Breaking: New Carbon Markets Text Shows Progress on Article 6.4, but 6.2 Remains Stalled

GLASGOW | 12 November 2021 | As year-end climate talks enter their final day, clear rules have emerged for internationally transferred mitigation outcomes (ITMOs) transferred via a central hub under Article 6.4 of the Paris Agreement, which is now seen as the successor to the Kyoto Protocol’s Clean Development Mechanism (CDM).

As a negotiating text, this is subject to change.

The new text for Article 6.4 shows agreement on the need for host countries to apply a corresponding adjustment for emissions reductions transferred via the hub, as Brazil agreed to drop its insistence on a grace period for such adjustments, abandoning a stance it had held since the Paris Agreement was signed in 2015.

For background, see “Will Double-Counting Dust-Up Crush Katowice Climate Conference?”

Meanwhile, several negotiators have told Ecosystem Marketplace that they see Article 6 as neutral on whether corresponding adjustments should be required for voluntary transactions, which is contrary to the interpretation many market participants have made.

“In Article 6, there is a differentiation between offsets that take place inside an NDC and outside an NDC, but that’s related to aviation and other semi-compliance markets and not to voluntary markets,” said one negotiator, speaking on condition of anonymity.

“The issue of corresponding adjustments and voluntary markets has been overblown,” he said.

There are still several unresolved issues, including provisions for imposing a transaction fee on transfers that take place under Article 6.2, which governs bilateral trades between countries. The transaction fee, technically referred to as a “share of proceeds” (SOP) provision, is intended to fund adaptation in developing countries. Such a fee is already included in the centralized hub under 6.4, but many say it would be unworkable in a multilateral market under Article 6.2.

The second issue is roughly 4 million tons of emission reductions generated under the Kyoto Protocol’s Clean Development Mechanism (CDM). Countries that generated many of these credits, including Brazil, China, and South Korea, want them to be recognized under Article 6.4, while most other countries do not.