Article 6 of the Paris Agreement outlines how international carbon markets should function, and negotiators have spent nearly a decade hammering out the details. At COP29 in Baku this November, the parties finally reached a consensus on a framework—one of the few notable breakthroughs at this year’s climate summit.

A conversation with

Hæge Fjellheim is Head of Carbon Analysis at Veyt.

Dette intervjuet er tilgjengelig i en forkortet utgave på norsk her.

But how big was the achievement, really? While the COP presidency hails it as a «breakthrough«, others were more reserved. How important is this agreement, what impact will it have, and what comes next? We ask Hæge Fjellheim, Head of Carbon at the analytics firm Veyt.

<2°C: – COP29 concluded with an agreement on rules for international carbon credits under Article 6 of the Paris Agreement. What, in your view, were the most significant breakthroughs achieved in this agreement?

Hæge Fjellheim: – First of all, finally having something concrete after a decade of negotiations is significant. The main breakthrough is that, after extensive negotiations since the Paris Agreement, we now have agreed-upon rules. This was the missing piece of the 2015 Paris Agreement rulebook. Countries agreed to overarching rules in 2021 at Glasgow, and since then, there’s been difficult negotiations over the past three COPs without agreement. Had they not agreed on Article 6, it would have been a major failure for this COP.

What we have now is a solid robust framework for global carbon trading moving forward. While on its own this does not create a market, the rules and architecture for the future are in place.

Secondly, there’s now clarity for market participants. The agreements address the specifics of authorizations and reporting requirements. For example, one heavily debated topic was revocation—whether a party can revoke carbon credits they had agreed to sell. This has been a major concern, especially for airlines participating in CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation), who need to buy carbon credits for compliance but were uncertain about how these rules would affect them. Now, we have clear rules in place.

Additionally, there’s clarity regarding registry interoperability. If a country doesn’t have the capacity to build its own registry, can it still participate in Article 6? The adopted rules state that if you lack the capacity to build your own registry, the UN can facilitate one for you. This provides much-needed clarity on such issues.

– How do you think the balance between supply and demand for these credits will develop? Is there sufficient demand today to support the growth of a large-scale market?

– That’s the billion-dollar question. Many countries are willing to sell: Ghana, Kenya, Rwanda, Madagascar, to name a few. However, apart from countries like Switzerland and Singapore, not many have expressed interest in engaging in Article 6 transactions from a buyer perspective.

Article 6 is integral to the Paris Agreement’s logic of increasing ambition bottom-up by countries taking on ever more ambitious targets over time. The idea is that access to cheaper emission reductions elsewhere incentivizes countries to enhance their own national ambition or contributions. With the rules in place, countries can bolster their targets because they have access to mitigation outcomes from other countries.

But this will not happen overnight. We may know more in February next year which is the deadline for countries to submit their extended Nationally Determined Contributions (NDCs) for 2035. Then we’ll see how they plan to achieve their targets and whether they intend to include Article 6 mechanisms. But probably COP30 in Brazil next year – “the ambition COP” – is too soon to see the impact of Article 6 on national targets.

For instance, the UK has stated it will not use Article 6 credits to achieve its NDC because it aims to reduce emissions domestically.

The EU, which was a major demand center for credits from the Clean Development Mechanism (CDM) in the past, also has a climate target that is purely domestic. The Green Deal and the Fit for 55 packages laying out the framework until 2030 do not allow for import of credits from abroad. The 2050 target also excludes external credits, and so will the upcoming 2040 target proposal from the European Commission due early next year.

Demand from country NDCs stating their intention to use markets is certainly the missing piece However, this agreement establishes the architecture that could become more important over time.

There’s also potential demand from other segments; unlike during the CDM era, we may see increased demand for UN-stamped credits from corporates operating in the voluntary carbon market and under parallel compliance markets like CORSIA. So, demand isn’t limited to countries alone.

– These expectations that some developing countries have to generate significant revenue from these credits—are they realistic?

– Revenue streams from credits come through multiple avenues. Countries can engage in bilateral agreements under Article 6.2, participate in the centralized Article 6.4 mechanism, or engage with CORSIA through the International Civil Aviation Organization (ICAO), where airlines purchase credits for compliance.

Regarding pricing, the current international carbon market—the voluntary carbon market—has seen falling prices and low activity due to credibility scandals. Trust is paramount; buyers need assurance that their purchases won’t lead to negative publicity.

Article 6 credits are expected to be of high quality. When these credits start emerging—probably around 2026—they’ll carry higher credibility and value than other credit types. Article 6 could become the gold standard for high-quality credits, likely commanding higher prices compared to others.

Host countries also need to do their homework in preparing their domestic frameworks to accommodate these revenue streams. They need robust accounting systems and must ensure they can achieve their NDCs even while selling credits, which involves making corresponding adjustments—subtracting sold emissions reductions from their own accounts so buyers can claim them.

Domestic frameworks are key. Predictability and clarity in a country’s regulations attract investors. For example, Indonesia has its frameworks, but it’s unclear how it will regulate Article 6 credits and the voluntary carbon market (VCM). They’ve stated that all outgoing credits need corresponding adjustments but haven’t specified details.

In contrast, Ghana published its domestic framework in 2022. They have a whitelist and a red list. If you buy credits from the while list projects, they’ll provide corresponding adjustments, meaning they won’t count these towards their NDCs as they are additional to Ghana’s NDC, allowing buyers to count them. Credits from red-listed projects won’t receive corresponding adjustments, as they are not additional to Ghana’s NDCs. They also specify conditions for VCM buyers. This clarity offers predictability for investors and project developers engaging with Ghana.

Ultimately, to generate revenue from credits, countries need clear domestic frameworks outlining what they offer.

– This leads us to the next question about integrity issues. Do you believe the COP29 agreement adequately addresses these concerns?

– It depends on which part we’re considering—Article 6.2 or 6.4. For Article 6.2, which involves bilateral agreements between countries, environmental integrity issues rest between the parties involved. The UN doesn’t provide a stamp of approval. The adopted text explicitly states that credits issued from international registries governed by the UN don’t necessarily ensure environmental integrity. It’s up to the parties to ensure credits are additional and that baseline accounting is accurate.

For the Article 6.4 mechanism, there’s still much work to be done. While agreements on methodology and removal standards exist, no methodologies have been approved yet. Tools for assessing additionality and baseline accounting are still under development. It will take time—perhaps until 2025—before we can assess whether these mechanisms adequately address integrity issues.

COP29’s Article 6 provides the structural foundation needed. It’s a crucial step for a market that has struggled with trust and stability.

– What potential pitfalls do you see in this new framework? Is there a risk of greenwashing or double counting of emissions reductions?

– Preventing double counting is crucial for Article 6 to make environmental sense. This was addressed with the corresponding adjustment agreement in Glasgow. Robust mechanisms are now in place to ensure emission reductions aren’t counted twice, which mitigates the risk of double counting significantly. Under the Article 6.4 mechanism, provisions are being developed to tackle these issues.

– Turning to the uncertainties surrounding the United States’ commitment to climate efforts, especially with the potential of a Trump administration, how might this affect the implementation of the new Article 6.2 and 6.4 rules?

– Regarding the implementation of Article 6 mechanisms, the impact of a US exit from the Paris Agreement might be limited. While the U.S.’s stance can influence the overall mood and possibly other countries’ ambitions, the technical work of implementing Article 6 will proceed. The next major check-in on Article 6 from the COP is in 2028, and implementation efforts will continue at a technical level regardless.

The U.S. has been a major supporter of the voluntary carbon market under the current administration. In the adopted Article 6 text, particularly under the registry section—which the U.S. was vocal about—they didn’t want the international registry to have the issuing function. The final text reflects some of the U.S. positions, stating that credits issued under Article 6 don’t necessarily have the UN’s stamp of approval. This aligns with the U.S. desire for flexibility and inclusion of various crediting standards. They prefer that credits from international standards like Verra and Gold Standard to issue Article 6 credits.

Beyond implementation, what is more worrying is how a potential  U.S exit from Paris might affect global ambition levels and whether other countries might adjust their commitments. However, some countries, like Brazil and the UK, have already moved forward with new targets. I remain cautiously optimistic that the process will likely continue without major setbacks due to U.S. policy changes.

– Assuming the U.S. does withdraw from the Paris Agreement, will that significantly affect demand or enthusiasm for new projects?

– Even if a new administration moves to exit the Paris Agreement, it takes a year for that to become official. So, the U.S. would still be part of the next COP in Brazil and expected to submit a new NDC, though they could of course choose not to.

So far, we haven’t seen signs of other countries stepping back from their commitments due to U.S. policy shifts. Other issues, like trade and international competitiveness, are also prominent in climate talks, as seen with discussions on the Carbon Border Adjustment Mechanism (CBAM) initiated by China and the G77.

Europe, for example, is progressing with its 2040 target discussions. While geopolitical developments can and will influence the climate agenda, I hope and believe that the momentum towards stepping up NDCs and over time also implementing mechanisms like Article 6 will continue.