Roadmap to COP29 – what is new for carbon markets?

The 29th Conference of the Parties to the United Nations Framework Convention on Climate Change ('COP29') may offer opportunities for key stakeholders to foster international cooperation on using market-based cooperative approaches for implementing the Paris Agreement.¹

Background

COP29 will convene from November 11–16, 2024. As part of COP29, the 61st session of the Subsidiary Body for Scientific and Technological Advice ('SBSTA61') and the 6th meeting of the COP serving as the Meeting of the Parties to the Paris Agreement ('CMA 6') will address issues around Articles 6.2 and 6.4 of the Paris Agreement.

Article 6.2 enables countries to meet their climate targets, known as Nationally Determined Contributions ("NDCs"), through bilateral or multilateral cooperation agreements. This facilitates direct country-to-country trading of emission reduction credits, referred to as Internationally Transferred Mitigation Outcomes ("ITMOs").

Article 6.4 sets up a framework for a centralized international carbon market, facilitating the trading of emission credits among countries under the supervision of a designated Supervisory Body. This mechanism is designed to be more structured and regulated compared to the flexible approaches of Article 6.2. Unlike the mechanism in Article 6.2 that allows countries to exchange ITMOs directly through cooperation agreements, Article 6.4 provides a system of oversight to ensure that any emission credits (the so-called "A6.4ERs"), which can originate from public or private projects, and are traded within the international carbon market, are validated, verified, and issued according to the framework established by the provisions of Article 6.4. The A6.4ERs can then be traded or used to implement the Paris Agreement.

Developments on Article 6.2. and 6.4 have somewhat stalled recently, so COP29 is eagerly awaited by stakeholders to see if a breakthrough is possible.

Likely focus of discussions in Baku

Expected developments on Article 6.2 of the Paris Agreement

Key Article 6.2 issues expected to be addressed at SBSTA61 include:

• Authorization process: Parties are considering whether to adopt a unified authorization system or three separate authorization types for cooperative approaches, entities, and ITMOs. Discussions may also explore whether authorizations should be mandatory, voluntary, or left without a specific form.
• Agreed Electronic Format ('AEF'): Standardized reporting structures are expected to streamline ITMO tracking, with discussions likely on the sequencing of submissions and review processes, including whether initial reports ought to be reviewed for inconsistencies before the AEF is formally submitted.
• Registry structure: Parties may debate a dual registry approach, which would allow direct ITMO transfers and data access from underlying registries, versus a single approach that restricts data access.
• Corresponding adjustments: Discussions will also likely focus on corresponding adjustments to prevent double counting, particularly with respect to single-year versus multi-year NDCs.

An essential reference for these discussions is the updated manual on Article 6.2 released by the UNFCCC in August 2024.² The manual outlines the procedural and technical steps necessary for participating countries to authorize and report ITMOs.

Expected developments on Article 6.4 of the Paris Agreement

SBSTA61 discussions on Article 6.4 are anticipated to cover:

• Authorization of A6.4ERs: Issues under consideration include whether authorizations can be granted post-issuance, what information must be included, and whether authorizations can be modified or revoked.
• Mitigation Contribution Units ('MCUs'): Parties may discuss if, in cases where the host country does not issue an authorization at the time of issuance, A6.4ERs will automatically be converted to MCUs.
• Registry connectivity: Parties will debate options for integrating authorized A6.4ERs into the international registry, either allowing direct transfers or providing data viewing access only. Additionally, they may consider the possibility of linking Party registries directly with the Article 6.4 mechanism registry to streamline the transfer of authorized A6.4ERs.

In recent meetings preceding COP29, the Article 6.4 Supervisory Body – established at COP26 in Glasgow and responsible for overseeing the UN carbon market mechanism –³ adopted two standards that are expected to shape Article 6.4's implementation and guide the discussions at COP29: (i) a standard on methodology requirements, outlining requirements for developing and assessing projects under the Paris Agreement Crediting Mechanism;⁴ and (ii) a standard for projects that remove greenhouse gases from the atmosphere.⁵

Implications for key stakeholders

In July 2024, the COP29 President-Designate issued a letter urging stakeholders to expedite the operationalization of Article 6.⁶ Building on this, the Council of the European Union's October 2024 conclusions emphasized the importance of COP29 for enhancing global climate ambition and called for COP29 to prioritize domestic emission reductions through Article 6 of the Paris Agreement.⁷

These messages underscore the critical role Article 6 will play in the broader climate policy landscape.

• For Governments: Integrating Article 6 mechanisms into national policies and reporting frameworks may enable governments to more effectively implement the Paris Agreement. Bilateral agreements under Article 6.2 could help streamline climate change mitigation efforts, allowing countries to raise their mitigation ambitions. Article 6.4, with its standardized framework, may offer a structured pathway for countries to participate in the global carbon market, enhancing transparency and environmental integrity.
• For Companies: Expected advancements under Articles 6.2 and 6.4 will influence corporate carbon offset strategies and compliance requirements.
• For Investors: Article 6.4 may provide new opportunities to fund projects within a global framework that offers potential returns through A6.4ERs and ITMOs.

Therefore, this year's COP will again be closely watched for decisions on Article 6 that may shape the future of carbon markets worldwide.

Marta Teixeira Pires (White & Case, Legal Trainee, Brussels) contributed to the development of this publication.

_{1 The provisional agendas include 'Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement and in decision 2/CMA.3' and 'Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement and referred to in decision 3/CMA.3'. Available here for SBSTA61 and here for CMA 6.
2 Available here.
3 The Decision 3/CMA.3 Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement – designating the Article 6.4 Supervisory Body on November 13, 2021- is available here.
4 Available here.
5 Available here.
6 Available here.
7 Available here.}

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_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

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