Putting together the pieces of a global marketplace for carbon: A crash course on Article 6 of the Paris Agreement
The carbon markets landscape is getting more complicated. In addition to the voluntary carbon markets (VCM), more and more countries are also developing jurisdictional approaches and national frameworks that can both connect with the VCM and also fit into global constructs, most notably, Article 6 of the Paris Agreement.
Article 6 of the Paris Agreement outlines a way for countries to voluntarily cooperate to meet greenhouse gas (GHG) emission reduction targets under their national climate strategies. As put by the World Bank, “This means that, under Article 6, a country (or countries) will be able to transfer carbon credits earned from the reduction of GHG emissions to help one or more countries meet climate targets.” These are regulated, national level markets working together to ensure the world achieves Paris Agreement emissions reductions goals.
Voluntary carbon markets (VCM), which have been active for about three decades, generate carbon credits from private sector emissions offset projects. The VCM has exploded in value, quadrupling from $520 million in 2020 to $2 billion in transactions in 2021, according to Ecosystem Marketplace research. It plays an important role in how Article 6 is implemented: all that experience, innovation, and growth, harnessed transparently and with integrity, has potential to substantially enhance country efforts to meet national and international goals using Article 6 of the Paris Agreement.
Part of what Forest Trends is trying to do is help build the linkages and architecture between voluntary and regulated markets. That includes an ongoing partnership with the US Department of State to support lower income country governments in considering how international carbon markets could enhance their national climate strategies.
In other words, building the system from the ground up. Since it was passed, responding to Article 6 has been a little like the chicken or the egg: Do we try to create global guidance first for countries to reference? Or should each country create their own according to their climate strategies?
There is a consensus emerging around the latter approach, including during a webinar hosted by Ecosystem Marketplace on August 16th (link here or below for the full recording). One main takeaway was that in building their national strategies, countries should not wait on outside guidance, partly because enough already exists in the Article 6 rulebook and expertise among market actors is enough to get started.
To make sure the VCM and regulated markets are complementary, countries need to work in very close partnership with their private sectors, local communities, and other experts to build capacity for a carbon market that works for their country’s unique needs and strategies. Only then will capacity and coherence be built at the global scale.
Another important part of the conversation that needs to remain a top priority is equitably sharing benefits from carbon markets with all, especially local and indigenous communities on the front lines of protecting our landscapes. These communities are also instrumental to carbon project implementation.
Building a national carbon market strategy that builds on the experience to date with voluntary markets and connecting it to a global framework is an exciting endgame, but a daunting task. This will require collaboration amongst unusual partners. Convening sectors who don’t usually work closely together, like governments, local communities, and the private sector, is our wheelhouse, and our work on Article 6 and the VCM is no different.
We are participating in a set of events at Africa and New York Climate Weeks next month designed to drive action forward. We will share our calendar of events soon. Hope to see you there!