With increasingly ambitious climate targets, governments will likely turn to carbon markets to achieve their goals. One avenue is Article 6 of the Paris Agreement, which encourages international collaboration through emissions trading to meet Nationally Determined Contributions (signatories’ plans to help meet the goals of the Paris treaty). Through Article 6.2 of the Paris Agreement, governments can bilaterally trade emission reductions to count toward their NDCs. However, governments must ensure that these emission reductions are not double-counted.
Key message
Governments may sign bilateral agreements under Article 6.2 of the Paris Agreement to trade internationally transferred mitigation outcomes, or ITMOs. These traded emissions are then counted toward the purchasers’ climate targets. Some governments have signed bilateral agreements to date, but few have confirmed completing the transfer of ITMOs. Some loose ends still need to reassure governments about the impact of Article 6.2, including defining corresponding adjustments to avoid double-counting of emission reductions.
How it works
Through the Article 6.2 mechanism, parties can trade carbon offsets via bilateral agreements to achieve their climate goals. The buyer country purchases ITMOs generated by the seller country. These credits are typically from projects that either reduce or remove emissions. Once transacted, the buyer country can count these ITMOs toward its Nationally Determined Contribution (NDC). Corresponding adjustments, such as deducting the respective credits from the seller country’s inventory when a transfer to the buyer country is authorized, are adopted to prevent double-counting of ITMOs.
The introduction of the Article 6.2 mechanism benefits market players with limited emissions abatement potential. These governments could tap other countries’ carbon sink resources to fulfil their climate objectives. Emerging markets are often large suppliers of carbon offset projects so can also reap the rewards of Article 6.2 as the revenue derived from trading ITMOs could be channeled to support their decarbonization efforts.
Progress thus far
Carbon trading provisions under Article 6.2 are far from being operational to be adopted at a wider scale. Progress at COP29 in Baku entailed defining reporting requirements of those transactions. While parties agreed on rigorous requirements, they notably left out deciding on eligibility criteria of ITMOs, leaving it to the signatory parties to decide.
Parties agreed last year at COP29 to defer negotiations on Article 6.2 until 2028, so no material progress on the infrastructure or operation of those deals is expected at this year’s United Nations talks in Belem. Putting a hold on negotiations, however, does not stop governments from making more deals signaling their intentions to trade ITMOs.
What needs to be done
Now that the reporting requirements have been agreed, parties must build the publicly available reporting system and an international registry. Apart from building the international registry, progressing Article 6.2 efforts is largely up to governments, which must issue authorizations to contracted projects, disclose their details and deliver on those agreements.
Effective tracking of transferred emission reductions ensures real environmental impact by avoiding double-counting and providing transparency on each party’s NDC.
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