One of the most contentious issues faced by the Parties to the Paris Agreement in recent years has been how to operationalise the provisions of Article 6 of the treaty.
Article 6 is designed to optimise the efficiency of the regime in meeting its mitigation objectives by facilitating “cooperative approaches” that create “internationally transferred mitigation outcomes” (ITMOs). From a macro-political perspective, it’s hoped that this will help to lower Party abatement costs and ultimately drive more ambitious nationally determined contributions by the Parties.
Article 6.2 of Paris enables Parties to establish bilateral or multi-lateral cooperative agreements that facilitate the trading of ITMOs. For example, in January of 2024, Switzerland’s Klik Foundation purchased 1916 ITMOs from a Thai-based company that is engaged in electrification of Bangkok’s private bus system. The Swiss government ultimately contemplated applying these ITMOs toward its nationally determined contributions under Paris.
Article 6.4 establishes a framework for a centralised international carbon market under the supervision of a Supervisory Body established by the Parties. The Supervisory Body is charged with establishing standards and oversight for the validation, verification and issuance of so-called “A6.4ERs” from public or private projects. By contrast, Article 6.8 seeks to promote non-market approaches to facilitate joint cooperation by Parties through initiatives in mitigation, adaptation and technology transfer.
The primary focus at COP29 in the context of Article 6, and thus this editorial post, was on operationalising Article 6.4. In October, the Supervisory Body adopted two standards to facilitate this: Application of the requirements of Chapter V.B (Methodologies) for the development and assessment of Article 6.4 mechanism methodologies (Methodologies Standard) and Standard: Requirements for activities involving removals under the Article 6.4 mechanism (Removals Standards).
The Methodologies Standard sets forth an array of requirements for development of Article 6.4 mechanisms methodologies and their assessment to facilitate “creditable emission reductions or removals …” This includes an emphasis on approaches that enhance mitigation ambition over time, a focus on development of transparency and robustness in mechanism methodologies, as well as detailed standards to ensure project additionality and avoidance of emissions leakage.
The Removals Standard focuses on “[a]nthropogenic removals as the withdrawal of greenhouse gases (GHGs) from the atmosphere as a result of deliberate human activities,” including “carbon dioxide removal as anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products.” The Standard calls for “robust and statistically representative” sources for monitoring data, “calculated in a conservative manner.” Recognising the risk of reversals of carbon removal approaches, especially nature-based options, the Standard outlines an extensive set of rules to address the risk, including risk-rating tools, remediation rules, and establishment of a Reversal Risk Buffer Pool Account to ensure system integrity. There is also an emphasis on avoidance of potential adverse environmental and social impacts, as well as protection of indigenous peoples and recognition of human rights, including through application of a sustainable development tool, activity standards and cycle procedures for removal projects, and an appeal and grievance procedure.
At COP29, the Parties to the Paris Agreement noted the adoption of the two standards by the Article 6.4 Supervisory Body. It also called on the SB to “expeditiously” develop and implement these standards and to report on progress in its annual report to the Parties.
Given the currently extremely limited numbers of corporate purchasers of carbon dioxide removal ,and purchases trending downward recently, there is increasing concern that carbon removal demand in the next few decades may be far below what’s required to meet the temperature objectives of the Paris Agreement. Some have speculated that the standing up of Article 6 might now help to drive demand for carbon dioxide removal. However, this may prove to be chimerical, at least in the shorter term.
The development of Article 6 standards and methodologies may give a slight reputational boost to CDR purchases in the voluntary carbon markets because issuers of CDR credits in the VCM are likely to embrace the standards set forth by Paris’s Article 6.4 Supervisory Body. As such, “responsible corporates can buy and retire those credits, safe in the knowledge that they are ’re-retiring the most highly-regulated carbon credits around.”
However, the primary constraint on corporate purchases of durable carbon dioxide removal remains cost, and the development of Article 6 markets isn’t really going to change the reality that other projects, such as many in the renewable energy sector, will remain far cheaper, probably ensuring the latter’s predominance for now in Article 6 markets. Moreover, approval of carbon dioxide removal methodologies by the Article 6.4 Supervisory Committee is not likely to be a high priority compared to other kinds of mitigation projects. Indeed, a member of the Article 6.4 Supervisory Body concluded recently that carbon removal methodologies may not be approved for years.
Finally, it should be emphasized that the performance of the predecessor to the market-based mechanisms of Article 6, the Kyoto Protocol’s “flexible mechanisms,” proved extremely disappointing in terms of generating substantial demand for mitigation credits. As the World Bank recently reported, low demand “blighted” the Kyoto Protocol’s market-focused provisions, denuding incentives for project development and emissions trading. It is unclear if market conditions have changed in any substantive ways in the interim that will produce a different result in terms of Article 6 mechanisms. However, the imminent(re)withdrawal of the United States from the Paris Agreement by the Trump administration may prove to be yet another headwind.
Overall, while compliance markets may ultimately prove critical to driving scale-up of carbon dioxide removal, recent Article 6 developments are likely to only have a modest impact on the sector.
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