Our Manager of Corporate Partnerships, Rebecca Heard, recently attended the United Nations Conference of the Parties (COP29) in Baku, Azerbaijan, where world leaders gathered to tackle the urgent challenges of climate change. The collective desire for urgent action was clear – we’re running out of time, and we need to work together to take measurable steps to reduce global warming below 1.5 degrees.
Climate finance took centre stage, with discussions emphasising the crucial role of carbon markets in achieving climate targets, with the operationalisation of Article 6 being a core outcome of COP29. Bec breaks down what this means and the implications on the broader carbon market.
The critical role of carbon markets in driving climate finance
Core to the negotiations at COP29, widely known as the “Finance COP”, was securing a transformative New Collective Quantified Goal (NCQG) on climate finance – a financial target to help developing countries adapt to climate change. A new annual goal of $300 billion by 2035 was adopted, triple that of the existing goal set to expire in 2025; yet falling short of the $1.3 trillion per year requested by developing nations.
Many voices of the global south shared their disappointment, with Nigeria labelling the offer as “insultingly low.” The NCQG was a glimmer of hope for the world’s most climate-vulnerable populations, an “insurance policy for humanity” as stated by UN Climate Chief Simon Stiell. Yet many feel it resembles an empty promise, one lacking finality on who will pay and whether this money will come in the form of loans or grants: the latter is vital to avoid exacerbating the debt burdens of vulnerable nations.
While the NCQG outcome was met with disappointment, the announcement that Article 6 had been operationalised was enthusiastically received, providing a complementary avenue for driving climate finance to the Global South, through international carbon markets.
Enhanced opportunities for cooperative approaches under Article 6
After nearly a decade of negotiations, COP29 celebrated a major milestone with the operationalisation of Article 6 of the Paris Agreement. This pivotal framework paves the way for voluntary international cooperation, allowing countries to use the carbon market to meet their climate targets, saving them an estimated $250 billion per annum. Article 6 includes both bilateral emissions trading (Article 6.2) and a global UN-backed carbon market, called the Paris Agreement Crediting Mechanism (PACM) under Article 6.4.
Under Article 6.4
At COP29, governments endorsed key standards for carbon methodologies and removals under the PACM, alongside a finalised set of rules for its operation, which hope to enhance the credibility and integrity of carbon projects. Among the priorities moving forward is determining which carbon methodologies will be eligible. New methodologies that fall under the categories of energy, waste, cookstoves, rural electrification and transport will be prioritised, whilst work is already underway on reviewing existing methodologies for transition under the Clean Development Mechanism. Lead negotiators are hopeful that the first carbon credits could be available by the end of 2025.
Under Article 6.2
As the PACM evolves, carbon markets are primed for continued growth, bolstered by the agreement reached at COP29 on trading rules under Article 6.2. This framework enables countries to trade units called internationally transferred mitigation outcomes (ITMOs), which function similarly to carbon credits. When a country sells ITMOs, it is required to make a corresponding adjustment to ensure that the emissions reductions are not counted more than once. ITMO’s can help governments meet climate targets, contribute to other initiatives like the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), or be traded in the voluntary market, with authorisation granted by the host country.
Key provisions of the agreement aligned at COP29 include, enhanced mandatory reporting requirements, the creation of a dual-layer registry to track and trade credits, and a rule that no changes can be made to authorisations once credits are “first transferred,” unless explicitly agreed on in advance. These decisions, amongst others, will be instrumental in ensuring the integrity and transparency of carbon markets, while fostering investor confidence to unlock much-needed climate finance.
What does this mean for carbon markets?
These clarifications could benefit the carbon markets in several ways, including:
Increased demand for Article 6 credits by governments and the private sector
Nearly 60 countries have now signed bilateral agreements under Article 6.2, demonstrating a strong commitment to carbon trading, with Switzerland and Ghana already authorising carbon transactions. The highest demand for ITMOs is coming from Switzerland, Singapore, and Japan, where carbon taxes require companies to purchase credits to meet their obligations. Closest to home, Singapore has established an implementation agreement with Papua New Guinea (PNG) to trade ITMOs. This collaboration not only helps Singapore achieve its decarbonisation goals but also channels vital finance to PNG.
Several new agreements were also announced at COP29, including partnerships between Singapore and Peru, as well as Sweden and Norway, with Zambia, Benin, and Nepal. This surge in agreements sends a positive demand signal for ITMO’s, yet challenges remain in building the technical, institutional, and community capacity needed to scale up engagement in Article 6, especially in developing countries. Strengthened collaboration and capacity building among governments, project developers, and communities are essential, with notable progress already underway.
A prime example of how community involvement can foster success is TEM’s Papua New Guinea (PNG) Cookstoves Project. By investing substantial time on the ground and educating local communities about the benefits of carbon projects, we are empowering active participation and garnering support for sustainable solutions. This approach not only drives successful outcomes but also ensures lasting, positive change for both people and the planet.
Boosted supply for international mitigation schemes such as CORSIA
One of the most imminent sources of demand comes from the international aviation sector, driven by CORSIA requirements, which mandates carbon credits with corresponding adjustments. During a panel at COP29, the International Air Transport Association (IATA) discussed the challenges of scaling sustainable aviation fuel (SAF), noting that in 2024, SAF will account for just 0.5% of global jet fuel demand. With the aviation industry committed to reaching net-zero emissions by 2050, SAF production needs to increase to 500 million tonnes annually – a monumental challenge. This shortfall emphasises the vital role of carbon offsets as a complementary solution to reduce aviation emissions, as efforts continue to scale SAF production and develop other innovative climate technologies in the sector. Despite airlines having until January 2028 to retire credits under CORSIA Phase 1, the current supply gap has already prompted airlines to collaborate with project developers to secure forward offtakes.
The convergence of the voluntary and compliance markets
With the operationalisation of Article 6, the distinction between voluntary and compliance markets is becoming increasingly blurred, creating an opportunity to scale climate efforts while enhancing market integrity. Under Article 6.2, countries can choose to recognise carbon credits from voluntary activities to support their climate targets, with credits issued by independent standards such as Verra and Gold Standard. Additionally, there is strong interest in units with corresponding adjustments from voluntary market participants. A recent survey by The International Emissions Trading Association (IETA) and the Article 6 Implementation Partnership (A6IP) highlights strong corporate interest in credits traded under Article 6, with 83% of companies willing to pay premium prices for these credits.
Establishing robust standards for high-integrity carbon credits eligible under Article 6.2 will be pivotal, with organisations like the Integrity Council for the Voluntary Carbon Market (ICVCM) playing a key role. Notably, ICVCM announced at COP29 that it had approved three REDD+ methodologies, set to begin issuing credits soon, which will be labeled with the core carbon principles (CCP) label – a mark of integrity – by 2025. CCP-labeled credits are expected to drive both demand and premium pricing in the market, with existing CCP-labelled credits garnering a $3-5/t premium. Additionally, project developers and service providers will remain critical in providing the necessary due diligence at a project level, enabling parties to manage risks when acquiring units.
Other key carbon news out of COP29:
- World Bank, the United Nations Development Program, the Article 6 Implementation Partnership, the ICVCM, the Voluntary Carbon Markets Integrity Initiative and the Global Green Growth Institute have announced they will provide technical support to host countries to help them participate in high integrity carbon markets.
- The Singapore Government, Gold Standard and Verra released progress on the development of an Article 6.2 Crediting Protocol, that aims to facilitate the cooperation between independent crediting programs and governments.
- The Association of Southeast Asian Nations (ASEAN) Common Carbon Framework was announced, establishing a set of guidelines and standards for a carbon market in the region.
- Fiji launched its Carbon Market Roadmap Strategy, supported by funding from the Australian Government and technical expertise from the Carbon Market Institute (CMI).
Looking ahead to 2025
COP29 underscored the critical need for urgent, collective action to address the challenges of climate change and the important role of carbon markets in accelerating the flow of climate finance.
While there will be no further negotiations on Article 6 until 2028, the momentum on carbon markets continues, with the Supervisory Body facing a comprehensive agenda in preparation for the PACM and will reconvene at COP30 in Belem to report on its work. At the same time, project developers, governments, and the private sector will continue working together to bring the growing number of bilateral agreements to fruition. TEM is dedicated to maintaining a strong presence in the APAC region, actively engaging with communities, governments, and corporations to drive meaningful collaboration and progress.
As countries under the Paris Agreement are expected to submit their updated Nationally Determined Contributions (NDCs) for the period through 2035 by mid-February, we may gain a clearer understanding of the volume anticipated under Article 6.
Additionally, with more eyes on the market, the commitment to market integrity will only grow. Independent standards like the ICVCM and VCMI will play a continued role in identifying emerging best practices and advocating for greater accountability, transparency, and equity.
Most importantly, collaboration is key for success, particularly with Indigenous Peoples and climate-vulnerable communities, who must be active stakeholders, not just beneficiaries in the climate market. Only through their leadership, knowledge, and participation can we build truly inclusive and effective solutions to combat climate change.
If you’d like to discuss any of these topics, please contact us.
Reference List
- COP29 climate talks end with $300 billion annual pledge, Guterres calls deal a ‘base to build on’ | UN News
- COP29: catalysing global carbon markets | BeZero Carbon
- Baku to the Future: What COP29 Means for Investors – MSCI
- Article 6 at COP29: The Challenge for Carbon Markets Is Demand, Not Supply | The Belfer Center for Science and International Affairs
- From a US$300 billion climate finance deal to global carbon trading, here’s what was – and wasn’t – achieved at the COP29 climate talks
- Singapore, Gold Standard and Verra Release Initial Recommendations Outlining Progress in the Development of a Carbon Crediting Protocol to Implement Article 6.2 – Verra
- High-Integrity Carbon Markets at COP29
- Fiji roadmap adds to carbon market progress at COP29 – Carbon Market Institute
- How to organize the carbon credits market? Six renowned global organizations WB, UNDP, A6IP, ICVCM, VCMI and GGGI come together to support countries.
- IETA AND A6IP REPORT REVEALS KEY INSIGHTS ON ARTICLE 6 IMPLEMENTATION – IETA
Important information
This information has been prepared by Tasman Environmental Markets Australia Pty Ltd (TEM), a corporate authorised representative (ABN 97 659 245 011, CAR 001297708) of TEM Financial Services Pty Limited (ABN 58 142 268 479, AFSL 430036). This material is for general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation, or needs. While we believe that the material is correct, no warranty of accuracy, reliability, or completeness is given, except for liability under statute which can’t be excluded. Before making an investment decision, you should first consider if the information is appropriate for your circumstances and seek professional financial advice. Please note past performance is not a guarantee of future performance.