New NDCs will show how many countries aim to use Article 6 mechanisms towards climate goals
Countries concluded nine years of negotiations on UN-level carbon market mechanisms at the Cop 29 climate conference in Baku, Azerbaijan, this month, opening up new avenues for carbon trading that will present both opportunities and challenges for existing systems.
Cop 29 ended last week with agreement on the crucial outstanding elements to allow the full operationalisation of Article 6 of the Paris Agreement, which includes two mechanisms designed to help countries co-operate on meeting their emissions cut targets, or nationally determined contributions (NDCs), through carbon trading.
Article 6.2 provides for the bilateral trading of so-called internationally traded mitigation outcomes (Itmos) between countries, while Article 6.4 establishes the Paris Agreement Crediting Mechanism (PACM). The mechanisms distinguish themselves from existing carbon markets largely in the rules and methodologies underpinning the credits. Article 6.2 credits will be "correspondingly adjusted", meaning emissions savings cannot be double-counted by the buyer and seller. And Article 6.4 specifically requires the downward adjustment of emissions cut pathways over time, as well as providing environmental and human rights safeguards and a buffer pool to address any reversal of achieved mitigation.
This offers potential guidance to other carbon markets, whether existing schemes in need of reform or newly established. The unregulated voluntary carbon market (VCM) has notably suffered a reputational crisis since last year, largely as a result of questions surrounding the integrity of its credits. Brazil's planned emissions trading system is "sure to benefit" from the benchmarks established by Article 6.4, Bruno Carvalho Arruda of the Brazilian foreign affairs ministry said this week.
But Article 6 also potentially poses competition to existing systems, if the credits that it issues are perceived to be more robust. "The UN system will not be immune from the same criticisms as the VCM," Switzerland's lead negotiator on international carbon markets under Article 6, Simon Fellermeyer, told delegates at Cop 29. But its basis of legitimacy — an inclusive system, which has been developed over a long period of time — gives confidence to participants and could act as a "guiding star" that other markets could try to align with, he said.
Healthy competition
There is a role for independent carbon crediting registries, but they will be looking at the UN process for comparison, chair of the Article 6.4 supervisory body Olga Gassan-Zade said following the body's initial adoption of key rules for the mechanism last month. "It's healthy to have competition," she said.
The submission of new NDCs under the Paris deal, due in February, should bring some more clarity as to how many countries intend to make use of Article 6 mechanisms towards their goals, as they set out how they intend to meet ever-stricter emissions cut targets, this time for 2035.
Some parties, including the EU, have made it clear that they will not use Article 6 to meet their targets under the Paris agreement. But deputy director-general of the European Commission's climate directorate, Jan Dusik, still welcomed the agreement on Article 6.4 at Cop 29 as a "significant achievement", emphasising the "complementary role" it can play for individual member states that want to make additional emissions cuts beyond the bloc's NDC, as well as for EU companies.
And the flow of money between regions through Article 6 mechanisms could become all the more vital in light of the $300bn/yr climate finance deal reached in Baku, which is widely regarded as inadequate by developing countries.
