The Paris Agreement, adopted in 2015 at the COP21 conference by 196 contracting parties, aims to limit the global temperature increase to 1.5°C compared to pre-industrial levels. From 2020, contracting parties are required to commit to reducing emissions greenhouse gases (GHG), known as Nationally Determined Contribution (NDC)While some countries seek to achieve their NDCs through direct emission reductions, Article 6 of the Paris Agreement allows them to use carbon markets. These markets allow countries to buy carbon credits generated by projects that remove or mitigate greenhouse gas emissions, thereby offsetting their own emissions. In general, the reduction or mitigation of one tonne of carbon dioxide (or other greenhouse gas equivalent) corresponds to one carbon credit, which can then be traded. The theory behind Article 6 is that if countries can use carbon markets to achieve their NDCs, they will be willing to set more ambitious targets.

Why is regulation necessary?

However, the use of carbon markets is associated with a number of concerns, which have made it difficult to gain wider acceptance and credibility in recent years. The main problems include: significant differences in carbon prices around the world, questions regarding integrity of carbon credits, difficulties with measurement methodologies emissions reductions and risk of double countingDouble counting occurs when the emission reductions associated with a credit are recorded in both the country hosting the reduction and the country importing the credit.

Article 6 of the Paris Agreement seeks to address these concerns by regulating the trade of carbon reductions and removals through three main mechanisms:

• Bilateral agreements between Contracting States (Article 6.2).
• Global carbon market mechanism under UN supervision (Article 6.4).
• Cooperation between states through non-market-oriented approaches (Article 6.8).

Article 6 itself does not contain detailed guidelines, but Parties at COP26 and COP29 reached agreements that laid the groundwork for the operationalization of Articles 6.2 and 6.4.

Article 6.2: Cooperative approaches

Article 6.2 provides: cooperative approach, which consists of voluntary bilateral agreements between countries to trade carbon credits, defined as internationally transferred mitigation outcomes (ITMO)The goal is for the buying country to achieve its NDC and the selling country to gain economic benefit.

The definition of projects falling under ITMO was a contentious issue at COP26, with some participants arguing against including credits from projects aimed at avoiding emissions (e.g. preventing deforestation) due to difficulties with measurability. Nevertheless, it was agreed that ITMOs include credits generated through both carbon removal and reduction projects, and the current consensus is that projects aimed at avoiding emissions are included, although they are to be reviewed by parties in 2028.

Article 6.2 also requires countries using bilateral agreements to use transparent process with accurate accounting of emission reductions to avoid double counting. This transparency is to be achieved through international registry operated by the UN, which ensures that the country selling credits increases its reported emissions by a corresponding amount. Transparency is also ensured by the process "technical expert review", under which States Parties must comply with UN reporting requirements.

Article 6.4: Paris Agreement Crediting Mechanism

The objective of the Article 6.4 mechanism is to promote emission mitigation, incentivize public and private actors to participate, and enable Parties to use emissions trading to meet their NDCs. The mechanism encourages Parties to approve and authorize projects to reduce or eliminate emissions that comply with standards and methodologies set by the UNThe carbon credits generated by these projects (known as emission reductions under Article 6.4) can then be authorized to trade at a global level.

The mechanism is intended to ensure that these credits are more robust like other voluntary carbon credits on the market. Projects must meet strict criteria set by the UN supervisory body, such as:

• To be additional: This means that they are outside the scope of existing national policies and legislation and that the project would not have been carried out without the funding made available under Article 6.4.
• Bring measurable and long-term benefit.
• Go strict approval and verification procedures.
• Accurately monitor and calculate emission reduction.

The mechanism under Article 6.4 is considered to be successor mechanism to the Clean Development Mechanism (CDM) from the Kyoto Protocol. It allows the transfer of legacy CDM credits for emission reductions under Article 6.4, if projects meet the requirements of the supervisory authority and adhere to prescribed time limits and transition procedures.

Registers

For both the cooperative approaches under Article 6.2 and the crediting mechanism under Article 6.4, the following are required: robust processes To ensure accurate accounting of the transfer of credits and the corresponding adjustments to the emissions reported by the country, the UN has therefore developed two platforms:

• Centralized Accounting and Reporting Platform (CARP) for recording ITMO transactions pursuant to Article 6.2.
• Register of the mechanism under Article 6.4 to record the generation and transfer of emission reductions pursuant to Article 6.4.

Both registers serve as tracking tools for the UNto ensure accurate recording, monitoring and use of credits. Although these registries are different, the respective frameworks allow for the later conversion of Article 6.4 emission reductions into ITMOs, which can then be traded through the CARP.

Article 6.8: Non-market-based approaches

Article 6.8 focuses on non-market-oriented approaches to cooperation among Parties in achieving their NDCs. The objectives are similar to those of Articles 6.2 and 6.4 – to promote climate change mitigation and to encourage the involvement of both the public and private sectors. The UN has established a work programme to facilitate these objectives, a key element of which is common web platform to distribute financial and technical resources to achieve NDCs, as well as to share information, best practices and case studies.

Article 6 as a whole represents the Paris Agreement's effort to establish a reliable and transparent framework for international cooperation on carbon markets and other approaches to achieve global climate goals. JRi