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COP28: Lack of progress on Article 6 likely to further limit carbon market growth

S&P Global Commodity Insights

Energy Transition

Published: December 13th, 2023


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Highlights


  • Many question lack of safeguards in Article 6.4 text

  • Guidance over removals, integrity concerns were sticking points

  • Article 6.2 still operational but market was hoping for more certainty


In a major setback to international carbon trading, countries at the 28th UN Climate Change Conference failed to adopt key texts laid out under Article 6 of the Paris Agreement, though an agreement on non-market mechanisms was passed on Dec. 13.


Parties did not reach a consensus on either Article 6.2 or Article 6.4, for a variety of technical reasons, with many countries clashing on carbon removals and issues of transparency and climate ambition over the final text.


Many in the voluntary carbon market were disappointed that the lack of a deal would delay market-based and private sector involvement. But those on the opposing side insisted that there were not enough safeguards and regulations in the texts to ensure a functioning and transparent market.


Article 6 of the Paris Agreement sets out the rules for global trade in greenhouse gas emissions reductions. It is seen as an essential enabler of international emissions trading, providing countries and businesses with a key pathway to meet and accelerate their climate goals.


Article 6.4 specifically allows a company in one country to reduce emissions domestically and have those reductions credited so that it can sell them to a different company in another country.


There was a lot of optimism at the start of COP28 that a deal on the guidelines of project methodologies and removals around Article 6.4 would be agreed in Dubai.

The operationalization of Article 6.4 would have provided a new structure for a global carbon market, opening up fresh demand for credits, with the UN deciding the rules on eligibility.


Approval of Article 6.4 is now likely to be delayed until the next UN climate summit, set to take place in Baku next November.


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