They discussed the key developments, conclusions for global carbon markets, and what the landscape for action looks like in 2025.
COP29 concluded early Sunday morning, November 24, in Baku, Azerbaijan, with some key outcomes:
Countries agreed on a new goal of at least $300 billion for developing countries per year by 2035, up from the current $100 billion. This is a tripling of climate finance, but far from the $1.3 trillion experts put forth as necessary. UNFCCC's Simon Stiell addressed the plenary following the conclusion stating that the new finance goal is "an insurance policy for humanity, amid worsening climate impacts hitting every country." We welcome the agreement as an important response to meeting the commitments laid out in the Global Stocktake (GST).
This signifies a UN endorsement of carbon markets as a key financial instrument to deliver on the Paris goals, and putting forth a new UN-approved benchmark for quality projects and activities in the market with the Paris Agreement Crediting Mechanism (PACM).
The historic “transition away from fossil fuels" that was agreed at last year's COP28, was not present in the final text, largely due to the influence of petrostates.
Article 6.4 creates a central, UN-managed crediting mechanism, the so-called Paris Agreement Crediting Mechanism (PACM). In practical terms, this mechanism can be used to certify and issue carbon credits. In this way, it is similar to Verra or Gold Standard but managed by the UN. Day one of COP29 saw a “breakthrough” with the approval of two standards for the PACM, one on methodologies and another one on removals, finally enabling the operationalisation of the PACM to generate carbon credits within the UN architecture.
It allows for carbon assets generated in one country to be used towards the climate targets (“Nationally Determined Contributions” or NDCs) of another country, or towards CORSIA, the compliance scheme for international aviation. Countries can set their own terms for carbon trading, but must report transfers and uses of carbon credits to avoid double-counting . The emissions reductions transferred are known as Internationally Transferred Mitigation Outcomes (ITMOs).
Though Article 6.2 was already operational, some rules still had to be finetuned, for example with regard to authorisations, registries, reporting and transparency. The finalisation of the full rulebook was widely welcomed by the market.
Parties disagreed between establishing a registry that would be just a data portal tracking transactions and a 'fully-fledged' registry with issuance and transaction capabilities. Finally, they reached a compromise, with a registry that serves to display data, but with the possibility to request additional functions for the issuance of mitigation outcomes.
Another important part of the negotiations related to the definition of a “cooperative approach” and the potential constraints to unilateral authorisations, which would have limited private sector participation in the market. In the end, the final agreement does not include such a definition.
Regarding the revocation of authorisations, also a major point of debate, it was agreed that any changes to an authorization can only happen prior to the first transfer of the mitigation outcomes and under pre-defined conditions specified in the authorisation letter. This offers some risk mitigation for project developers.
Other decisions related to reporting and transparency requirements for countries.
Overall, we welcome the emergence of a viable, UN-backed mechanism through the PACM, and with cooperative approaches broadening and linking carbon markets globally.
COP29 puts Article 6 negotiations to bed until 2028 and, with a finalised UN rulebook, Article 6 can be further scaled. This provides the clarity all actors seeking to leverage Article 6, either as buyers or sellers, have been waiting for for years.
Demand for Article 6 credits already exists, and the first transactions are taking place. The focus for the next few years has to be on generating supply for airlines needing to meet a 2028 CORSIA deadline and for countries leveraging markets to deliver on their 2030 NDCs.
For that purpose, the new Paris Agreement Crediting Mechanism is an additional tool to generate carbon credits. It is pressing to accelerate the development of new methodologies, to enable projects and activities to secure revenue through a new mechanism. It is equally urgent to continue the transition of projects from the CDM – the UN standard under the so-called ‘Kyoto-era’ – to the new mechanism.
We see standards set by Article 6.4 informing integrity guardrails for the wider market, and we expect that this will positively enable the continued standardisation in the market.
A high-integrity market is in the making and, with the rules in place, the path forward is clear. To fully unlock the potential of Article 6, country-level capacity-building and institutional frameworks to operationalise the mechanism remain integral, as does private sector involvement to rapidly build supply of Article 6 credits and scale the potential of the global market.
ITMOs will be bought by sovereign buyers seeking to meet their national climate targets, airlines needing offsets to meet CORSIA obligations or corporates who can use ITMOs as offsets under a domestic carbon pricing scheme.
For businesses seeking to mobilize finance to reduce their emissions, Article 6 proposes a new source of revenue for high-volume and highly additional projects. Initial indications point towards prices that are higher than current trends in the voluntary carbon market. This creates new opportunities to develop projects that need significant carbon revenue to get off the ground.
Meanwhile, those needing to secure ITMOs to meet their NDCs or compliance requirements, are facing a market which will be thin on supply for some time to come. Countries are still setting up the national regulations and institutional arrangements needed to participate in this market and will be cautious in selling emission reductions that can no longer be used for their own NDC. The best way to secure some of that limited supply is to strategize, procure and invest early.
South Pole advises those seeking to lock in supply, as well as businesses and institutions wanting to understand how to tap into the financing opportunities created by this emerging UN-governed carbon market.
South Pole offers a comprehensive, end-to-end suite of solutions to support host countries, buyers and projects developers cooperate under the Article 6.2 of the Paris agreement.
