COP28: UN carbon body agrees crucial framework on Article 6.4

In a significant move ahead of the UN climate change conference in Dubai, the body trusted with determining the guidelines for a global carbon market under Article 6.4 of the Paris Agreement has agreed to a framework on project methodologies and carbon removals after two years of talks.

The Article 6.4 supervisory body said Nov. 18 that its recommendations will now be presented at COP28 for adoption by CMA of the Paris Agreement. If a text is endorsed by countries in Dubai, then the UN can proceed to register projects under Article 6.4 next year. CMA is the short form for the group of the countries who have signed and ratified the Paris Agreement.

Article 6 of the Paris Agreement sets out the rules for global trade in greenhouse gas emissions reductions. It is seen as an essential enabler of international emissions trading, providing countries and businesses with a key pathway to meet and accelerate their climate goals.

Article 6.4 specifically allows a company in one country to reduce emissions domestically and have those reductions credited so that it can sell them to a different company in another country.

The operationalization of Article 6.4 will provide a new structure for a global carbon market, opening up fresh demand for credits, with the UN deciding the rules on eligibility.

2024 target

Olga Gassan-zade, the chair of the Article 6.4 supervisory body, said she believes these this mechanism now has a "solid foundation to aim for full operationalization" in 2024.

Deciding which carbon projects qualify under this mechanism has been an arduous process, but finally a consensus was reached after almost two years of "tense" and "challenging" negotiations, according to the supervisory body.

This means that the finalized Article 6.4 text, which include the guidelines, rules and principles of this carbon trading mechanism, will now be looked at by country negotiators at COP28, taking place from Nov. 30 to Dec 12.

"The recommendations on greenhouse gas removals and methodology requirements have been the most difficult part of our work over the past 18 months because of their weight and significance for the mechanism as a whole, but I believe we were able to find a way forward that allows us to deliver on our mandate and sets out a work program to continue improving and expanding the framework," Gassan-zade said.

In October Gassan-zade told S&P Global Commodity Insights that she expected Article 6.4 project methodologies to be ready starting from 2024. She also said she was "confident but apprehensive" on the ratification of a finalized document by countries at COP28.

These developments are being closely followed by both the compliance and voluntary carbon markets.

Article 6.4 concerns the voluntary carbon market because it will effectively create a new emissions trading market. Until rules are clarified and adopted, there is uncertainty among buyers and carbon project developers on which projects will see increased demand and potentially higher prices.

This contrasts with Article 6.2, which sets out a system of national accounting for greenhouse gas emissions, with common principles that countries can adopt to allow cross-border exchanges of credits. Rules for Article 6.2 were agreed at the COP26 summit in Glasgow in November 2021 after years of political wrangling, but demand has been limited due to lack of carbon market infrastructure in many developing countries.

Difficult issues

Forging a consensus on which projects and methodologies should quality under this mechanism took longer than the supervisory body had anticipated.

It held two last-ditch virtual meetings (Nov. 8-9 and Nov. 16-17) to agree on the practical standards for the development of carbon crediting methodologies and carbon removals.

"There were some difficult issues across both removals and methodology guidelines, but we have tried to address them in a way that ensures the mechanism can be operationalized," Mbaye Diagne, vice chair of the Article 6.4 supervisory body, said.

The setting of baselines and their downward adjustment in the mechanism methodologies was a contentious issue. Meanwhile, agreeing on the rules for the inclusion of greenhouse gas removals under Article 6.4 was also a tricky process due to disagreement on matters addressing permanence and risk of reversals for emission reductions.

The supervisory body admitted that further guidance may be needed on this topic. "The framework for removal activities focuses on the need to provide for adequate monitoring during and after the activities’ crediting periods and to remediate potential reversals," it said.

These methodologies could have major repercussions for the voluntary carbon market, beset by integrity concerns and greenwashing accusations. Some industry advocates argue UN-backed Article 6.4 rules can provide the compass the voluntary carbon market -- an unregulated market -- needs to regain trust from investors and buyers.

Platts, part of S&P Global Commodity Insights, assesses a wide range of high-quality voluntary carbon credits that fund projects that demonstrate additionality, permanence, exclusive claim and co-benefits.

The value of these credits can vary from nature-based offsets (Platts CNC, 80 cents/mtCO2e) to household device offsets ($4.35/mtCO2e) and tech carbon capture offsets ($123/mtCO2e, all Nov. 17 assessments).