The Paris Agreement paved the way for a new era of carbon trading with the establishment of Article 6, which enables countries to collaborate in achieving their Nationally Determined Contributions (NDCs) by trading mitigation outcomes. At its best, Article 6 offers countries a way to invest in actions outside their borders and raise global ambition to limit temperature rise to 1.5C. However, this is only possible with clear and transparent accounting around what is traded and how countries plan to meet their NDCs.
Countries first established the framework for international carbon trading through Article 6 in late 2021. One year later, in Sharm el-Sheikh, additional light was shed on the process through the establishment of reporting rules, registries, governing bodies, etc. However, uncertainties around the operationalization of Article 6 and domestic implementation held countries back from conducting any trades to date.
Why have countries not yet started trading under Article 6? Is nature included in Article 6? What about REDD+? How does Article 6 impact the Voluntary Carbon Market (VCM)? Will all offsets require a corresponding adjustment? What are the decisions yet to be made around carbon trading? This paper offers straightforward guidance on what was decided at COP27 and dives into the complex implications of Article 6 for NDCs, nature and the VCM.