The 29th Conference of the Parties ("COP 29") to the United Nations Framework Convention on Climate Change was held in Baku, Azerbaijan from November 11 to 22, 2024. COP 29 got off to a quick start when negotiators approved the framework for Article 6.4 of the Paris Agreement on the first day of the conference. The framework establishes standards for a United Nations-led global carbon market, which is expected to benefit developing nations looking to finance greenhouse gas ("GHG") emission reduction projects in their countries.
Article 6 introduces mechanisms for collaborative, marketbased approaches to support the objectives of the Paris Agreement. Among these mechanisms is Article 6.4, which provides a centralized trading system that will enable GHG emission reductions or removals to be transferred internationally. The Article 6.4 mechanism, which will be overseen by the United Nation's Article 6.4 Supervisory Body, will replace the Kyoto Protocol's Clean Development Mechanism.
The approval of the Article 6.4 framework came after the Article 6.4 Supervisory Body finalized two key standards related to carbon removal and developing and assessing project methodologies in October 2024. The Article 6.4 framework marks a significant new chapter after the Kyoto Protocol. Key next steps include the registration of project methodologies and the establishment of operational guidelines, which are expected to be in place by mid-2025. Once the Article 6.4 market is operational, project developers will be able to apply to register their projects. A project must be approved by both the Article 6.4 Supervisory Body and the host country where it is being implemented before it can receive UN-issued carbon credits. These credits, known as Article 6.4 emission reductions or "A6.4ERs," can be authorized by the host country to be transferred to other countries or private organizations, or to be used for other climate change mitigation purposes.
The finalization of the Article 6.4 rules will likely have implications for existing carbon markets and programs. But it is not yet clear how A6.4ER methodologies will interact with compliance markets, voluntary programs (such as Verra and the Gold Standard) and the more recently established quality standards under the Integrity Council for the Voluntary Carbon Market. The core principles that provide the foundation for quality carbon credits, such as additionality and the avoidance of double counting, are expected to be impacted by the Paris Agreement market mechanisms. As a result, carbon market participants will be closely observing how governments implement Article 6.4 authorization processes and governance frameworks, how corresponding adjustments are applied and how access to high-quality projects will be impacted. Participants will also be looking at whether emission reductions generated under Article 6.4 will meet the quality criteria to enable them to be used in other compliance markets such as the European Union's Emission Trading System. To encourage market convergence and provide a robust marketplace for the development and financing of emission reduction/removal projects, existing carbon market standards will likely need to align with Article 6.4 rules. As compliance and voluntary markets shift towards consolidation, more project developers and investors may find the regulatory certainty they seek to move forward with project investments and carbon market transactions.
For more information on the carbon market in Canada, please refer to our overview here.
This article appeared in ESG and Sustainability: Key Trends in Canada
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