UN Article 6.4 body fails to finalize carbon trade text, new meetings planned

The UN body tasked with finalizing guidelines for a global carbon market under Article 6.4 of the Paris Agreement failed to agree on the requirements for methodologies and guidance on carbon removals at its latest meeting, industry sources said Nov. 3.

The Article 6.4 Supervisory Body will now meet virtually over Nov. 8-9 and Nov. 16-17 as it looks to iron out these issues so a decisive text can be presented to leaders at the upcoming UN Climate Change Conference in Dubai, it confirmed on its website.

The Supervisory Body, tasked to agree criteria upon which carbon projects qualify under the mechanism, held its eighth meeting in Bonn, Germany from Oct. 30 to Nov. 2.

But its members failed to forge a consensus on the setting of baselines and their downward adjustment in the mechanism methodologies section. Meanwhile, on carbon removals there was disagreement on "matters addressing permanence and risk of reversals for emission reductions," according to the meeting documents.

The finalized Article 6.4 framework will include the guidelines, rules and principles underpinning a new project methodology. This mechanism 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.

"On methodologies, defining approaches to set the baselines and their downward adjustment is proving very contentious, as some fear over-crediting while others favor a lighter touch approach. On removals, the main sticking point was monitoring after the end of the crediting period and addressing reversals," said Andrea Bonzanni, international policy director at the International Emissions Trading Association.

Impact on carbon trading

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.

Participants in the voluntary carbon market have been following Article 6.4 developments closely, as it will effectively create a new compliance market, and is likely to have a profound impact on many projects and carbon credits.

The carbon trading mechanism is seen as a replacement for the UN's Clean Development Mechanism, which allowed emissions reduction projects in developing countries to generate carbon credits under the Kyoto Protocol.

In mid-October, Olga Gassan-zade, the chair of the Article 6.4 Supervisory Body, said she was "confident but apprehensive" on the ratification of a finalized document by countries at COP28 in Dubai.

Gassan-zade also said she expected Article 6.4 project methodologies to be ready from 2024.

But many industry sources said this timeline is wholly contingent on the Supervisory Body agreeing on these issues by COP28.

"Without agreement on requirements for methodologies by COP28, projects will not be able to register for crediting until no earlier than mid-2025," said Bonzanni. "Without agreement on recommendations for removals, crediting from these activities under the mechanism will be further delayed."

These methodologies could have major repercussions for the voluntary carbon market, which has been beset by integrity concerns and greenwashing accusations. Sector advocates argue UN-backed Article 6.4 rules can provide the compass the VCM -- 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, $1.10/mtCO2e) to household device offsets ($4.85/mtCO2e) and tech carbon capture offsets ($119/mtCO2, all Nov. 2 assessments).