COP 29: UN Climate Conference agrees on Standards to launch the International Carbon Market

At the recently concluded 29^th Session of the UN Conference of Parties to the UN Framework Convention on Climate Change (COP 29) held in Baku, Azerbaijan, the parties approved standards for the development of an International Carbon Market under Article 6.4 of the Paris Agreement. This decision was premised on the Article 6.4 Supervisory Body’s adoption of two standards, relating to carbon removal and methodology requirements for developing and assessing projects in October this year, prior to the conference. In so doing, the parties reiterated the authority of the Supervisory Body to making rules for the implementation of Article 6.4.

This approval intends to create a uniform UN oversight for competent projects to generate carbon reduction credits, which in turn would be traded between countries to meet their carbon reduction targets under their Nationally Determined Contributions (NDCs).

Article 6.4 of the Paris Agreement aims to establish a global carbon market overseen by the Article 6.4 Supervisory Body (a body designated by the conference) to promote the reduction of greenhouse gas emissions. Article 6.4 aims to replace the Clean Development Mechanism (CDM) of the Kyoto Protocol. Upon operationalising the market, project developers will apply to register their carbon reduction or removal projects with the Supervisory Body. A project will have to be approved by both the country where it is implemented and the Supervisory Body, before it can start issuing carbon credits known as Article 6.4 emission reductions (A6.4ERs). The credits will be available to be acquired by countries and entities.

At this stage, it is critical to draw the distinction between Articles 6.2 and 6.4 of the Paris Agreement. Article 6.2 allows countries to trade emissions reductions and removals through bilateral or multilateral agreements negotiated and entered into separately. There are a few countries that have put in place such understandings. The traded carbon credits under Article 6.2 are referred to as internationally transferred mitigation outcomes. These outcomes are counted towards the countries’ NDCs. Article 6.4 is intended to be more structured than Article 6.2, in that Article 6.4 provides a system of oversight to ensure that emissions reductions are validated, verified and issued following a uniform standard.

The decision taken is a good step forward and advances the implementation of the Article 6.4 mechanism. However, this is just the beginning as necessary regulations need to be finalised to operationalise the International Carbon Market. We will continue to monitor the developments as they unfold.