January 16, 2025

The Article 6 Carbon Market Mechanism: A House in a Shambles

Hwei Mian Lim

Opening a pathway to the implementation of carbon markets under the Paris Agreement was a key priority of the Presidency of the UN climate conference in Baku, Azerbaijan, in November 2024. The goal was achieved through the use of unscrupulous tactics, including disregarding crucial issues such as human rights and indigenous peoples’ rights.

Since the very beginning of international climate policy, the idea of trading emissions to achieve climate targets has been one of its most controversial elements. The idea first took shape as the Clean Development Mechanism defined by the Kyoto Protocol. The latest variant, contained in Article 6.4 of the Paris Agreement (also known as the Paris Agreement Crediting Mechanism or PACM), provides for emissions trading between states, and between states and the private sector. However, for many years now the United Nations Framework Convention on Climate Change (UNFCCC) Conferences of the Parties (COPs) have failed to operationalize the PACM. At COP27 in Sharm El-Sheikh and COP28 in Dubai, parties could not reach a consensus on the concrete substance and implementation of an Article 6 carbon market.

Thus at COP29, the Presidency was under pressure to operationalize the PACM. As early as July 2024, the COP29 website published a general letter from the Presidency stating that finalizing the operationalization of the PACM would be one of the top priorities at COP29. Unscrupulous tactics were employed to ensure that this objective would be achieved. Firstly, in October the Article 6.4 Supervisory Body (SB) changed the two controversial recommendations, the Recommendation on Activities Involving Removals and the Recommendation  on Methodology Requirements — which, among other things, define the key elements, rules, modalities and procedures for implementing the PACM — into standards, the Standard on Activities Involving Removals and Standard on Methodology Requirements. This meant the documents were no longer recommendations the body would submit to the parties of the Paris Agreement (at the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement, or CMA) for approval, but standards it could simply take note of. The two standards were finalized and adopted by the Supervisory Body at its 14th meeting, and entered directly into force on 9 October 2024 without stakeholders being further consulted.

Secondly, instead of submitting the two standards to the parties at CMA 6 for consideration and adoption at COP29, the Supervisory Body requested that the CMA 6 simply take note of the SB’s adoption of the two standards. This action implies that the SB is asking the CMA 6 to simply rubber stamp their decisions made in October. Thirdly, on the first day of COP29, the Presidency rubber stamped the Supervisory Body’s decision just as the latter had requested, without any further negotiation.

The tactics employed raised procedural issues. For instance, instead of submitting the two recommendations to the CMA 6 as had been decided at the previous COP, the Supervisory Body submitted their standards to the CMA 6 as already adopted and entered into force. Subsequently, instead of requesting that the CMA 6 consider and adopt the two standards, the Supervisory Body requested the CMA 6 to simply take note of the two standards as already adopted by the SB. Will these actions set a precedent for other bodies in the UNFCCC to bypass the CMA’s prerogative to adopt or reject documents?

The ultimate procedural issue arose when the COP29 Presidency gavelled the decision through on day one in Baku, effectively sidelining the CMA and its authority. What does sidelining the CMA’s authority mean here? At a COP, the standard procedure is that the 197 parties to the United Nations Framework Convention on Climate Change (UNFCCC) must negotiate every document that is tabled for consideration and adoption. In this case, the relevant documents were the two standards tabled by the Article 6.4 Supervisory Body. Had negotiation taken place, the final decision would have been that there either was or was not consensus among the parties. If there had been consensus among the parties, the CMA would have recommended the adoption of the standards by the end of the COP.

At Baku however, the Presidency appeared to be making a unilateral decision without entering into discussion with the parties or seeking their consensus. Immediately after the adoption of the standards, a representative of a Small Island Developing State pointed out that the decision did not reflect a party-driven process and expressed their hope that the trend being exhibited on day one of the COP would not continue. Civil society generally denounced the Presidency’s bulldozer approach, as it undermined the principles of inclusive and equitable negotiations and of transparency and accountability in the COP space.

On the last day of COP29, an article on the COP29 website praised the Presidency for the accomplishment in getting Article 6 fully operationalized:

“The decision unanimously adopted today on Article 6 will play a pivotal role in ensuring environmental integrity, transparency and robustness of carbon markets through real, additional, verified and measurable emission reductions and removals, while also unleashing their enormous potential to drive global climate investment. The guidelines and rules adopted are designed to ensure that carbon projects maintain practicality and inclusivity, respect human rights and provide support to sustainable development, enabling countries and project developers to cooperate under the Paris Agreement with confidence.”

The section below serves as a reality check on the crucial elements of this statement.

Ensuring environmental integrity and respecting human rights

Fact: The eleventh preamble of the Paris Agreement reminds countries that when operationalizing this Paris Agreement Crediting Mechanism (PACM), they are “to address climate change, respect, promote and consider their respective obligations on human rights, the right to health, the rights of Indigenous Peoples, local communities, migrants, children, persons with disabilities and people in vulnerable situations and the right to development, as well as gender equality, empowerment of women and intergenerational equity”. However, at the moment, it is hard to ensure environmental integrity and respect for human rights under the PACM. The section of the Standard on Activities Involving Removals regarding the operationalization of human rights and the rights of the Indigenous Peoples is very weak. Also, the safeguards needed to address the negative environmental and social impacts from activities involving removal will only be developed in the future, with no timeline given.

Moreover, the PACM’s safeguard tool is incomplete. It does not include the comprehensive safeguards needed to assess the potential transfer to the PACM of activities hitherto carried out under the Clean Development Mechanism (CDM) (a carbon trading mechanism under the Kyoto Protocol, currently being phased out).[1] This additional component in the safeguard has yet to be open for public input and finalized by the Supervisory Body.

For the PACM to commence full operation in early 2025 with these issues still unresolved would be tantamount to announcing to the world, and to local communities and Indigenous Peoples in particular, that the mechanism will operate without regard for environmental integrity, human rights, including the rights of Indigenous Peoples, and the safety of environmental human rights defenders.

Transparency and robustness of carbon markets

Fact: There is still a lot of work to be done in 2025 for the Supervisory Body to ensure the transparency and robustness of the PACM when operationalized. This includes working on key components that are very technical, for example, downward adjustment, standardized baselines, suppressed demand, additionality, leakage, non-permanence, and reversals.

The SB meets four to five times a year. Will it be able to complete its work on these key technical components in 2025 when it was unable to do so in the years from 2022 to 2024? Moreover, the SB does not implement active and meaningful stakeholder engagement during its meetings. Thus there is a lack of transparency and accountability in the SB’s decision-making process.

Unleashing their enormous potential to drive global climate investment

Fact: Carbon markets are not climate finance. It must not be considered as an alternative source of the USD 300 billion of annual funding by 2035 that the New Collective Quantified Goal on Climate Finance adopted at COP29 obliges developed countries to provide to developing country parties. Global North countries must not evade their financial obligation towards Global South countries. It is their responsibility to pay their historical climate debt as per the polluter pays principle.

Furthermore, carbon markets are greenwashing — a false solution and a dangerous distraction. Projects or programmes that generate carbon credits often promote the use of unproven techno-fixes such as geoengineering (e.g. solar radiation management, ocean fertilization, carbon dioxide removal, etc.). Instead of drastically reducing emissions, developed countries, multinational companies, and fossil fuels industry players purchase carbon credits to offset their emissions. Carbon markets do not contribute to the actual greenhouse gas emissions reduction urgently needed to achieve the Paris Agreement goal of keeping global temperature rise under 1.5°C. Have we forgotten that in 2023 the Intergovernmental Panel on Climate Change Report sounded the alarm that overshoot beyond 1.5°C will result in irreversible adverse impacts and pose additional risks for people, especially grassroots communities, and the planet? Where is the climate justice, environmental justice, and social justice in the PACM?

During my last few days in Baku, an image keep popping into my mind. Can you see it too? A half-built house (PACM) has been given the certificate of completion and compliance (rubber-stamped). People (countries and companies) have eagerly moved in to occupy it, despite its shambolic condition (lack of guidelines and safeguards).

Some background information:
Article 6 comprises three main components: Article 6.2 on bilateral carbon trading, Article 6.4 on a UN-backed carbon market, and Article 6.8 on non-market approaches.  In 2022, at the COP26 in Glasgow, decisions were taken on the rulebooks for Articles 6.2, 6.4 and 6.8. So far, only Article 6.8 has been fully operationalized.   
– The Article 6.4 Supervisory Body (SB) is in charge of developing and supervising the requirements and processes needed to operationalize the PACM. The SB consists of 12 members selected by the Parties to the Paris Agreement (CMA) and is fully accountable to the CMA.  
– The two recommendations highlighted are the Recommendation on Activities Involving Removals and the Recommendation on Methodology Requirements. At COP26, the CMA requested that the Supervisory Body elaborate and further develop recommendations on activities involving removals and recommendations on methodology requirements for consideration and adoption by the CMA at COP27. However, at COP27 and COP28, no consensus on these recommendations could be reached.  
– In October 2024 these two recommendations were changed to become two standards: the Standard on Activities Involving Removals and the Standard on Methodology Requirements. The Standard on Activities Involving Removals sets out the requirements for activities involving removals under the PACM. Until now, the Supervisory Body has yet to determine what types of removal activities are allowed under the PACM. The Standard on Methodology Requirements sets out the requirements for the development and assessment of the PACM methodologies. The two standards are essential for the operationalization of the PACM.    

[1] For an explanation of the CDM, see: https://www.rosalux.de/en/news/id/45279

Hwei Mian Lim is an independent consultant focusing on climate change, gender and climate finance and a member of the inaugural Facilitative Committee of the Women and Gender Constituency.

Top image: Flickr / Friends of the Earth International


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