Adoption of Article 6 at COP29

Context (DTE):
At COP29 in Baku, nations achieved a significant milestone by adopting Article 6 of the Paris Agreement after nearly a decade of negotiations. Article 6 provides a framework for international carbon markets, enabling countries to collaborate in achieving their Nationally Determined Contributions (NDCs) and advancing global climate goals.

Components of Article 6

1. Article 6.2: Decentralized, Bilateral Agreements
   • Facilitates country-to-country carbon credit trading through bilateral or multilateral agreements.
   • Allows flexibility in carbon market mechanisms while ensuring transparency and environmental integrity.
2. Article 6.4: Global Carbon Market under UN Supervision
   • Establishes a centralized global carbon market regulated by the UN.
   • Ensures uniform standards for credit issuance, monitoring, and reporting, similar to the Kyoto Protocol’s Clean Development Mechanism (CDM).

Advantages of Adopting Article 6

1. Transparency and Accountability:
   • Countries must disclose approved mitigation outcomes and report inconsistencies publicly, fostering trust and compliance.
2. Financial Mobilization:
   • Encourages investments to meet new climate finance goals under the New Collective Quantified Goal (NCQG).
3. Global Market Integration:
   • Promotes standardized rules for carbon trading under UN oversight, enhancing market stability and credibility.
4. Support for Developing Nations:
   • Helps finance afforestation, clean energy, and emission reduction projects, accelerating climate action in developing countries.

Issues with Article 6

1. Double Counting:
   • No mandatory requirement for countries to disclose mechanisms that prevent duplicate reporting of carbon credits, which may undermine emission reduction targets.
2. Risk Reversals:
   • Inadequate monitoring systems to address instances where stored carbon is released back into the atmosphere due to events like forest fires or land-use changes.
3. Weak Accountability:
   • Lacks stringent penalties or consequences for misreporting or fraudulent use of carbon credits, which can compromise market integrity.
4. Operational Delays:
   • Article 6.4 is not expected to be fully operational until 2026, delaying the benefits of a global carbon market.
5. Regulatory Concerns:
   • The transition from the Kyoto Protocol’s CDM to Article 6.4 lacks rigorous checks for additionality (ensuring that projects result in genuine, additional emission reductions), risking the inclusion of low-quality or non-additional projects.

Challenges Ahead

1. Global Coordination:
   • Aligning diverse national interests, standards, and regulatory frameworks to ensure a unified and functional global carbon market.
2. Scientific Rigour:
   • Ensuring that standards for carbon credits reflect the best available science, particularly for addressing reversal risks and ensuring additionality.
3. Market Quality:
   • Preventing the rise of “Cowboy Carbon Markets”—unregulated or poorly governed markets with low-quality carbon credits that undermine environmental integrity.

Way Forward

1. Strengthening Transparency:
   • Mandate detailed reporting of mitigation outcomes and enforce mechanisms to prevent double counting of carbon credits.
2. Improved Monitoring:
   • Develop advanced tools and methodologies to monitor reversal risks and quantify mitigation outcomes accurately.
3. Phased Rollouts:
   • Implement Article 6.4 gradually, allowing time for testing and adaptation of new standards and mechanisms based on evolving science and climate needs.
4. Capacity Building:
   • Provide financial and technical support to developing nations to implement Article 6 mechanisms effectively and with integrity.
5. Global Collaboration:
   • Foster trust and cooperation among nations by establishing clear rules, equitable frameworks, and mechanisms for dispute resolution.
6. Public Engagement:
   • Increase awareness among stakeholders, including businesses, civil society, and the public, about the potential and limitations of carbon markets.
7. Accountability Framework:
   • Introduce robust mechanisms to enforce penalties for misuse or fraudulent activities, ensuring the environmental integrity of the carbon markets.