Well-regulated carbon markets and global cooperation are necessary to sharply limit and remove global carbon emissions. That's where Article 6 of the Paris Agreement comes in. If enacted, Article 6 would establish a UN-sanctioned carbon market, setting a global standard for the voluntary carbon market and frameworks for how countries can collaborate to meet carbon emission targets. While COP26 cemented the overarching tenets of Article 6, questions remain about how it will work and what it will mean for global carbon market participants.
Article 6 was a hot topic at COP28, with negotiations ongoing and expected to continue through 2026. Until Article 6 is finalized, many questions remain about the future of carbon markets. For the private sector, the status of Article 6 raises uncertainty about the future status of carbon credit purchases.
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Article 6 explained
Article 6 enables countries to cooperate to achieve their emission reduction targets set out in their Nationally Determined Contributions (NDCs). This means that countries can transfer their carbon credits to help other countries meet reduction targets. As countries explore the use of Article 6, companies will have a better sense of the kind of mitigation activities they can engage in and claim as a part of their climate strategy. Countries may even turn to companies to help them meet their NDCs, thanks to the collaborative approaches outlined in Article 6.
Article 6 contains market-based approaches (Articles 6.2 and 6.4) and collaborative non-market strategies (Article 6.8). The hope is that this will foster cross-sectoral participation and coordination, boosting collective climate action.
Article 6.2: Creates the basis for trading in greenhouse gas emission reductions across countries. This article has not received ratification.
Article 6.4: Establishes a UNFCCC-regulated carbon market for trading greenhouse gas emission reductions between countries as part of the UN Framework Convention on Climate Change. Article 6.4 has the largest private sector implications, and is the main cause of uncertainty for today’s carbon credit purchasing strategies. This article has not received ratification.
Article 6.8: Ratified in Dubai at COP28, 6.8 recognizes non-market approaches to promoting mitigation and adoption, such as finance, technology transfer, capacity building, etc.
Business challenges raised by Article 6
Despite this uncertainty, Article 6 could significantly improve climate outcomes. By adding a quality framework, Article 6 could restore private sector trust in the voluntary carbon market, helping companies achieve sustainability goals.
But with negotiations ongoing, a lack of clarity in a few key areas of Article 6 means risks for businesses:
Uncertainty about future quality standards
Uncertainty about the minimum quality requirements for carbon credits in Article 6, and unclear procedures for measurement, reporting, and verification which are essential to ensuring that the carbon management functions of a purchased credit are provided as promised.
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Questions on the market structure and types of carbon credits
Right now, Article 6 leaves questions about the structure of the market. Uncertainty about how markets will be controlled, regulated, managed—and most critically—the types of credits that will be allowed on the market (such as carbon removal vs. carbon avoidance credits) raise the possibility that existing credits could become invalid under new rules.
The risk of double counting
Uncertainties about the roles of corporate and government actors has been a sticking point in Article 6 negotiations, especially the risk of double counting (where more than one country, or more than one company) claims the same credit, undermining the credit’s value.
Double counting—distinct from dual accounting—is when a credit is claimed by a country and a company on two distinct ledgers (akin to a company reporting profits, and a country reporting GDP). While dual counting allows companies and governments to cooperate to achieve common goals, double counting reduces the validity, value, and benefit of carbon markets. These questions affect how companies and countries work together to ensure the legitimacy of carbon credits.
While these uncertainties leave open questions about the fate of credits purchased before Article 6 is finalized, this should not prevent individuals and entities from buying carbon credits. Quite the opposite: Early engagement can bring knowledge and perspective that help ambitious companies reach their climate goals in the present and future. Buyers can protect their carbon credit purchases from risk by focusing on quality.
Report: The State of the Voluntary Carbon Market
To reduce risk, focus on quality credit purchases
The best way to ensure that credit purchases retain their value is to focus on quality. Specifically, Carbon Direct recommends evaluating credits based on six criteria, described in our Criteria for High-Quality Carbon Dioxide Removal:
Baselines and Additionality: Projects deliver carbon removal that is directly enabled by carbon finance, measured against baseline levels.
Carbon Accounting and Monitoring, Reporting, and Verification: Projects use accurate carbon accounting methods and ongoing monitoring to verify that issued credits accurately represent tonnes of CO2 stored long term.
Leakage: Projects limit or avoid displacing emissions, and ensure that displacement is properly accounted for.
Harms and Benefits: Projects provide safeguards against community or environmental harms that may result from carbon removal activities.
Environmental Justice: Projects ensure the equitable distribution of environmental impacts through inclusive community engagement.
Durability: Projects guarantee the length of time they will keep CO2 out of the atmosphere.
Quality credits can be found in both nature-based solutions and engineered solutions. While engineered solutions like direct air capture offer highly durable carbon removal, nature-based solutions can bring distinct advantages. Recognizing the potential for quality in both categories is essential. Carbon Direct believes a comprehensive strategy should prioritize quality above all else.
The good news is that the voluntary carbon market is undergoing significant shifts toward quality, driven by private sector demand: Carbon Direct's analysis of the voluntary carbon market shows a fivefold increase in quality-oriented and removals-focused purchases observed between 2021 and Q3 2023. Reflecting the shift towards quality, new market standards and guidance have emerged from organizations like the European Commission, the Integrity Council for the Voluntary Carbon Market (ICVCM), and the Commodity Futures Trading Commission (CFTC), all of which can inform the final version of Article 6.
Article 6 and the future of carbon markets
Article 6 could rapidly transform the voluntary carbon market for good. While prioritizing high-quality carbon credits remains crucial, staying informed of Article 6 alongside other market developments is also essential to stay ahead of changes and de-risk your climate strategy. Tacking the developments of new carbon removal methodologies, paying attention to bilateral agreements and emerging national positions, and ongoing voluntary carbon market trends will help you assess risk and stay ahead of market forces like Article 6.
Article 6 may shape how we address climate change for years to come, which is why Carbon Direct believes it is important to be an active participant. This framework is much more than just a set of rules; it's a dynamic system that will fundamentally reshape our approach to achieving net-zero emissions.
The voluntary carbon market needs to stay flexible and adapt as Article 6 unfolds. How decisions play out will likely impact the quality of carbon credits, who can claim them, and the overall market. Fortunately, recent support from key players in the voluntary market shows a shared goal of driving investment towards real solutions for climate change.
Tags
Climate Policy
Carbon Removal
