The decisions taken at COP29 in Baku (2024) have significantly moved carbon markets under Article 6 of the Paris Agreement towards functionality. This is likely to also have an impact on the Voluntary Carbon Market (VCM), where most emission reduction credits (ERs) have been traded so far.

The VCM will continue to operate in parallel with the markets under Article 6, while A6.4ER (emission reductions approved by the Article 6.4 mechanism) and ITMO (internationally transferable mitigation outcomes) will be traded on the VCM.

It is difficult to predict yet to what extent Article 6 markets will affect VCM. However, it is likely that the clarity and transparency of the rules agreed at COP29 will lead to increased demand for A6.4ER and ITMO from states.

Potential positive impacts on VCM:

• Increased trust and integrity: It is expected that the transparency and integrity that comes with the authorization of A6.4ER and ITMO under Article 6, will gradually restore confidence in the quality of VCM credits.
• Greater standards compatibility: Existing carbon standards (Verra, Gold Standard, Puro Earth) will likely focus more on compatibility with Article 6 requirements so that their ERs can more easily qualify as A6.4ER or ITMO. This could lead to higher integrity and price of ERs approved by carbon standards.
• Investment stimulation: If ERs authorised under Article 6 become internationally accepted as emission compensation, This could lead to greater investment in ER projects and an expansion of their offer.
• Potential for regulation: The functioning of markets under Article 6 could lead to greater confidence of states in the implementation of domestic regulation, which would force or incentivize companies to purchase ER to offset their emissions.

Potential negative impacts on VCM:

• Higher price of A6.4ER and ITMO: Increased demand from states for A6.4ER and ITMO could lead to an increase in their price and discourage private entities from purchasing them.

Important aspects for companies participating in VCM:

• Monitoring progress: Companies must monitor developments in Article 6 markets and their impact on VCM in order to adapt their strategies.
• Considering purchasing A6.4ER and ITMO: Companies should consider purchasing A6.4ER and ITMO if their budget allows to take advantage of their potential benefits.
• Compatibility with Article 6: Companies should ensure that their ER projects meet the requirements of Article 6 in order to be able to apply for authorization as A6.4ER or ITMO in the future.

The VCM and Article 6 markets will be closely linked in the coming years. Companies participating in the VCM need to monitor developments and respond to changes in a timely manner to remain competitive and contribute to reducing emissions. Spring