Key Insights from Our Latest Policy Report: Article 6, Compliance Eligibility, and the Convergence of Voluntary and Compliance Carbon Markets

Authors: Micaela Passetti & Fundi Maphanga

In this newsletter we provide a summary of our latest policy report that we launched earlier this week.?

Leading up to COP29, we expect a series of major announcements on carbon markets, including updates on Article 6 cooperation, compliance mechanisms, and new developments in voluntary carbon markets (VCM).?

We focus on the ongoing progress of Article 6.2 cooperative agreements, the latest updates on Article 6.4 project transitions, and the increasing overlap between voluntary and compliance markets. For those who haven’t had the chance to read the full report, we’ve summarized the key takeaways below.

Article 6.2 and 6.4?

Article 6.2 cooperation rolls on: 91 cooperative agreements under various stages of implementation under Article 6.2 of the Paris Agreement between Parties, with a large split of agreements either at MOU phase (61%) or at signed bilateral agreement phase (22%). Japan, Singapore and Switzerland remain distant leaders.

Bilaterally authorized projects: five projects from three host countries have complete authorization status— all of them for international transfer towards Switzerland’s NDC. When compared, Ghana’s three projects lead the way in authorised emission reductions, followed by Thailand? and Vanuatu.

Unilaterally authorized projects: Twelve host countries have unilaterally issued 19 Letters of Authorization (LoAs) in favour of project developers, permitting emissions reductions for multiple uses, including Nationally Determined Contributions (NDCs), Other International Mitigation Purposes (OIMPs), and voluntary actions. The notable exception is Malawi, where the LoA limits usage exclusively to OIMPs, particularly CORSIA.?

Among the 12 host countries, Cambodia leads with the most emission reductions authorized (56.75 million tCO2e), while Rwanda stands out by mandating that 10% of mitigation outcomes be reserved for domestic use, 2% for Overall Mitigation in Global Emissions, and 5% for Share of Proceeds to the Adaptation Fund. Similarly, Malawi reserves 10% of MOs for domestic use.?

Article 6.4 mechanism’s progress towards full implementation: Decisions were taken by the Article 6.4 Supervisory Body (SBM) to operationalize the Article 6.4 mechanism such us finalizing standards for tech-neutral policy for carbon removal (A6.4-SBM014-A06), and a methodological standard (A6.4-SBM014-A05) for Clean Development Mechanism (CDM) projects transitioning to the Paris Agreement Crediting Mechanism (PACM).

Article 6.4 transitioning CDM projects: According to the UNEP CCC, the estimated potential for emission reductions between 2021 and 2025 (the crediting period of CDM projects eligible for transition) is 1.54 billion tonnes of CO?. Of this total, 0.90 billion tonnes (59%) have requested transition. Now, transitioning activities must be approved by host countries before December 31, 2025.

As of October 2024:

• No projects have been fully registered under Article 6.4.
• No art 6.4 methodologies were defined.?
• Seven host countries provided information on sustainable development impacts and types of activities that would be considered for the PACM
• Three host countries approved the transition of CDM projects that requested it:

Compliance Eligibility: Voluntary & Compliance Convergence

In the second part of the report, we look at the Voluntary & Compliance Convergence.?

Some of the key findings include:?

• We have located more than 829,125,000 unretired credits currently in the market, from voluntary carbon offsets under 12 compliance schemes.?
• CORSIA, Taiwan Carbon Levy and California lead the way on number of distinct brokers
• Colombia remains the most liquid market for credits from compliance eligible sources, with 120 projects scoring?
• Out of the VCM’s all-time credit retirements and cancellations (1.6B), 23% have been towards compliance use under domestic carbon pricing instruments.
• The United States dominates the share of credit cancellations (73%) with more than 267 million credits cancelled towards the California ARB Offset Scheme and the Washington Ecology Offset Scheme, whereas 73% of all retirements in South Africa have been towards the national carbon tax.
• 8 of the top 25 VCM credit cancelling/retiring entities for compliance purposes are active in Colombia.

Retirements by Scheme?

Tracking Compliance-Eligible Credits

Did you know? Credits that have been cancelled or retired for compliance can be tracked on a weekly basis using our dashboard. These can be filtered by jurisdiction, project sector, registry, transaction date, and more. If you're interested in accessing the dashboard or want to explore how it can enhance your carbon market strategy, please get in touch with our team here!?

The convergence of voluntary and compliance markets, the progress of Article 6.2 and Article 6.4, and the increasing liquidity of compliance-eligible credits are all trends that will shape the future of the voluntary carbon market.?

For a more detailed look at these insights, download the full report here for free!?