By Charlotte Streck

COP28 failed to produce further guidance on how carbon markets governed by Article 6 (A6) of the Paris Agreement should work. Disagreements were many and concerned larger issues as well as more minute details of the Article 6 rulebook. In an overall charged atmosphere and an unusual-even-for-UNFCCC-negotiations breakdown of trust, the prospect of reaching an agreement on carbon markets became more and more elusive.

What became clear, even though it was never articulated as such, was that negotiating parties are driven by widely disparate visions of the role that the mechanisms formulated under Article 6.2 or 6.4 (A6.2 and A6.4) can play in achieving the goals of the Paris Agreement. On one side are those that see those mechanisms as opening the door to excessive offsetting with all the risks and pitfalls that come with that concept, and on the other side those that see them as opening a door to bolder and more transformative climate finance investments.

More specifically, one group of countries, often led by the European Union, is worried that carbon trading under A6 could undermine the Paris Agreement by creating mitigation outcomes that fail to represent real and additional emission reductions and removals (ERRs). Influenced by the recent debate around the quality of offset credits in the voluntary carbon market, those worried about A6 integrity want to see broad exclusions of project classes and strong top-down controls of projects and resulting mitigation outcomes. This “control position” resonates with suspicions that Parties left on their own will not be able to produce high-quality ERRs and generally casts doubt on the abilities, intentions, or designs of countries participating in A6. According to this view, A6 needs strong centralized steering to avoid subpar credits. However, strong centralized rules also limit the overall role of A6 – which defenders of the control position may not be overly worried about as, in their view, a small A6 reduces the risk that carbon transactions would undermine domestic mitigation policies. What remains is a vision for both A6.4 and A6.2 that is not much different from the design and role of the Clean Development Mechanism (CDM) under the Kyoto Protocol: a mechanism to finance a limited set of smaller projects, but this time with a lot more suffocating bureaucracy.

On the other side, there are countries, most notably the United States, that feel little inclination to elaborate on a second iteration of the CDM but consider A 6 – A6.2 in particular – to be an opportunity to mobilize large-scale private sector finance for transitional investments into larger mitigation programs. An example of this vision is the Energy Transition Accelerator that seeks to forge international partnerships to leverage carbon finance for coal transition projects. Countries taking this “light touch position” measure the success of A6 in the mechanisms’ ability to mobilize flexible finance with maximum mitigation impact responding to specific

Parties’ needs. They emphasize that A6.2 enables Parties to define crediting rule that support their own transformational carbon crediting initiatives. The light touch position argues that moving beyond narrowly defined concepts of project additionality and ERRs accounting is justified if the attempts and investments are just bold enough. Rather than putting the problem of offsetting and carbon accounting into the center of A6, those that promote a light touch approach to A6.2 stress the sovereign and partnership aspects of A6 that see the mechanism as essential tool to channel finance into broader mitigation efforts in the Global South and reject strict top-down UN ruling on the design of such programs.

While the light touch position can live fairly well in the absence of an agreement, the control position needs agreement to further narrow the space for A6 implementation. Existing rules already provide a framework for cooperative approaches under A6.2 and what is missing can largely be defined by participating countries. However, since regulation needs consensus, countries that want to steer implementation top-down need agreement. The result is that activities under A6.2 can move ahead for now, and it is A6.4 that is suffering most harm – and developing countries with fewer capacities who put their hopes on this mechanism.

Regaining trust will not be easy, but it is essential to reach a compromise on A6. A first step to building trust will be countries with differing positions understanding and evaluating the driving visions. Negotiators may need to take a step back and discuss what different countries expect from A6.2 and A.6.4 respectively. That is: how different Parties expect these mechanisms to contribute to the goals of the Paris Agreement, and how they wish to use these mechanisms to achieve their NDCs. In doing so, Parties can think more boldly about their goals and priorities.

It may also be time to reconsider accounting concerns in the context of the Paris Agreement. Transparency and strong inventories are the pillars of integrity of the Paris Agreement. As long as bolder A6 approaches are embedded in robust accounting, their transformational mitigation potential outweighs trade-offs imposed by the absence of centrally supervising each mitigation outcome.

Times have changed, the climate crisis is upon us, and it may be time to put accounting into the service of bold climate action. It may also be time to understand A6 in the context of the bottom-up architecture of the Paris Agreement. That architecture puts its fate into the ability and willingness of countries to contribute what they can to addressing the climate crisis. Honestly, it is all what we have, and positive encouragement is the only way that countries will act. The glue and spirit of this approach is trust – trust in the Parties of the Paris Agreement.

Charlotte Streck is a co-founder of and lead consultant at Climate Focus. She serves as an advisor to numerous governments and non-profit organizations, private companies, and foundations on legal aspects of climate policy, international negotiations, policy development and implementation. She is also a renowned international expert on climate change mitigation, forests and agriculture.

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