June 26, 2023

Carbon markets under the Paris Agreement – getting the rules on removals right

Key Takeaways

Key takeaways

  • Article 6 is about raising climate ambition – enabling countries to achieve more emissions reductions and removals than without using it.
  • How the Article 6.4 mechanism will impact other standards and methodologies is more important than how widely it will be used.
  • The Paris Agreement is designed for the century, and the Article 6.4 mechanism is being built to achieve its goals. This is long-term, with one chance to get the foundational rules right.
UNFCC Paris Agreement voting procedure

The Paris Agreement has been built to shape climate action for the rest of the century, and the market mechanisms that underpin it will be used for decades to come. There are no broadly accepted international accounting rules for carbon removal methods. The decisions taken under Article 6.4 of the agreement, and the methodologies approved under it, are bound to have an outsized impact on voluntary and compliance carbon markets globally. It is crucial to create foundational rules on removals for the Paris Agreement carbon market mechanism and the time to become engaged in their development is now. 

The Paris Agreement carbon market mechanism

Article 6 is the markets clause of the Paris Agreement. It sets the basis for countries to voluntarily cooperate to meet their climate targets by allowing emissions reductions and removals in one country to be traded and counted towards the target of another. Often seen as a tool for cost-effective mitigation, the fundamental goal of Article 6 is to bring about higher ambition – enabling countries to cut more emissions than they would without using it.  

There are two ways for this cooperation to take place: one through decentralised forms of cooperation, such as linkages between various national trading systems or bilateral deals for financing carbon crediting projects (Article 6.2), and another through a centralised UN-run mechanism (Article 6.4). After adopting the Article 6 Rulebook at COP26 in Glasgow, Article 6.2 is already operational, with more than 20 host countries signing bilateral agreements with buyers. 

Article 6.4 establishes a carbon crediting mechanism. It’s overseen by the Article 6.4 Supervisory Body that sets guidance, implements procedures, approves methodologies and standardised baselines, registers projects, issues credits, and more. Methodologies may be developed by project participants, host countries, stakeholders, or the Supervisory Body. Numerous details are still being elaborated, and the Article 6.4 mechanism will become operational in a few years. 

How much will the Article 6.4 mechanism be used?

Under the Paris Agreement, all countries are bound by climate targets (Nationally Determined Contributions, or NDCs). The emissions of every project are counted, either against the NDC of one country or another. Countries won’t be risking not meeting their climate targets by selling too many carbon credits under Article 6. And by far the largest source of demand during the Kyoto Protocol era – the EU Emissions Trading System – no longer allows international credit use. 

The Article 6.4 mechanism is more complex and expensive compared with Article 6.2. While countries are doing bespoke bilateral deals under Article 6.2, the centralised Article 6.4 mechanism with its elaborated procedures will have less flexibility. 2% of Article 6.4 credits are subject to cancellation (“Overall Mitigation in Global Emissions” clause), 5% of credits are dedicated to the Adaptation Fund (“Share of Proceeds for Adaptation”) and other fees for registration, inclusion, issuance, renewal, and post-registration apply as well (“Share of Proceeds for Administrative Expenses”). Article 6.2 cooperation does not have to deal with these. On top of this, Article 6.2 is already operational, and the Article 6.4 mechanism will still take a few years to get up and running. 

The general expectation is that the Article 6.4 mechanism will be used less than Article 6.2. How much less? There is not enough information yet to estimate. 

Why is it essential to get the Paris Agreement carbon market rules right?

Establishing robust rules and methodologies under Article 6.4 could set a strong standard for Article 6.2 cooperation. Although first and foremost, the collaboration and methodologies used now under Article 6.2 between countries will also impact Article 6.4.  

Rather than focusing on how much Article 6.4 mechanism will be used, it is more important to consider how widely it will impact other standards and methodologies. Existing rules will be compared against this UN standard where the expectations for rigour, at least in the Supervisory Body, are sky-high. 

Establishing rules for the century

Once the foundational rules are in place, the UNFCCC process builds on existing rules and does not reopen the basics. The consensus of nearly 200 countries is difficult to achieve, and such deals are delicate. Reopening the text – even if there is an agreement to consider that – can deliver worse results on the second try. The Paris Agreement has been built for the century – “to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century”. There is no reset in sight if rules need revisions. The Article 6 mechanisms will be used for decades to come. Hence, the rules on removals designed over the next years will most likely be in place until 2050 and beyond, with continuous fine-tuning.

Get engaged

The Article 6.4 Supervisory Body has actively requested stakeholder input on removals, with the first round of consultations dating back to October 2022. Spring 2023 saw a new wave of interest in the process due to an imbalanced take on engineered removals and strong focus on tonne-year accounting in one of the background documents prepared by the UNFCCC Secretariat. The removals community bandied together, making an unprecedented 104 submissions to highlight the shortcomings. In the meeting that followed, the Supervisory Body decided to drop tonne-year accounting from their considerations when developing their “recommendations for activities involving removals” – the general framework of how removals will be included under the Article 6.4 mechanism, to be approved at the next climate summit conference, COP28 in Dubai. 

A long-awaited structured consultation on removals was launched in June to garner targeted feedback in areas where the Supervisory Body still has gaps. The deadline was on 19 June, but late submissions will be accepted. Carbon Gap’s Article 6.4 policy tracker includes information on all the coming events and deadlines. 

Following the Article 6.4 process is essential in order to feed in the latest science, technological progress and contribute with determination to build the rules on removals that are fit for decades to come and inspire standards globally.  

By Eve Tamme, Climate Principles

Eve Tamme is a senior advisor on climate policy. She leads Climate Principles, a climate policy advisory. She is the Chair of the Zero Emissions Platform (ZEP), serves on the Board of Directors at Puro.earth, and on the Advisory Board of Carbon Gap.

Photo: IISD/ENB – Kiara Worth, Informal consultations on Article 6.4 at the June 2023 UNFCCC conference in Bonn.