Article 6: What’s New and Why It Matters

Breaking Down COP29 Article 6 Updates: What They Mean for Carbon Markets and Climate Action

December 18, 2024

Chief Sustainability Officer

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Let’s dive into Article 6—arguably one of the most complex and exciting pieces of the Paris Agreement puzzle. At COP29, some long-awaited updates were finally locked in, and they could significantly shape carbon markets and climate action moving forward. But before we get into the nitty-gritty, let’s break down the basics.

What Is Article 6?

Article 6 is a critical framework within the Paris Agreement that enables countries and companies to collaborate on reducing greenhouse gas emissions. By setting rules for emissions trading and carbon markets, it aims to drive global climate cooperation while ensuring transparency and accountability.

What Are Articles 6.2 and 6.4?

Think of these as two different pathways for trading emissions reductions:

Article 6.2

This is like a DIY framework. It lets countries negotiate bilateral or multilateral agreements to trade emissions reductions, known as Internationally Transferred Mitigation Outcomes (ITMOs). It’s flexible—countries can set their own rules, but they have to meet some international standards.

Article 6.4

In contrast, this one is centralized and governed by the United Nations Framework Convention on Climate Change (UNFCCC). It sets up a standardized system for creating and trading carbon credits with stricter oversight to ensure quality and transparency. Think of it as the global supermarket chain for carbon credits.

How Do They Differ?

The primary distinction lies in the level of control and governance over the processes. Article 6.2 gives countries more independence to design their deals, while Article 6.4 ensures consistency with a centralized approach. It’s flexibility versus standardization, and both have their strengths depending on the situation.

What Does It Mean That These Mechanisms Are “Operational”?

Here’s where things get interesting. While both Articles were technically operational before COP29, their rulebooks weren’t fully complete. At COP29, these gaps were filled, making the mechanisms far more actionable:

For Article 6.2: Clear rules were established for reporting, revoking authorizations, and preventing double counting. These updates make the system much more robust and trustworthy.
For Article 6.4: Standards for methodologies, monitoring, and verification were finalized. Projects can now start preparing submissions, although the first credits may still take a few to roll out.

Challenges Ahead for Article 6.4

While Article 6.4 lays a solid foundation, there are still hurdles to overcome:

Methodologies: The development of guidelines for emerging technologies, such as direct air capture and biochar, is still underway. Until these are finalized, projects face delays in moving forward.
Durability: Treating all carbon removals equally, regardless of their lifespan, could be tricky. Short-term projects might find the risk management requirements challenging.
Processing Time: Submitting and approving methodologies is a rigorous process that can take several years.

Impact on Carbon Markets

Article 6 is shaking things up but in a complementary way:

Voluntary Carbon Market (VCM): Article 6 doesn’t replace the VCM but sets a higher bar for quality. Article 6.2 works with voluntary standards, while Article 6.4 introduces UN-backed credits that could become the gold standard.
Corporate Buyers: Many companies might lean towards Article 6.4 credits for their credibility but could still use voluntary credits for flexibility.
Governments: Cross-border credit trading is now easier, potentially driving more demand for project developers.

Implications for Countries and Companies

So, what does this mean in practice?

For Article 6.2: Countries can now start trading ITMOs under the finalized rules. This will be an interesting test of how flexible and reliable the system can be.
For Article 6.4: Developers need to start preparing submissions for certification, but patience is key—the first credits may take a couple of years to be issued.

The Bigger Picture: Global Climate Action

At the end of the day, these mechanisms are about more than just carbon markets. They’re tools to drive collaboration and ambition on a global scale. Here’s the broader impact:

Enhanced Cooperation: Article 6 makes it easier for countries to pool resources and focus on the most cost-effective mitigation strategies.
Increased Ambition: By unlocking billions of dollars for climate projects, these mechanisms can help close the gap to meet the 1.5°C target.
Compliance Markets: The finalized rules will play a significant role in shaping national and international compliance markets, which are expected to grow significantly in the coming years.

Articles 6.2 and 6.4 represent a major step forward for global climate collaboration. With clearer rules and frameworks now in place post-COP29, the real challenge lies in implementation. The road ahead is long, but these tools offer a promising way to align global efforts with the ambition needed to tackle the climate crisis.