Overview

The UN Climate Change Conference (COP 29) which took place in Baku between 11^th and 22^nd November 2024 produced an historic agreement on Article 6 on carbon markets.  This means that all elements of the Paris Agreement relating to the mechanisms for carbon trading have now been finalised nine years after that agreement was signed.

Article 6 of the Paris Agreement recognizes that some Parties choose to pursue voluntary cooperation in the implementation of their nationally determined contributions (NDCs) to allow for higher ambition in their mitigation and adaptation actions and to promote sustainable development and environmental integrity. The carbon crediting mechanism under the Paris Agreement allows countries to raise climate ambition and implement national action plans more affordably.

It identifies and encourages opportunities for verifiable emission reductions, better enables funding to implement them, and allows cooperation among countries and other groups to conduct and benefit from these activities.

There are two separate mechanisms under Article 6, which we now outline.

Discussions and Decisions at the Baku COP

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 trading mechanisms 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 reduction pathways over time, as well as providing environmental and human rights safeguards and a buffer pool to address any reversal of achieved mitigation.

Overarching issues that needed to be addressed at Baku in finalizing Article 6 included:

• Operationalizing the accounting rules to avoid double-counting
• Ensuring emissions reductions are additional to what would have occurred in the absence of Article 6.
• Delivering increased ambition in countries’ Nationally Determined Contributions as well as policies and measures
• Maintaining investor confidence and credibility in a high integrity carbon market to deliver increased financing for Article 6 activities and adaptation.
• Approval of standards from the Article 6 mechanism Supervisory Body (SBM) dealing with:
  • the development and assessment of Article 6.4 mechanism methodologies and
  • for activities involving removals.

Azerbaijan as the COP Presidency hailed the agreement as a “breakthrough”. The International Emissions Trading Association (IETA) also warmly welcomed the finalisation of Article 6 as providing the opportunity for mobilising private investment where emission reductions and removals are more cost-effective, as well as offering the potential to enhance climate ambition, transfer technology and deliver finance flows where most needed.

However, some civil society groups remained unconvinced, for example, the Climate, Land, Ambition and Rights Alliance (CLARA), was critical of the decision to assign the responsibility to ensure human rights and environmental integrity to the SBM for Article 6.4, which was tasked with drawing up standards, guidance and with approving methodologies.

Countries, however, were much more positive about the outcome. Negotiating blocs including the Alliance of Small Island States (AOSIS), the Environmental Integrity Group, the Africa Group and Australia welcomed the decision on carbon markets in the closing COP plenary[1].

The COP29 decision on Article 6 “encourages” the SBM Body to “expedite” its work on baselines, additionality and the risk of removals being reversed. This is a particularly relevant concern for “nature-based solutions”, such as reforestation, given that increasingly frequent wildfires around the world could reverse project-based removals.

This decision also allows afforestation and reforestation projects created under the former “clean development mechanism” (CDM) to enter the new carbon market, subject to meeting the Standard for removals. 

Effectively, afforestation and reforestation activities under the CDM, and dating from the pre-Paris era are likely to first projects allowed onto the Article 6 approved market, provided they meet extra checks for additionality under the SMB Standard.

Key COP outcomes for Article 6.2

Key elements of the Baku COP decision in relation to Article 6.2 are:

• sets out the elements each participating party shall include in the authorization of use of the ITMOs (internationally transferred mitigation outcomes) from each cooperative approach;
• the Secretariat to develop and publish a voluntary standardized user-friendly template that each participating party may use to provide the necessary information;
• any changes to authorization of the use of ITMOs shall not apply to, or affect, mitigation outcomes that have already been first transferred, unless otherwise specified by the participating parties in applicable terms and conditions that specify the circumstances for such changes and the process for managing them, in order to avoid double counting;
• the submission of an initial report or updated initial report by each participating party with respect to a cooperative approach is a requirement for submitting, in an agreed electronic format, annual information on the ITMOs from that cooperative approach;
• the results of the consistency checks of submitted information performed by the Secretariat will be made publicly available on the centralized accounting and reporting platform and show whether reported information submitted by a participating party and/or between parties participating in the same cooperative approach is consistent, inconsistent, or not available;
• inconsistencies in relation to the consistency check shall be corrected by the relevant participating party submitting revised agreed electronic formats until consistency is achieved and verified by the Secretariat by performing another consistency check;
• parties not to use the ITMOs that are identified as inconsistent in the consistency check, which would have an impact on the adjusted emissions balance, toward achievement of NDCs in order to ensure the avoidance of double counting;
• the connection of the Article 6.4 mechanism registry and participating party registries to the international registry shall enable the ability to pull and view data and information on holdings and the action history of authorized Article 6.4 emission reductions, and enable the transfer of authorized Article 6.4 emission reductions as ITMOs to the international registry, consistent with the interoperability arrangements applicable to all registries; and
• the Secretariat to provide, as an additional service for parties that request it, registry services through which a party may issue mitigation outcomes as units, the use of which it has authorized or intends to authorize, in order to support the participation of the party in cooperative approaches.

Key COP Outcomes for Article 6.4

Key elements of the Baku COP decisions in relation to Article 6.4 are:

• notes the Supervisory Body’s adoption of the “Standard: Application of the requirements of Chapter V.B (Methodologies) for the development and assessment of Article 6.4 mechanism methodologies” and the “Standard: Requirements for activities involving removals under the Article 6.4 mechanism”;
• notes that the Supervisory Body will expeditiously elaborate the standards referred to above, while striving to ensure regulatory stability, and will report on the progress made on the application of those standards in its annual report to the CMA;
• requests the Article 6.4 Supervisory Body to engage, in consultation with interested stakeholders, further independent scientific and technical expertise and local communities, and include the knowledge, sciences and practices of Indigenous Peoples, as relevant, to support its work, including through its expert panels, to review proposals as necessary and receive independent scientific and technical advice;
• requests the Supervisory Body, while ensuring ongoing continuous improvements to reflect the best available science, to strive to ensure regulatory stability by avoiding frequent substantive revisions to its adopted standards, tools, and procedures;
• encourages the Supervisory Body to expedite its work on further standards, tools, and guidelines relating to baselines, downward adjustment, standardized baselines, suppressed demand, additionality, and leakage, as well as non-permanence and reversals including aspects of post-crediting period monitoring, reversal risk assessments, and remediation measures;
• decides the host party may authorize, for use toward achievement of NDCs and/or for other international mitigation purposes, mitigation contribution Article 6.4 emission reductions already issued by providing to the Supervisory Body a statement of authorization within the specified time frame referred to below, which applies from the date of issuance prior to any transfer of the mitigation contribution Article 6.4 emission reductions in or out of the mechanism registry, and applying the requirements for corresponding adjustments with respect to the corresponding mitigation contribution Article 6.4 emission reductions already forwarded for share of proceeds for adaptation, and cancelled to deliver overall mitigation in global emissions;
• requests the Supervisory Body to consider and determine whether, based on its experience, there is a need to set a time limit, from the date of issuance to when the host party shall provide a statement of authorization, and report back in its annual report to CMA 7; and
• decides the participating party registries may voluntarily connect to the mechanism registry, and the connection shall enable the transfer of authorized Article 6.4 emission reductions, while ensuring avoidance of double counting and the ability to pull and view data and information on holdings and the action history of authorized Article 6.4 emission reductions.

Challenges and Opportunities for Africa

The COP outcomes on Article 6 have been broadly welcomed by African leaders.  Africa holds immense potential to play a major role in global carbon reduction. The continent is home to vast carbon reservoirs and sinks, such as the Congo Basin rainforest, which spans over 3.7 million square kilometres and absorbs more than 1.2 billion tonnes of CO₂ annually. This makes it one of the planet’s most critical natural assets in the fight against climate change.  

Implementation of Article 6 across Africa will not only support global climate goals but also hold the potential to catalyse sustainable economic development across the continent. For example, investments in reforestation, land restoration, and sustainable agriculture can simultaneously reduce emissions, improve food security, and create jobs. Yet, until now, Africa’s participation in global carbon markets has been limited^[1], largely due to inadequate technical capacity and insufficient funding. Implementation challenges remain.  One of the most pressing issues is the lack of capacity to implement the sophisticated reporting systems required to monitor and verify emission reductions and removals accurately.  Africa can demonstrate leadership in transparency and innovation by investing in robust MRV (measurement, reporting and verification) systems through targeted technical assistance. Thus African nations can ensure that their contributions to emissions reductions and removals are transparent and real, and are globally recognized.

The African Carbon Markets Initiative (ACMI) was established two years ago to support African governments in creating conducive policy and regulatory environments for introducing and scaling high-quality, high-integrity carbon markets and the empowerment of local project developers, and communities to catalyze demand and support equitable allocation of project proceeds. The ACMI is building strategic partnerships to advance these goals and has joined forces with three key stakeholders^[2] in the African carbon market ecosystem:

• Voluntary Carbon Markets Integrity Initiative (VCMI)
• Integrity Council for the Voluntary Carbon Market (ICVCM)
• International Emissions Trading Association (IETA)

[1] Sadiq Austine Ogomu Okoh  https://www.linkedin.com/pulse/corresponding-adjustments-article-6-cop29-why-africa-must-okoh-phd-z5wkf?utm_source=share&utm_medium=member_android&utm_campaign=share_via

[2] Africa Carbon Markets Initiative Announces Strategic Partnerships to Enhance Market Integrity and Facilitate Green Growth – ACMI

[1] https://www.carbonbrief.org/cop29-key-outcomes-for-food-forests-land-and-nature-at-the-un-climate-talks-in-baku/#:~:text=Ecosystem%20restoration-,Article%206,safeguards%20still%20to%20be%20developed.