The lack of consensus on Article 6.2 and 6.4 is a significant missed opportunity for the implementation of international carbon markets, writes Andrea Bonzanni
Carbon markets started 2024 on a different footing to the previous year.
COP28 in December paved the way for this. Some of the outcomes of the summit, such as the agreement on the operationalisation of the loss and damage fund, and the completion of the first Global Stocktake calling parties to transition away from fossil fuels, may be considered historic, if fully implemented and funded.
Carbon markets also had their moment, with many highlighting them as vital to achieving global net zero. The voluntary market saw a raft of high-profile announcements and agreements, all of which underscored its relevance today. Signs of growing momentum in international compliance markets were clear at the conference.
Article 6.2 creates the basis for trading in greenhouse gas emission reductions and removals, mitigation outcomes, across countries. Article 6.4 will create a global carbon market overseen by a United Nations (UN) Supervisory Body, a new mechanism for validation, verification, and issuance of high-quality carbon credits.
The inability to reach consensus on Article 6.2 and 6.4 represents a significant missed opportunity to expedite the implementation of international carbon markets.
The important question is whether an agreement can be reached in 2024. An agreement is critical if Article 6 markets can be deployed to their maximum potential to mitigate the full effects of climate change.
Growing interest in initiatives - with oversight
The first Global Stocktake in Dubai starkly revealed the blatant inadequacy of current nationally determined contributions (NDCs) in fulfilling the objectives of the Paris Agreement. Article 6 was acknowledged as a key instrument to address these deficiencies.
Examining the new memorandums of understanding and bilateral implementing agreements signed during COP28 underscores this growing momentum. The nine new deals represent an increase of nearly 20% compared to before COP28. Recently, countries such as Norway, Kuwait, Tunisia, and Rwanda have also entered the dance.
"Thanks to industry efforts to boost integrity, confidence is steadily returning to these markets, and we have seen a shift in perception as more parties recognise the pivotal role of these markets in delivering benefits for both people and the planet"
Countries like Ghana, Malawi, Rwanda, Thailand, and Vanuatu authorised projects for international transfers last year, with Singapore signing its first carbon credits cooperation agreement with Papua New Guinea. In 2024, Switzerland and Thailand finalised a bilateral offset emissions reductions trade deal, while Guyana issued the first CORSIA aviation offsetting scheme eligible carbon credits for airlines' use.
Thanks to industry efforts to boost integrity, confidence is steadily returning to these markets, and we have seen a shift in perception as more parties recognise the pivotal role of these markets in delivering benefits for both people and the planet.
The delayed operationalisation of the Article 6.4 mechanism represents a regrettable setback, as the mechanism would have set a high standard for environmental integrity, safeguards, and human rights, potentially serving as a benchmark for the entire market. However, international carbon markets need not wait, as governments have alternative options to move forward.
The road ahead – Article 6.2
Article 6.2 is a Party-driven process, and the necessary guidance for its operationalisation under the United Nations Framework Convention on Climate Change (UNFCCC) was agreed at COP26. It has been operational ever since and can continue to be implemented without further UN guidance.
While market-based cooperative approaches would benefit from aspects such as clearer rules on the authorisation of mitigation outcomes or a standardised reporting template and, these are not essential. The nature of Article 6.2 should not be reopened for debate. Instead, we believe that environmental integrity can be ensured by establishing and training an expert review team within the UNFCCC and by building capacity in host countries.
Building on existing frameworks and experience
The path ahead is clear: as countries prepare to engage with Article 6 and fulfil their NDCs, the wealth of experience accumulated over two decades in the voluntary carbon market (VCM) offers a solid foundation and established infrastructure which governments can depend on.
In 2024, both Article 6 and national compliance systems can leverage and be bolstered by the progress achieved in the VCM. The standard-setting initiatives and methodology updates of 2023 will serve as a crucial foundation.
In tandem with the voluntary market, current implementations of Article 6.2 are also establishing fundamental rules for buyers and sellers. Over the next 12 to 24 months, early adopters must demonstrate that Article 6 implementation and markets can advance and expand, consistently raising ambition. IETA will continue to support parties and market participants seeking to engage in cooperative approaches under Article 6.2 through high-integrity crediting programmes.
An agreement on Article 6.4 is a key priority
We consider the operationalisation of Article 6.4 to be a priority in 2024. It represents the missing piece of the puzzle, and if political agendas can be set aside, progress can be made on Article 6.4.
The Article 6.4 Supervisory Body needs to be able to focus on technical and operational work without having its decisions scrutinised at every COP. It is troubling to witness the heightened politicisation of the Article 6.4 mechanism – this approach undermines the development of a robust crediting mechanism that project developers and investors can rely upon.
"We consider the operationalisation of Article 6.4 to be a priority in 2024. It represents the missing piece of the puzzle, and if political agendas can be set aside, progress can be made on Article 6.4"
The first Article 6.4 Supervisory Body meeting post-COP 28 in February showed positive signs, prioritising technical talks over old disagreements. Two expert panels were established: one for accreditation and another for methodologies. The accreditation panel will begin to validate projects in April 2024, while the methodologies panel will gather technical expertise for creating standards, guidelines, and tools. This mode of work should continue, so the mechanism can issue its first credits in 2025.
Throughout 2024, the market should continue to advocate for and support the effective operationalisation of Article 6.4. This involves contributing to recommendations on methodologies and removals, as well as the development of tools for sustainable development, additionality, baseline, leakage, buffer pool design, and reversal risk assessment.
Carbon markets are critical for net zero
Carbon markets are essential to the planet's journey to net zero. Achieving net zero is unattainable without international carbon market mechanisms, which must include an operational Article 6.4. We are acutely aware that time is running out, and urgent action is required to swiftly reduce emissions in this decade and initiate the deployment of carbon removal technologies necessary to reach net zero.
The question at hand is no longer whether countries and companies should elevate their ambitions through carbon markets, but rather how quickly this can be accomplished.
The imperative to expand carbon markets is immediate – the time is now, not tomorrow. An agreement on Article 6 is pivotal to ensuring the scalability of carbon markets.
Andrea Bonzanni is International Policy Director at IETA.