South Pole's global senior director Karolien Casaer-Diez and principal consultant Ritika Tewari consider how Article 6 discussions might pan out in Baku.
Environmental Finance: (EF): Where are we now with Article 6?
Ritika Tewari (RT): The spotlight on Article 6 has only intensified after the intense negotiations at COP28, where no decisions were reached on Articles 6.2 and 6.4.
This year, political momentum is building on Article 6, and the Azerbaijani presidency has made it clear that tackling the technical challenges of Article 6 will be a major focus at COP29. Their lead negotiator has laid out a compelling vision for transforming Article 6 into a fully operational framework.
Additionally, Simon Stiell, head of the UNFCCC, has emphasised the urgent need to finalise methodological guidance and emission removal activities tied to Article 6.
As we approach COP29, the stakes are higher than ever, and the commitment to making Article 6 a priority could shape the future of climate action.
EF: What do we know about the UN's decided approach?
RT: Exciting progress is underway in the realm of carbon markets, and three pivotal regulatory documents have received initial approval from the Article 6.4 Supervisory Body (SB).
- The first is the Standard for Development and Assessment of Article 6.4 Mechanism Methodologies, also known as the Paris Agreement Crediting Mechanism. This foundational standard lays out the essential guidance and rules for developing methodologies, effectively shaping how projects will be executed under this framework. It aims to elevate integrity standards and establish global benchmarks for carbon markets, ensuring that climate action is both effective and trustworthy.
- Next, we have the long-awaited standard for activities involving carbon removals under Article 6.4, which has been in development for about two years. It defines how removals or activities involving removals should be treated and accounted for, addressing critical issues such as the risk of reversals and leakage. Importantly, it also outlines strategies to prevent negative environmental and social impacts.
- The third document introduces a sustainable development impact assessment tool that sets rigorous requirements for identifying, assessing, monitoring, reporting, and verifying potential negative impacts on the environment and society. This tool is crucial for ensuring that developers outline activities, both positive and negative, that contribute to the UN Sustainable Development Goals.
In an unusual procedural move, delegates adopted these documents rather than referring to them for a final decision in Baku. This means that the CMA – the COP decision-making body – will have to unanimously reject the Supervisory Body's decision, as opposed to unanimously adopting it.
This important set of decisions lays a strong foundation for a robust country-driven future global carbon market operating at scale.
EF: What does this mean for the market?
RT: These documents set out significantly revised approaches to determine conservative baselines. The texts also outline how financial additionality – assessing whether a project is financially viable without access to carbon credits – will become the norm. More concepts are also included in the standard, for instance, around operationalising how the projects will be "Paris-aligned". These elements together mean we could arrive at a very conservative mechanism with high transaction costs. Our expectation is that these higher costs will translate into higher carbon credit prices.
Karolien Casaer-Diez (KCD): Some commentators have mixed feelings about the Supervisory Body's move. SB recommendations were converted into standards that procedurally do not require CMA approval. This is rather unconventional, but it does mean that there is a higher probability of being able to actually operationalise the guidance for Article 6.4 this year.
The bottom line is that we now have the standards we need to move forward, and can start developing methodologies and projects without further delay.
In that context and in the current atmosphere, we do expect Article 6.4 to evolve and become a new benchmark for quality in the market. We expect to start seeing a rapid alignment between Article 6.4 and independent standards such as Verra, Gold Standard, and integrity bodies like the ICVCM. The Article 6.4 rules aim to define what aligning with the Paris Agreement means in practice.
We hope the CMA will help clarify the implications of the proposed options for baseline setting on the viability of projects and on widespread country participation.
Methodologies and projects must be grounded in the realities of policy making, policy implementation in the developing world and the real challenges of attracting climate finance. That will be the measure of success of Article 6.4.
EF: What's left for Article 6 at COP29?
KCD: All eyes are on Article 6.2 right now, which deals with the accounting and transfer of emission reductions between countries. The mechanism is already operational. We have seen a number of bilateral agreements signed and projects being lined up – including the first bilateral transaction between Thailand and Switzerland, which South Pole facilitated.
What is key right now to advancing climate action are the finer details – such as authorisations for Article 6 transactions, registries, timing and reporting – which may seem minor, but that are crucial for creating an enabling environment for large-scale climate initiatives. We really have no time to lose.
One issue that we're paying attention to is around how host countries can authorise, change, or revoke authorisations, as these decisions are vital for a functioning carbon market. For developers, losing authorisation is akin to a real estate developer having their building permit revoked, and can discourage future investments if not justified by very serious concerns, like human rights issues. It is important that countries do not make such decisions lightly.
Ultimately, we hope Article 6.2 will provide a clear and predictable regulatory framework for transactions. For Article 6.4, we hope COP29 will support the decisions made by the Article 6.4 supervisory body back in October so that experts and practitioners can proceed with developing methodologies and projects effectively.
EF: How confident are you that we will see a deal at COP29?
KCD: There has been good progress leading up to COP29. The presidencies of Dubai, Baku, and Brazil have worked in a "COP Presidencies Troika" to ensure the continuity of negotiations and are collaborating to reach an agreement on Article 6. Even if Baku doesn't result in an agreement, we hope Brazil will take the lead next year.
However, every year of delay means lost opportunities for essential climate action as we approach 2030. One only needs to look at the recent natural catastrophes battering the planet or the latest UN Emissions Gap Report to understand how urgent it is to act.
RT: If things don't fall in line in Baku, the biggest loss to the market overall would be the delays in developing effective methodologies and defining what a high-integrity market looks like. Not reaching an agreement on Article 6.4 this year would have serious consequences for the ongoing technical discussions in the market.
We sincerely hope that the collaborative spirit in the run-up to COP continues in Baku and helps avoid political clashes like the ones seen in Dubai.
KCD: We are hopeful it will be smooth sailing, but given past experiences of COPs, including COP28 in Dubai, anything is possible – it's not yet a done deal.
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