Analysis: Article 6.4 Talks Have Stalled in Dubai. Here’s What’s At Stake

5 December 2023 | Six days into year-end climate talks in Dubai (COP 28), we’ve seen promising headlines coupled with disappointing results in the negotiations around Article 6.4 of the Paris Agreement.

On the plus side, we’ve seen more ambitious targets from the United States and China, a concrete Loss and Damage Fund agreement, and a $30 billion dollar United Arab Emirates climate fund.  These events suggest it could be a landmark like the Paris meeting that yielded its eponymous breakthrough treaty by affirming countries’ right to economic development and prodding high-polluting industries.

But inside the halls, we’re hearing that talks have predictably bogged down as negotiations clash over conflicting views on what types of nature-based solutions to recognize in the recently-proposed methodology assessing removals.

As wonky as it may sound, we need the Paris Agreement’s Article 6.4 to make such an equilibrium a reality.

The audit, consultation, and transparency requirements starkly contrast with forest-carbon offset projects offered by some companies, which rested on misrepresented scientific data and cajoling local populations to buy the land necessary for the offsets. Furthermore, there is no agreed-upon international standard. Currently, there are 73 carbon pricing mechanisms globally. This patchwork of initiatives led to the emergence of Compliance Credit Markets (CCM) and Voluntary Credit Markets (VCM).

By 2021, the CCM was valued at $851 billion and the VCM at $2 billion. The combined global market grew to $980 billion last year. The VCM is forecasted to grow to as much as $40 billion by 2030, and the International Swaps and Derivatives Association (ISDA) estimates it could reach $1 trillion by 2038. Others estimate that the global carbon offset and credit market could reach between $1.6 and $2.7 trillion by 2028. The expected demand for carbon credits is forecast to be 200 metric tonnes (mt) of CO₂, outstripping supply by as much as 170mtCO₂ by 2030. This extremely tight carbon market will require finding high-quality and profitable products while avoiding greenwashing and reputational risk.

Despite the controversy driven by poor ethics, the carbon credit market emerged from a legitimate financial need. Incentivizing projects associated with carbon reduction had a notable impact. According to the Climate Policy Initiative’s 2022 report,  financial commitments needed to increase sevenfold from a 2019 baseline to reach the goals laid out in the Paris Agreement.  While climate finance only doubled between 2011 and 2020, it doubled between 2019/20 and 2021/22 alone. However, according to the latter 2022 report, climate mitigation and climate adaptation finance have been a vast mismatch. Article 6’s clauses were so important that COP 28 president Sultan Ahmed Al Jaber planned to raise it in his meetings with Brazil’s delegation to “incentivize higher mitigation ambition.”

Although the justified focus on carbon reduction might account for this, the United Nations Framework on Climate Change estimates we will have tapped 87 percent of the “carbon budget” to keep us in line with the Paris Agreement by 2030.

The time has come to focus more intently on climate adaptation efforts in the most vulnerable and developing countries with booming energy demands.

Even something as large scale as the Loss and Damage Fund is not enough. Pledges of cash at some undetermined date will not be enough to begin the hard yards of standing up the Article 6.4 framework needed to create a pipeline of projects in which $1.3 trillion of private capital is ready to invest.

Negotiators, whether in plenary sessions or sideline meetings, must move to operationalize the Article 6.4 framework detailed by the Supervisory Body in October. They must also fund its implementation and capacity building.

Article 6 allows countries to create voluntary carbon credits provided they meet specific transparency standards and tie to countries’ Nationally Determined Contributions (NDCs) reducing carbon emissions. Some experts have expressed hope that Article 6’s broad focus on cooperative measures will boost private financing for climate initiatives to avoid a dismal performance of a mere 10 percent reduction in emissions under current commitments.

Article 6.4 specifies that countries should establish said credits through sustainable development involving public and private actors. New regulatory documents issued by the United Nations lay out an extensive process by which governments create 6.4 project umbrellas to which individual “project participants” can then apply. The application involves a detailed plan involving extensive stakeholder engagement and a rigorous verification process to determine whether the project actually meets the country’s NDCs.

Projects must use a standardized baseline or receive authorization from the Article’s Supervisory Body to deviate from approved methodologies. Countries and independent auditors, known as  Designated Operational Entities (DOEs), are responsible for verifying the claims made in project plans (PDDs). Under this new system, those same documents must use the most conservative of available estimates for carbon savings, and the auditors themselves can lose accreditation if reviews by the Article’s main body find their verification techniques sub-par.

The operationalization of Article 6.4 can accelerate blended finance deployment by providing an improved framework. Under these provisions, there will be a steady pipeline of projects, an enhanced focus, and financing. These projects will involve sovereign countries in the approval process, provide an alternative to loans, and improve coordination between multilateral financial institutions, states, private sector projects, and private sector finance.

The effective coordination of these various elements has been identified as a challenge in the Triple B Framework developed by Dr. Gillian Marcelle. She analyzes impeding factors and recommends breaking down psychological and financial barriers to capital deployment, correcting biases, and adequately allocating climate resources. This has proven particularly important for frontline countries where the TBF is being applied.

Private sector engagement and climate finance for frontline communities, such as Ghana’s Environmental Protection Agency’s Public Private Partnership with Integrated Recycling & Compost Plant, LTD (IRECOP), which will generate Internationally Transferrable Mitigation Outcomes (ITMOs) from four composting facilities, have been vital themes leading up to COP 28. The Conference of the Parties can leverage Article 6.4 to integrate global financial capital into climate mitigation and adaptation efforts further. If successful, they will take a significant step forward on a problem that has vexed the international community since the watershed Paris Agreement.