UN carbon body adopts standards on removals, methodologies in bid to fast track Article 6.4

The UN body responsible for formulating the guidelines for a global carbon market under Article 6.4 of the Paris Agreement have agreed a standard for project methodologies and carbon removals, termed as significant and unprecedented by industry sources and analysts.

The Article 6.4 Supervisory Body decided to not to include recommendations to submit to the Paris Agreement signatories (CMA) at the 29th UN Climate Change Conference in Baku, but instead have created standards, expediting the process of operationalization of this key carbon crediting mechanism.

The body, also known as the SBM, finalized the Removals Standard along with Methodologies Standard for Article 6.4 at its most recent meeting in Baku, which concluded on Oct. 9, and has asked the CMA to provide any additional guidance to this approach.

“The standards agreed are seen as essential in making the mechanism fully operational,” the body said in a statement Oct. 10. "The Supervisory Body also agreed on recommendations to be reviewed at the upcoming COP29 climate summit."

Article 6.4 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.

Negotiations to activate Article 6.4, which will create a new market, opening up fresh demand for credits, have been fraught in recent years due to integrity concerns and issues related to carbon removals and project methodologies.

Significant move

Analysts and industry sources said this now lays the path for some progress for the operationalization of Article 6.4, but it could also have more wide-reaching consequences.

“I understand this was done to streamline approval at COP29 and be able to update the standards with more flexibility, which I believe is a good thing,” said Andrea Bonzanni, director of International Policy at the International Emissions Trading Association.

“I do not think the mechanism evades UN governance. The SBM and its members have a mandate from the CMA and should deliver on it. If the SBM is macro-managed by the CMA and its decisions are renegotiated at every COP, we will never be able to build an effective crediting mechanism.”

The release of the standards means that project developers can start submitting methodologies to the Methodology Expert Panel under the SBM.

The decision by the SBM in publishing a standard document is significant and highlights a willingness to move past the key disagreements that stalled progress on Article 6.4, according to Dana Agrotti, a lead carbon analyst at S&P Global Commodity Insights.

“The document just released is effectively a standard according to which methodologies for removal activities can be designed by the SBM itself, designated operational entities, and private developers,” Agrotti said.

“This means that, potentially, voluntary carbon market methodologies that meet the standard could issue Article 6.4 eligible units, subject to progress at the upcoming negotiations," she said. "This could unlock further supply of engineered removal credits, and particularly of those that could be sanctioned by governments through the application of a corresponding adjustment.”

Intense negotiations

Agreeing the criteria upon which carbon projects qualify under this mechanism has been a long and arduous process, with several disagreements, mainly relating to integrity concerns.

“The SBM will expeditiously elaborate and implement the standards …while striving to ensure regulatory stability, and provide the CMA with a report on the progress made on the implementation of the methodologies standard as part of the annual report to the CMA,” the SBM said in a report released after the meeting.

Article 6 of the Paris Agreement sets out the rules for global trade in greenhouse gas emissions reductions. Rules for Article 6.2, which sets out a system of national accounting for GHG emissions with common principles that countries can adopt to allow cross-border exchanges of credits, were agreed at COP26 in Glasgow in November 2021.

Platts, part of Commodity Insights, assesses a wide range of high-quality voluntary carbon credit funding projects that demonstrate additionality, permanence, exclusive claim and co-benefits.

The value of these credits can vary from CORSIA-eligible offsets (Platts CEC, $17.30/mtCO2e) to household device offsets ($4.55/mtCO2e) and tech carbon capture offsets ($140/mtCO2e), Commodity Insights data showed Oct. 9.