What happened on day one of COP29? 

In what is being hailed as a historic ‘breakthrough’ after years of deadlock, the Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement (CMA) officially endorsed the operationalization of Article 6.4 of the Paris Agreement, a set of rules and standards for a centralized global carbon trading mechanism, on day one of the United Nations Climate Change Conference in Baku, Azerbaijan (November 11). The adoption of this article sets the stage for global multi-billion-dollar carbon markets governed and quality-controlled by the UN. 

In October, the Article 6.4 Supervisory Body adopted two sets of standards (hereafter “Adopted Standards”), one on methodology requirements for assessing projects under Article 6.4 and one on the requirements for removal of greenhouse gases. With the adoption of Article 6.4, the CMA has endorsed the Adopted Standards, which comprehensively address monitoring, reporting, accounting for GHG removals, and mitigation and remediation of reversals that may occur, amongst other things. 
‍

‍What does this mean for global climate action? 

With this decision, the establishment of global carbon markets administered by the UN will create opportunities for verifiable emissions reductions – for example, by allowing a private entity in one country to reduce its emissions and leverage these reductions to sell credits to a private entity in another country, all regulated by governance and quality control mechanisms under UN oversight.

These have the potential to attenuate the climate finance gap for adaptation and resilience efforts in developing countries, provide pathways for hard-to-abate industries and heavy polluters to offset their greenhouse gas emissions, and ultimately, support countries in actualizing their climate action plans and Nationally Determined Contributions (NDCs).
‍

At COP29, the CMA adopted Decision 3/CMA.3, containing the rules, modalities, and procedures for Article 6.4, or the Paris Agreement Crediting Mechanism, after years of contentious debate over these rules and their ability to facilitate transparency and credibility. The Article 6.4 mechanism has a 12-member Supervisory Body, selected from the CMA and fully accountable to the CMA, which is tasked with the development and oversight of the procedural necessities to operationalize the Crediting Mechanism.


Exactly what did the parties agree to?
‍
‍The official text of this decision requests the Article 6.4 Supervisory Body to continue its pursuit of rigorous standards and procedures to operationalize this mechanism and welcomes its annual reports demonstrating its efforts to facilitate this mechanism.

Much of the work on these rules, however, took place well before the start of COP29. During a five-day meeting in early October, the Supervisory Body adopted critical standards for the regulation of this mechanism, which are now enshrined in two key documents endorsed by the CMA and subject to review and improvement to align with market developments. The Adopted Standards pertain to the methodology requirements for developing and assessing projects under Article 6.4, and to the requirements for activities involving greenhouse gas removal.

A brief examination of the Adopted Standards is essential to understand what the CMA agreed to, given that these are the guiding frameworks for operationalizing and delivering the Crediting Mechanism. The Supervisory Body has reiterated that the Adopted Standards, developed through extensive stakeholder consultations, are highly rigorous and credible for the establishment of a robust, dynamic, and high-quality global carbon trading mechanism.

The first of the Adopted Standards, on methodology requirements, stipulates several conditions that projects must adhere to. A key guideline is that mechanism methodologies must: 

1) Ensure credible methods for estimating emissions reductions based on up-to-date, reliable scientific data;

2) Draw conservative estimates for these reductions to avoid overestimating impact; and

3) Establish strong monitoring, data capture, and transparent reporting systems, including independent verifications, to ensure credibility. 

Another central requirement is that the baseline emissions must be below the "business-as-usual" (BAU) scenario. This means the emissions from the activity must exceed what would have happened without the intervention, which is critical for ensuring that the project contributes to actual emission reductions. The methodology should clearly define and justify the BAU scenario and demonstrate the difference between the baseline emissions and BAU emissions throughout the crediting period, ensuring that the reductions are real and measurable.

Further, the methodologies should contribute to an equitable distribution of the benefits from emission reductions between participating countries. This includes ensuring that the benefits of the project contribute to the sustainable development goals (SDGs) of the host country. The idea is to ensure that the emission reductions not only help combat climate change but also bring tangible benefits to the host country, such as technology transfer, job creation, and other development co-benefits.

Finally, it includes provisions for local communities to challenge credit-generating activities on their territories, and stresses the importance of making carbon crediting methodologies inclusive and accessible. It encourages the development of methodologies that cover a wide range of emission reduction activities, ensuring broad sectoral and geographic participation, especially from least developed countries and small island states. Methodologies should be simple, clear, and flexible, allowing for diverse stakeholders, including local communities and Indigenous Peoples, to participate. They must also incorporate local knowledge and use adaptable data sources to address gaps. The goal is to create a transparent, inclusive system that supports equitable participation.
‍

‍
3) Estimated net removals and associated uncertainties during the monitoring period; and

4) Information on how risks of reversal of the removals or other negative socio-environmental impacts were assessed, mitigated, and managed.

“As with the methodology standards, it makes provisions for a robust monitoring system that relies on statistically representative data from measurements, sampling, remote sensing, third party sources and published literature while being conservative.”

Importantly, the second Adopted Standard makes provisions for post-credit monitoring and reporting to examine any reversals of GHG removals that may occur and to assess whether GHGs continued to be stored. It comprehensively addresses accounting for GHG removals as well as mitigation and remediation measures for any reversals that may occur.

‍The Adopted Standards make provisions to address emissions leakage – anthropogenic emissions that can occur outside the scope/boundary of a particular project but is attributable to that project – and stipulates strategies to avoid or mitigate such leakages. Finally, a fund or “buffer pool” has also been proposed that would set aside a percentage of each project’s credits to safeguard against a failure to store GHGs. This percentage will be calculated based on a project-level risk assessment, taking cue from a still-unpublished template.

Monday’s action helps to finalize global carbon market rules and has been hailed as a “game changing tool” by COP29 President Mukhtar Babayev. While there has been criticism of a seemingly rushed adoption of the rules on the very first day of COP29, the action will be followed by work on defining further guidance to give to the Supervisory Body overseeing the carbon market.