COP29 marked a pivotal moment for international climate cooperation, with the finalization of Article 6 rules being a key highlight. Although disappointment about the weakening of fossil fuel language and financial contributions to developing nations should not be overlooked, breakthroughs on Article 6 have significant implications for the global carbon market and the acceleration of climate action.
Critical now is growing demand.
What is Article 6?
Article 6 of the Paris Agreement establishes a framework for countries to cooperate in reducing greenhouse gas emissions and trading carbon credits. It aims to enhance climate ambition and promote sustainable development.
- Article 6.2 involves two country governments – a buyer wishing to purchase credits (known as ITMOs) to meet their nationally determined contributions (NDCs) and a host country where the activity happens. Although this market is currently nascent, there are a growing number of political agreements between buyer and host countries. Interest in A6.2 is expected to grow following the next generation of NDCs in 2025.
- Article 6.4 – now called the Paris Agreement Crediting Mechanism (PACM) - is a centralized international carbon crediting mechanism. It has a UN Supervisory Body, responsible for developing and supervising the requirements and processes needed to operationalize it.
Both Articles took very important steps forward during COP29, with rules finally agreed after failures at several previous COPs. The texts establish greater structure, standardization and operability – paving the way for swift implementation.
Article 6 is not due to come back as a major negotiation item at future COPs for at least four years, so the decisions made at Baku bring much needed clarity and stability.
Article 6.4 becomes the Paris Agreement Crediting Mechanism:
On the first day of COP29, a significant announcement was made regarding Article 6.4. Countries reached a consensus on the standards and a dynamic mechanism to develop high integrity UN-certified projects.
This agreement lays the groundwork for a global carbon market and is expected to:
- Direct resources to developing countries: The PACM will help channel funds to developing nations to support their climate mitigation and adaptation efforts.
- Encourage ambitious climate action: The agreement emphasizes the need for high-quality, additional emissions reductions, driving countries to set more ambitious climate targets.
Many are expecting PACM to be ready for new projects towards the middle/end of 2025.The conversation now needs to shift to the demand for A6.4 credits; this was less discussed at COP29 and will be essential for this market to achieve its full potential.
Bilateral Cooperation under Article 6.2:
For Article 6.2 there were crucial outcomes on authorisation, registries, reporting sequencing and identifying inconsistencies. This means Article 6.2 activities can be developed in confidence, with the core rules of the game agreed.
Early Article 6.2 bilateral agreements, such as those between Singapore and Peru, and Sweden and Nepal, are encouraging signs of progress. However, greater and faster demand is critical to building capacity in developing countries and establishing the infrastructure needed for reliable outcomes at scale.
Projects under Article 6.2 should be ambitious and transformational. There is currently great interest in clean energy, waste and e-mobility activities. These projects help deliver against NDCs for buyer countries whilst delivering on sustainable development goals.
The impact on Carbon Markets:
- Growing demand: The carbon markets will play an increasingly important role in helping countries and companies meet climate targets - COP29 has solidified this. Critical now is growing the demand under Article 6, for more countries to step in and explore how they can hit their climate targets using Article 6 mechanisms.
- Mobilizing Climate Finance: Provided the demand follows, the agreements made should help mobilize significant climate finance, particularly for developing countries.
- Enhanced Market Integrity: The emphasis on high-quality carbon credits and robust monitoring, verification, and reporting systems supports the growth of a high quality carbon market.
What this means for your business:
Article 6.2 is here, and Article 6.4 is coming. These developments have the potential to change the market dramatically. Our team has a long history of developing high quality projects and are prepared with the knowledge and relationships necessary to help implement best-in-class Article 6 activities.
Project developers with Article 6 solutions should get in touch today.
For more information, check out the full recording of our Post-COP Fireside Chat, where our CEO Sheri Hickok and Director of Article 6 Solutions Dr. Philip Mann will take you through Article 6 and other key developments coming out of COP29.
