The voluntary carbon market has long been an essential tool for companies and organizations looking to offset their carbon emissions and work towards a more viable, sustainable future. And as nations around the world ramp up progress towards net zero targets, the role of governments in scaling carbon markets — and in achieving their own Nationally Determined Contributions (NDCs) — is being called into question.
Under the 2015 Paris Agreement, the United Nations (UN) introduced Article 6 to serve as a framework for the international trade of carbon credits. But the Article never contained specific guidelines until recently, when it was finalized at COP26 in Glasgow. This finalization raises several questions and concerns within the voluntary carbon market. Many carbon credit buyers are left wondering whether the recent amendments will affect their purchases.
Here, we explore the implications of the UN's Article 6 on the voluntary carbon markets (VCMs), and what it means for corporate buyers.
What is Article 6?
Article 6 aims to build a centralized global carbon market that allows countries to trade voluntary carbon credits. Article 6 of the Paris Agreement is centered around fostering international cooperation through the use of Internationally Transferred Mitigation Outcomes (ITMOs) — essentially, carbon credits. These ITMOs serve as a mechanism for countries to achieve their NDCs more efficiently by promoting sustainable development, reducing carbon emissions, and promoting adaptation. The goal is to facilitate a higher level of ambition and cost-effectiveness, ensuring a transparent global carbon market while avoiding double counting.
What are the implications of Article 6 for voluntary credit buyers?
Indirect impacts on the VCM
On the whole, Article 6 will not directly regulate the voluntary carbon market and does not stipulate how corporate buyers should use or talk about their purchase of carbon credits. Other efforts by the UN, such as a report released in 2022 on the credibility and accountability of corporate and city net zero goals, are more targeted toward corporate use of carbon credits and environmental claims. Article 6 is mostly limited to national governments and their pursuit of NDCs. As national governments move towards identifying and capitalizing on carbon sequestration options within their geographies, we can expect regulations on specific voluntary credits. However, projects that produce high-quality traceable credits can still be viable options for carbon credit buyers.
Better quality control
It’s possible that the voluntary carbon market registries — like Gold Standard and VERRA — may at some point need to align with the methodologies and rules outlined in Article 6. Each registry will likely approach compliance differently, which could lead to some uncertainty in the VCM. But overall, these changes will serve to enhance the quality assurance of credits available on the VCM, something buyers have long been pushing for.
The new global market for international carbon credits would require the use of corresponding adjustments — essentially, carbon accounting corrections — to ensure that the credits are not double-counted (first in the host country, second in the purchasing country). Certain credits may become designated as ‘adjusted credits’ and available for corporate purchase. These credits, which are designed to conform to Article 6 regulations, could become of higher value to buyers and more guidance on claims is expected soon.
Nevertheless, buyers focused on high-quality carbon removals should focus on projects that are highly traceable, additional, and durable — such as those available on the Cloverly Marketplace while building their carbon credit strategy.
The increasing demand for carbon credits typically encourages new investments in carbon removal projects. This growth, in turn, could further stimulate innovation and research and development. With a new global carbon market established with strict guidelines for transparency and accounting, the voluntary carbon market will likely move towards better standardization and quality assurance, improving the purchasing experience for carbon credit buyers.
Buyers should continue to focus on high-quality removals
While the dialogue on Article 6’s impact on the VCM is an ongoing discussion, choosing to support removals and high-quality projects is a viable solution for corporate buyers. Any impact of Article 6 on the VCM is, for now, likely to signal positive change for corporate buyers who are dedicated to high-quality carbon removals.
Build an Article-6-compliant carbon portfolio
Cloverly is actively monitoring each project and ongoing developments to ensure that the projects listed on the marketplace are vetted for quality and risk. To learn more about how you can build a carbon credit portfolio that is Article 6 compliant, set up a climate advisory call with Cloverly.