What is Article 6? An overview and implications for VCM quality

What is Article 6?

Article 6 of the Paris Agreement establishes a legal framework for countries to voluntarily cooperate to achieve emission reduction targets set out in their Nationally Determined Contributions (NDC)[1]. Under Article 6, countries can sell and transfer carbon credits from the reduction (or removal) of greenhouse gas (GHG) emissions to help other countries reach their respective climate targets [2]. Additionally, Article 6 provides guidance for countries to go “above and beyond” their NDCs by supporting GHG mitigation outside of the trade of carbon credits, such as via technology transfer and capacity building for climate solutions in other countries. The general aim of Article 6 is to allow for "higher ambition in countries’ mitigation and adaptation actions, and to promote sustainable development and environmental integrity"[3]. Article 6 consists of three key cooperative approaches (Article 6.2, 6.4 and 6.8) that we outline below.

How Article 6.2 works

Article 6.2 provides a framework for countries to trade GHG emission reductions by issuing and transferring Internationally Transferred Mitigation Outcomes (ITMOs)[3]. Article 6.2 includes a requirement to avoid the double-counting of emission reductions via corresponding adjustments (i.e. the host country must agree to subtract the achieved mitigation from its GHG accounting), ensuring that any single unit of climate mitigation is claimed only once[3]. The exchange of ITMOs under Article 6.2 is not subject to approval by a centralized authority (see section below on Article 6.4); instead, participating countries negotiate the exchange via bilateral or multilateral agreements. Article 6.2 allows host countries to use existing structures to develop and implement projects, which could lead to a range of quality for the ITMOs traded. For example, projects can be designed using pre-existing standards and methodologies (or can develop new ones). The first ITMO issuance under Article 6.2 began in December 2023 with a bilateral agreement between Switzerland and Thailand involving a project that reduced emissions using electric public transit vehicles[4].

How Article 6.4 works

Article 6.4 presents a centralized mechanism, overseen by the UNFCCC, for the international exchange of carbon credits (called A6.4ERs). A6.4ERs exchanged under Article 6.4 can be used for the same purposes as ITMOs, as outlined in the section above. Much like the Clean Development Mechanism under the Kyoto Protocol, Article 6.4 is overseen by a Supervisory Body, under the authority and guidance of Parties who have ratified the Paris Agreement. The Supervisory Body develops and approves methodologies, registers activities, and accredits third-party verification bodies. In this regard, they are responsible for ensuring quality for all credits issued (which may not be true for Article 6.2, where the two countries may simply agree as to what “quality” is sufficient). 

Negotiations are still underway regarding the details of requirements for A6.4ERs. One concept that has been discussed under Article 6.4 is the generation of “mitigation contributions” toward the host country’s NDC. Such credits would not be authorized for use by the supporting country towards its NDC. Rather, the contribution is seen as international results-based finance; or, the (unauthorized) credits could be used in domestic mitigation schemes. 

Once the Article 6.4 market is operational, project developers will be required to request and register their projects with the new Paris Agreement Crediting Mechanism. A project must be approved by the country where it is implemented before it can start issuing A6.4ERs. Further, under this mechanism, 5% of emissions reductions generated by any project will be allocated to a "Global Adaptation Fund," which will provide finance for countries in the Global South to adapt to climate change[5]. Note that existing projects registered under the CDM may be eligible to transfer their credits to A6.4ERs. 

How Article 6.8 works

In contrast to the carbon trading mechanisms outlined under Articles 6.2 and 6.4, the mechanism provided by Article 6.8 recognizes non-market approaches to promote international support for GHG mitigation and climate adaptation. It introduces cooperation through finance, technology transfer and capacity building where no trading of emission reductions is involved[1]. In this way, Article 6.8 allows countries to go above and beyond their NDCs, introducing alternative pathways to catalyze international climate activities.

What are the implications of Article 6  for carbon credit integrity and the VCM?

Article 6 allows countries to collaborate on climate goals, including the exchange of carbon credits to accelerate global GHG mitigation. However, uncertainty remains regarding how these mechanisms will be implemented in various contexts, and the extent to which GHG integrity will be upheld under Article 6.2 and 6.4. 

The quality of ITMOs issued under Article 6.2 could be subject to the same GHG integrity risks faced across the VCM, as there is no centralized body to regulate the quality of credits transacted between countries. Under Article 6.2, the transacting countries decide the terms of exchange for ITMOs via bilateral exchange. The host country (often a developing country) ostensibly should care about quality because they are “giving away” the emission reductions (i.e. taking a corresponding adjustment on their NDC accounting); however, they are also receiving finance, so they may be more focused on the finance opportunity rather than GHG integrity. The country purchasing (likely a developed country, or actor from a developed country) ostensibly cares about the quality of what they are purchasing and may also be sensitive to reputational risk. However, without a centralized body requiring a minimum level of GHG integrity, this can lead to inconsistencies in ITMO quality.

By contrast, A6.4ERs are required to have a standard level of credit quality set by the Supervisory Body. Key issues remain regarding the credit quality requirements of Article 6.4, such as the methodology requirements, validation and verification requirements for carbon projects. These are being discussed by the Supervisory Body and rules are expected to emerge soon. 

New rules under Article 6.4 could have implications for the Voluntary Carbon Market. A number of VCM standards and registries have used Clean Development Mechanism (the precursor to the Article 6.4 mechanism) methodologies and/or taken a cue from the CDM. It is realistic to assume that a similar scenario may develop with regard to Article 6. We also notice that the ICVCM Board appears to be awaiting decisions by the Article 6.4 Supervisory Body to take several decisions. For example, recent ICVCM Board “Observations”[6] mentioned that the Supervisory Body may update existing CDM rules and suggest they would take account of this, such as:

• CDM Tools for additionality (i.e. Tools 1, 2, 19, 21 and 32);
• Default oxidation factors for landfill gas projects;
• Calculation protocols for grid emission factors.

Calyx Global already integrates such considerations (i.e. CDM tools, oxidation and grid emission factors) in its assessment on the GHG integrity of credits, using the most recent science. In this regard, our ratings are ahead of the curve. For more on our approach to GHG integrity ratings, read “Calyx Global GHG Ratings Explained.”

References:

[1] World Bank. (2022). What you need to know about Article 6 of the Paris Agreement. World Bank Group. Accessible at: https://www.worldbank.org/en/news/feature/2022/05/17/what-you-need-to-know-about-article-6-of-the-paris-agreement 

[2] UNFCCC. (n.d.) Paris Agreement Crediting Mechanism.  Accessible at: https://unfccc.int/process-and-meetings/the-paris-agreement/article-64-mechanism 

[3] UNFCCC. (2015). The Paris Agreement. Accessible at: https://unfccc.int/sites/default/files/resource/parisagreement_publication.pdf 

[4] UN Environment Programme (2024). Article 6 Pipeline - Article 6 Pipeline. Accessible at: https://unepccc.org/article-6-pipeline/

[5] UNFCCC. (2021). Report of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement on its third session, held in Glasgow from 31 October to 13 November 2021 (FCCC/PA/CMA/2021/10/Add.1)

[6] ICVCM. (2024). ICVCM Board Observations. Accessible at: https://icvcm.org/assessment-status/