Key Takeaways

1. The temporary exclusion of emissions avoidance credits from Article 6 mechanisms marks a significant shift towards prioritizing verifiable, removal-based offsets, emphasizing the importance of tangible climate action and integrity in the carbon market.
2. To successfully implement Article 6.4 by COP29, the Subsidiary Body must address critical issues like methodologies, registry infrastructure, and governance before the pre-COP meeting.
3. Clear guidelines and standardized procedures for reporting, verification, and authorization of carbon credits are crucial to ensuring the credibility and effectiveness of Article 6 mechanisms in driving real emissions reductions.

The 60th session of the Subsidiary Bodies in Bonn took place between 3-13 June, 2024.  It served as a crucial checkpoint for the progress of Article 6 negotiations. Article 6 of the Paris Agreement is a framework for international cooperation on climate action. Under this framework, Article 6.2 allows countries to trade carbon credits directly through bilateral or multilateral agreements, while Article 6.4 establishes a centralized UN-supervised carbon market. Both mechanisms aim to drive emissions reductions and support climate goals, but they differ in structure. The discussions in Bonn were crucial especially after the contentious and ultimately unsuccessful discussions on Article 6.2 and 6.4 at COP28 in Dubai.

What Happened (and Didn’t) at Bonn

Despite the more constructive dialogue in Bonn, significant hurdles remain before Article 6 can be fully operationalized. Negotiation texts on carbon market rules under both Article 6.2 and Article 6.4 still contained a range of options and unresolved issues, indicating that key decisions are still pending.

Notably, discussions persist regarding the timing and coverage of authorization for carbon credit projects, as well as the specific sequencing of reporting, approval, and authorization procedures.

Other discussions also included issues such as the information disclosure requirements between different national registries, as well as the procedures for revoking or cancelling credits in cases of non-compliance. Further matters under consideration include the timing and scope of authorization for carbon projects, as well as the specific sequencing of reporting, approval, and authorization procedures.

A major point of contention in Article 6 negotiations has been whether carbon credits can be generated from emissions avoidance. At the Bonn conference, a temporary agreement was reached to exclude emissions avoidance from both Article 6.2 and 6.4. Although this matter will be revisited in 2028, the decision represents a positive step towards ensuring the integrity, specifically the probability of additionality, of the Article 6 mechanisms. Whilst the agreement is temporary to 2028, it’s hard to imagine that beyond that point avoidance credits could then be included later: the perceived threshold for additionality would have to be lowered, when more generally the threshold for additionality is continuously rising. What’s more, as major compliance markets like the EU ETS only accept removal-based offsets – the general global direction of acceptability will be leaning in that way.

Furthermore, the issue of eligible methodologies, a major source of disagreement at COP28, remains unresolved. The UN Supervisory Body will be aiming to finalize these recommendations ahead of negotiations in Baku. One aspect of this has been solved through the exclusion of avoidance-based offsets, but this will remain one of the fundamental obstacles to overcome, and it may not even be surmounted by Baku.

The Road to COP29

The recent Bonn Climate Change Conference, intended as a springboard for COP29, has instead underscored the immense challenges ahead. Essentially, the Article 6.2 and 6.4 discussions at Bonn simply passed the unresolved issues, onto the upcoming Baku meeting. While negotiators met with the goal of paving the way for a successful COP29 in Baku, significant challenges remain to be addressed before any final agreements can be reached. The upcoming COP29 in Baku now takes on heightened importance. The pressure is on for negotiators to bridge the gap between ambition and action, and to make concrete decisions that can drive real-world emissions reductions.

cCarbon’s Outlook

The uncertainty surrounding Article 6 implementation poses potential risks and delays to the carbon market’s development. While the postponement of decisions on emissions avoidance until 2028, signals a shift towards stricter standards, the lack of progress on other key aspects like methodologies and governance hinders the market’s growth. With limited negotiation windows, each missed opportunity further delays implementation and dampens momentum. Although some experts downplay Article 6’s importance, the lack of progress could diminish its influence in driving emissions reductions. At cCarbon, we remain vigilant, monitoring developments and incorporating the latest information into our market models. While current uncertainties don’t necessitate immediate changes to our assumptions, we acknowledge the potential risks and will continue to assess various scenarios, sharing our analysis and insights as Article 6 progresses.