The Current State of Article 6 Credits Under The Paris Agreement

Authors: Micaela Passetti & Fundi Maphanga

In this edition, we explore the current state of Article 6 credits under the Paris Agreement. Specifically, we detail the current and forecasted supply of projects that generate credits eligible for corresponding adjustments when sold on the international market, known as Internationally Transferred Mitigation Outcomes (ITMOs).

Internationally Transferred Mitigation Outcomes (ITMOs) are sovereign carbon units tradable under Article 6 of the Paris Agreement. The credits are also available for use toward voluntary corporate climate commitments, where corresponding adjustments are not required, but may be preferred by some buyers.

As of now, Letters of Authorization (LOAs) and commitments for Corresponding Adjustments (CAs) have been granted to 48 projects within the Voluntary Carbon Market (VCM). These projects are distributed across Guyana, Madagascar, Nigeria, Rwanda, Tanzania, Morocco, and Malawi, collectively issuing a total of 47.6M of credits. Notably, cookstove projects dominate the market. Within the VCM, the average price per credit for these projects range between US$7.75 and US$14.67 - yet prices for authorised projects have been quoted as being much higher.

Projects Article 6 Authorisations/Corresponding Adjustments by country

Three countries with notable developments regarding article 6 are Rwanda, Guyana, and Tanzania.

Rwanda has the highest profile among the countries mentioned, largely because it issued the first Letter of Authorization (LOA) for credits certified by Gold Standard and VERRA. The former were issued from the project GSR1023 Improved Cookstoves Programme for Rwanda to the independent German non-profit organisation Atmosfair for transformative clean cooking projects. The latter were issued from the DelAgua Clean Cooking Group project. Additionally, three other DelAgua projects have been awarded similar LOAs, enabling VERRA labelling of future Verified Carbon Unit (VCU) issuances. Moreover, DelAgua Group has formed three new partnerships, signing Memoranda of Understanding (MoUs) with the governments of Sierra Leone, Liberia and The Gambia.

Guyana’s TREES credits are eligible for use by airlines to meet their compliance requirements in the first phase of CORSIA, which began on January 1, 2024. The Architecture for REDD+ Transactions (ART) issued 7.14 million 2021 vintage carbon credits for actions taken to successfully reduce emissions from forest loss and degradation, maintaining tropical forests through the jurisdictional REDD+ process. The Government of Guyana has subsequently authorised the credits to be used for a range of compliance and voluntary purposes under Article 6 of the Paris Agreement, including CORSIA.

In April 2024, Tanzania issued the first-ever authorization for corresponding adjustment under Article 6. The social enterprise UpEnergy secured the first Letter of Authorization for credits from an energy efficiency project that plans the distribution of 425,000 cookstoves. Moreover, UpEnergy has established a state-of-the-art cookstove manufacturing facility in Dar es Salaam, Tanzania.

Limited Supply

The limited supply of correspondingly adjusted credits is largely due to governments exercising caution in authorising projects.?

Several factors may influence government decisions on applying corresponding adjustments: concerns about the lack of clear definitions for high-quality or integrity credits from the VCM; the limited infrastructural capacity in many developing economies for monitoring, reporting, and verification (MRV), as well as tracking carbon asset transactions; decisions regarding which activities can be used to meet host country Nationally Determined Contributions (NDCs); and the slow progress in adopting decisions related to Article 6 at COP28.

The Bonn Climate Change Conference witnessed limited progress in addressing outstanding issues related to Article 6 of the Paris Agreement. Despite hosting four negotiations and five side events focused on Article 6, the conference failed to achieve consensus on the operational aspects of an international carbon credit market under the Paris Agreement, and this lack of clarity has introduced uncertainty for stakeholders in the Voluntary Carbon Market (VCM). Some of the concerns that remain unresolved as we approach COP29 in November 2024 remain:

?National legislation can enhance clarity on authorization by specifying the following aspects:

1. Activities that necessitate authorization
2. The minimum scope and format required for authorization
3. The timing and procedures for granting authorization
4. Criteria used to assess authorization requests
5. Circumstances under which authorization can be amended or revoked
6. Conditions under which corresponding adjustments or revocations will be enforced
7. The process for authorising Internationally Transferred Mitigation Outcomes (ITMOs) towards Nationally Determined Contributions (NDCs) or other internationally agreed mitigation plans.
8. Given the pivotal role of data infrastructure in ensuring transparency and reliability in the carbon market, it is crucial for countries to make this information publicly accessible and easily obtainable.

Latest Developments: Country Partnerships

According to the UNFCCC Art. 6 pipeline, there are 82 bilateral agreements (BAs) involving 10 different buyers and 46 host countries. Specifically, 19 agreements have been signed, 3 are currently being negotiated, 49 are Memoranda of Understanding, and 11 fall into the “other” category. The buying countries include Japan, Australia, Kuwait, Monaco, Norway, South Korea, Sweden, and the EUA, with Switzerland and Singapore being the major buyers. The host countries span across the five continents, with a predominant presence of Asia and Africa.

Innovative Policies

Suriname: will require oil companies to purchase Paris-aligned credits at $25/tonne to cover their Scope 1 and 2 emissions. With its forests already sequestering over 20 million tonnes of carbon annually and significant crude oil reserves estimated at 2.4 billion barrels, the revenue generated from the sales will fund sustainable development initiatives, including debt reduction, investments in health and education, and support for forest-dependent communities.?

Malawi: have issued a letter of authorisation for cookstove credits to be listed in the first ITMO Carbon Auction. Carbon Trade eXchange (CTX) will launch an ITMO Carbon Auction, which has been postponed to a later date than previously stated. The auction, which was set to commence on Tuesday, July 16th, and conclude on Tuesday, July 23rd, will be hosted at CTX Global Auctions. The starting price is $10 USD per credit, with a minimum starting bid of $250,000. The auction features 1.5 million credits that were dual-certified by Gold Standard and UNFCCC CDM, and aims to trigger much-needed climate finance, benefiting people across Malawi.

Ghana - Singapore/Sweden - On May 27, 2024, Singapore and Ghana signed an Implementation Agreement to collaborate on carbon credits under Article 6 of the Paris Agreement. This marks Singapore's second such agreement, following the first with Papua New Guinea in December 2023. Sweden and Ghana also signed a bilateral agreement on climate cooperation.

Brazil - Regarding Latin America, in March 2024, Brazil and France launched a coalition to finalise negotiations on Article 6 by COP 29 this year. Moreover, Colombia and Chile are actively advancing their Article 6 regulations. Chile is doing so under an Implementation Agreement signed with Switzerland in December 2023 aimed at establishing a legal framework for transferring Mitigation Outcomes to support NDC achievement and other international mitigation goals.

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