COP29 made significant progress on carbon markets, approving the rules for bilateral trades and the centralized mechanism for a global market. However, critical issues remain unresolved, such as the definition of non-market approaches and the management of carbon credits derived from carbon removal
Carbon Markets: What is Article 6 of the Paris Agreement, and Why Does it Matter?
Carbon markets are mechanisms that allow countries and companies to trade “carbon credits,” which represent one ton of CO2 avoided or removed from the atmosphere.
The aim is to incentivize emission reductions where they are most cost-effective, contributing to the containment of global warming.
In the Paris Agreement (PDF), carbon markets are regulated by Article 6. This article governs various types of carbon credit trading:
- Article 6.2: Focuses on bilateral trades between countries involving emission units called ITMOs (Internationally Transferred Mitigation Outcomes). It enables countries to collaborate to meet their national climate goals (NDCs) while ensuring transparency and avoiding double-counting of reductions.
- Article 6.4: Establishes a centralized mechanism, similar to the previous Clean Development Mechanism (CDM), to generate credits from specific emission reduction or removal projects overseen by a global authority.
- Article 6.8: Supports non-market approaches, such as shared policies or technological cooperation, to help countries reduce emissions without trading credits.
Summary of COP29 Results on Carbon Markets
The COP29 climate conference marked significant progress in developing carbon markets. Nine years after the Paris Agreement outlined their main principles under Article 6, these markets are beginning to take shape.
Final Decision on Article 6.2
At the Climate Conference in Baku, the regulatory framework for Article 6.2 was finalized, establishing a dual-layer registry system to enhance the transparency and traceability of ITMOs. These carbon credits, valid under this framework, are designed to avoid double-counting. However, tensions persist regarding authorization and inconsistencies in reporting.
Developments in Article 6.4
The transition from the Clean Development Mechanism (CDM) to the new mechanism under Article 6.4 was facilitated by an agreement in Baku. Concerns remain about the robustness of removal credits and the permanence of carbon removal projects.
Progress on Article 6.8
Article 6.8 saw limited advancement in Baku. While the platform for non-market approaches remains without registered cases, a roadmap for future implementation was established. Political divergences, particularly regarding responsibilities and environmental integrity, continue to hinder progress.
Article 6.2: Toward a More Coherent System for Bilateral Trades
As noted earlier, Article 6.2 outlines rules for trading Internationally Transferred Mitigation Outcomes (ITMOs), emission reduction units authorized by participating countries. ITMOs can be used not only to meet national climate targets (NDCs) but also for international purposes, such as the CORSIA system for aviation.
Authorization Process: Balancing Flexibility and Credibility
The ITMO authorization process allows countries to approve the use of these emission reduction units for specific climate goals or other international purposes. However, modifying an ITMO’s authorization after its first transfer can pose transparency risks and lead to double-counting.
During negotiations, the UK proposed restricting changes to authorization only under exceptional circumstances, such as force majeure events (unpredictable and unavoidable events like natural disasters or conflicts), to prevent confusion or manipulation. The aim is to balance national flexibility with the need for a robust global system.
Transparency Challenges Persist
The system approved in Baku aims to improve transparency, but gaps remain. Consistency checks require countries to address discrepancies but do not impose penalties for non-compliance. “Inconsistent” credits cannot be used to meet NDCs, mitigating double-counting risks. However, transaction data will often be published with delays, complicating timely verification.
Dual-Layer System for International Registries
A “dual-layer” system was agreed upon, with an international registry for tracking and transferring ITMOs linked to national registries and the mechanism under Article 6.4.
The international registry serves as a platform to support countries without national systems, helping them manage credit authorizations, transfers, and usage, reducing technical barriers to participation. However, the U.S. cautioned against overextending the registry’s functionalities, which could lead to administrative complexity and high costs.
Article 6.4: Hasty Approval for the Global Carbon Market
The global carbon market established under Article 6.4 was approved during COP29’s opening plenary. Here’s a closer look at the agreement reached in Baku:
Continuity with the Clean Development Mechanism
Projects under the previous Clean Development Mechanism (CDM) can be seamlessly integrated into the Article 6.4 mechanism without requiring a new additionality check (i.e., re-verifying that the project genuinely reduces emissions).
Although the CDM faced criticism for its handling of additionality in the past, credits generated between 2021 and 2025 can be approved symbolically by the host country without further review.
New Rules for Carbon Removal Credits
New rules for removal credits, such as those from CO2 capture and storage, raise concerns about their permanence and long-term effectiveness—issues that have plagued negotiations for years.
COP29 deferred definitive solutions to these issues. Current rules lack robust requirements to ensure the reliability of long-term solutions.
Transparency and Governance Gaps
While standards for methodologies, baselines (emission reference levels), and monitoring mechanisms were established, many operational decisions were deferred to a Supervisory Body that will begin work in 2025.
This body, comprising scientific experts and local community input, aims to ensure inclusive governance based on accurate data. The agreement also mandates stricter baseline reductions to prevent over-issuance of credits and calls for detailed guidelines on reversal risks, post-crediting monitoring, and mitigation measures to ensure credit quality.
Article 6.8: Non-Market Approaches Still in the Works
Despite establishing a platform for recording Non-Market Approaches (NMAs) and increasing national focal points, no NMAs have been registered. Developing countries have called for quantitative analysis to understand how NMAs can effectively support NDC implementation.
Next Steps
Between 2025 and 2026, negotiations will aim to finalize Article 6.8, prioritizing improvements to the platform and greater stakeholder involvement.
