New rules accepted for the carbon credit market

A set of rules for the carbon market have been accepted at the COP29 climate summit. What do they mean for carbon credits and nature recovery?

At COP29, significant advancements were made in operationalising carbon markets under Article 6 of the Paris Agreement. These agreements mark a pivotal step toward regulating and expanding carbon credit trading, a key tool in achieving global climate targets and fostering nature recovery.

The Paris Agreement (the legally binding international treaty to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels”) was agreed at the 21st COP - in Paris, France.

The rules, finalised at the 29th climate summit held in Azerbaijan during the last two weeks of November, address lingering challenges in the implementation of Article 6. This development signals a shift toward greater collaboration among nations and the formalisation of carbon markets as a critical climate action tool.

Article 6 of the Paris Agreement was outlined to help countries work together to reduce their carbon emissions. It sets out

two ways

for countries and companies to trade offsets, helping them meet their emissions goals known as nationally determined contributions (NDCs). 

Article 6.2 empowers countries to trade carbon credits through bilateral agreements with clearly defined parameters. Key requirements include:

For policymakers, this mechanism provides an opportunity to align national emissions reduction strategies with international cooperation. Countries can leverage carbon trading as a cost-effective way to meet NDC targets while supporting climate finance in partner nations. However, effective governance will require rigorous monitoring frameworks and mechanisms to address potential disputes.

The second, Article 6.4, aims to create a UN-centralised system for countries and companies to begin offsetting their carbon emissions and have the ability to trade those offsets. Article 6.4 establishes a global marketplace for carbon credits, standardising practices and creating a reliable platform for both public and private actors. Key highlights include:

The 6.4 market could serve as a benchmark for the voluntary carbon market, setting higher integrity standards. For governments, participation in this centralised system provides access to a more transparent and equitable platform. It also highlights the need for policy integration to ensure alignment with national sustainable development priorities.

On the acceptance of Article 6, COP29’s President, Mukhtar Babayev, highlighted:

"

Climate change is a transnational challenge and Article 6 will enable transnational solutions.”

The main function of Article 6 is to help mobilise and formalise carbon markets. Regulated carbon markets will incentivise climate action by enabling parties to trade carbon credits generated by the reduction or removal of greenhouse gases (GHGs) from the atmosphere, such as by preserving an ancient tropical rainforest.

Carbon offsetting, and the markets on which carbon credits are traded, are a key tool to reach global climate goals, particularly in the short and medium term. While not a sufficient sustainability tactic alone, carbon offsetting has been recognised as essential to meet global Paris Agreement targets. 

Alexandra Soezer, Global Carbon Technical Advisor at the

UN Sustainable Energy Hub explains:

"We know what we need to do to curb global warming: greenhouse gas emissions must fall by 43% compared with 2019 levels. And yet, currently, the combined Nationally Determined Contributions (NDCs), countries’ climate pledges under the Paris Agreement, would mean only a 10% greenhouse gas emission cut, putting the world on track for 2.5°C.”

Successful carbon markets should generate resources and reduce costs to facilitate a smoother low-carbon transition and be able to achieve the goal of net zero emissions in the most effective way possible. 

Some of the benefits that will be seen on a global scale include:

While COP29 was underway, Florence Laloe, Senior Director of Climate Policy at Conservation International, commented:

"The approval of the new 6.4 standards moves the market closer to becoming fully operational, overcoming a process roadblock. [...] Science shows it is mathematically impossible to meet global climate goals without nature. It is imperative that countries provide additional guidance at this COP to improve these standards and ensure that new tools developed for Article 6.4 do not exclude or hinder nature, keeping all sectors on an equal playing field.”

The type of projects supplying carbon credits is varied - these range from clean energy and efficient cooking stoves, to biochar, forestry and regenerative agriculture. From nature’s perspective, the

nature-based projects

that are generating carbon credits (nature-based solutions), have dual benefits of removing carbon from the atmosphere while addressing the habitat and species loss simultaneously. Furthermore, the regulation of a carbon credit market will drive up the quality of these projects - something Earthly have been championing with our

project assessment criteria

.

The hope of Article 6 is to incentivise countries to collaborate on achieving their climate targets. Under its framework, nations could generate carbon credits through projects designed to meet their own climate goals and priorities, such as conserving existing forests or decommissioning coal-fired power plants. These credits could then be purchased by private-sector organisations or high-emission countries, allowing them to offset a certain amount of greenhouse gases. 

However, some campaigners have raised concerns that this mechanism opens a door to corruption. Could Article 6 enable major polluters to continue their emissions while still appearing to meet climate targets? Critics argue that a reliance on carbon credits could undermine efforts to achieve direct emissions reductions. Policymakers must strike a balance, ensuring that offsetting complements - not substitutes - domestic mitigation actions.

By channeling revenue from carbon credits into broader development finance, countries can align emissions reductions with progress on Sustainable Development Goals (SDGs). This creates a win-win scenario, driving both climate action and socio-economic benefits.

A higher-integrity compliance market will drive up the quality of the private sector’s voluntary market. And sector-specific mechanisms are being established - for example  the International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)

Economically, cooperative implementation of Article 6-compatible carbon markets allows countries to achieve net-zero targets with greater economic efficiency. The International Emissions Trading Association (

IETA

) estimates that it could reduce mitigation costs by $21 trillion between 2020 and 2050.

Crucially, regulated carbon markets could drive an increase in nature-based carbon sinks, such as decreasing deforestation and increasing afforestation and reforestation. The restoration and protection of nature will be inbuilt into countries and organisations sustainability plans.

We can also expect to see a shift in capital investment from developed to developing regions where it can achieve more climate change mitigation. This shift in financial flows could create sustainability co-benefits, such as improved air quality, accelerated renewable energy deployment, and support for biodiversity.

In conclusion, the adoption of new rules under Article 6 at COP29 represents a major step forward in the global effort to combat climate change. By formalising carbon markets, these rules aim to ensure transparency, accountability, and higher integrity in the trade of carbon credits. This framework not only creates economic efficiencies but also aligns emissions reductions with broader sustainable development goals. However, to fully realise its potential, policymakers must carefully balance carbon offsetting with direct emissions reductions and guard against risks of misuse. With robust governance, innovative solutions and international collaboration, Article 6 could become a pivotal tool in mobilising resources, protecting nature, and achieving the targets of the Paris Agreement.