting credits in national or private registries (and then reporting them as ITMOs in 6.2), including in systems where environmental integrity and human rights safeguards are lacking. A non-transactional registry in 6.2 would mean that countries lacking their own national registry, which are often countries in the global south, may need to entirely depend on VCM or third-party registries to engage in 6.2.
Relying on VCM registries as a guarantee for environmental integrity in Article 6.2 seems questionable at best, as many VCM standards issue poor quality credits or carry projects involving human rights infringements and/or with a lack of clarity on transparent benefit sharing, among other issues. Rather, a better way of ensuring higher quality in Article 6.2 is for countries to agree to strong rules on authorisation, transparency, sequencing, inconsistencies, and confidentiality, as expressed above.
The main issues relating to Article 6.4 at COP29 concern the types of emission reductions and carbon dioxide removals that could be traded and how overall integrity should be secured.
1. Will countries adopt proposed rules on removal activities and methodological principles for Article 6.4?
The Article 6.4 Supervisory Body establishes most of the rules for the Article 6.4 market, and has its own governance and decision making processes. The Supervisory Body does not need approval from the COP for most of its decisions, except on two issues, where they have been mandated to seek approval from countries since COP26, without success to date: on carbon removal activities and on methodological requirements (the framing rules around baseline-setting, additionality tests, and other issues).
The Supervisory Body’s previous attempts at presenting recommendations on these issues were rejected at COP27 and COP28. On 9 October 2024, at the close of their final meeting of 2024, the Supervisory Body finalised its recommendations on removals and on methodological requirements.
However, instead of sending its recommendations to COP29 for approval, as in previous years, the Supervisory Body instead decided to adopt its recommendations as two standards that have already technically entered into force and to only send recommendations to the decisionmaking body at COP (CMA), requesting it to “Endorse the approach of the SBM and requests the CMA to provide any additional guidance to this approach” (the meeting report of the last Supervisory Body provides the context). The Supervisory Body has also decided to mandate some additional work to the Methodology Expert Panel, which provides technical inputs to the Supervisory Body and must report to it on reversal risk assessment and other issues.
There is now uncertainty regarding how countries at COP29 will react to the Supervisory Body’s approach to adopt its rules on removal activities and methodological requirements as standards. Countries may believe that the Supervisory Body has not satisfied its mandate and has side-stepped a key governance process. Countries will still, in principle, be able to reject the Supervisory Body’s approach at COP29, although, in practice, this may be difficult and may be unlikely to occur, given the high pressure to accelerate the implementation of Article 6.4, which cannot truly get underway until these standards have been approved. In reality, countries may end up approving the Supervisory Body’s approach, while providing further mandates or specifications to the rule, as part of the “additional guidance” they have been requested to provide.
For Carbon Market Watch’s take on the Supervisory Body’s two standards on removals and methodological requirements, see our full recommendations here.
2. Are adequate independent appeals and grievance processes and other safeguards in place for Article 6.4 carbon markets?
The Article 6.4 Supervisory Body has adopted the necessary documents to install appeals and grievance processes in May 2024 and safeguards in October 2024 (the Sustainable Development tool). Both documents contain detailed provisions meant to ensure no harm is being caused by 6.4 activities and are mandatory for all activity participants.
Nevertheless, both documents also contain room for improvement, and especially the appeals and grievance procedure is woefully inadequate in some respects, such as by requiring all communication with grievants to be in English. The review process of both the appeals and grievance procedure and the safeguards tool will hopefully enable improvement on current weak spots in the future.
