1. UN Enacts Methodological Frameworks Under Article 6.4 of Paris Agreement

On October 10, The Article 6.4 Supervisory Board, the body working on creating the UN carbon market under the Paris Agreement, finalized two key standards related to carbon removal and developing and assessing projects for a UN-supervised carbon market. 

The adoption of these standards marks a major step forward in operationalizing Article 6 carbon trades under the Paris Agreement:

• New standards for projects wishing to issue credits under Article 6.4 “Paris Agreement Crediting Mechanism” (or transition credits from previous mechanisms) have been adopted, providing a pathway for developers to start issuing eligible Article 6.4 credits.

• Sustainable Development Tool and removal guidance are introduced to ensure projects respect social and environmental rights. These procedures aim to maintain the integrity of projects and provide a platform for stakeholders to voice concerns.

• The standards emphasize that projects must prove they would not happen without carbon financing (additionality) and require downward adjustments of baselines to align with long-term emission reduction goals. This is critical to prevent projects that merely maintain the status quo from earning credits.

• The methodologies and standards can be updated by Article 6.4 Supervisory Body as needed, ensuring it remains effective and agile in a rapidly changing climate landscape.

The approval of Article 6.4 methodological standards is a positive development, providing clarity for developers waiting to transition from CDM credits and those eager to start issuing credits that are compatible with country-level buyers under the Paris Agreement. Operationalizing the Article 6.4 mechanism is crucial to unlocking new carbon credit demand, providing much-needed financing to new carbon projects, and enabling countries to successfully achieve their Paris Agreement targets.

Questions remain about how Article 6.4 credits will be traded and their value compared to credits in the voluntary carbon market, especially those under the Core Carbon Principles. Article 6.4 methodologies are expected to be more prescriptive on conservative baselines and have adopted stronger additionality requirements, risk buffer pool requirements, and SDG alignment. These standards are also approved before COP29, a new approach likely given previous unsuccessful attempts to reach agreements during COP. While this new development may prove beneficial in accelerating the launch of Article 6.4, it ultimately hinges upon how negotiations go in Baku, which might offer more clarity on timelines in the future. 

2. Significant regulatory scrutiny from the Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ)

On October 2nd, The CFTC announced its first civil charges on the carbon market against C-Quest Capital (CQC), a carbon project developer. CQC was accused of making false statements about its clean cookstove projects in Zambia and Malawi, overstating the number of stoves distributed and in use, in turn exaggerating the amount of carbon credits generated and sold. As part of the settlement, C-Quest agreed to pay a $1.5 million civil monetary penalty and cease violating the Commodity Exchange Act. 

In a parallel development, the U.S. Attorney's Office for the Southern District of New York announced criminal charges for three former executives in a multi-year fraud scheme involving carbon credits case. They were found to provide false and misleading information about the number of operational stoves by manipulating survey data required by the issuers. 

These charges came after CQC’s shocking announcement in June this year, which revealed their internal investigation that identified over-issuance at 85-90% of its Verra-registered projects, and announced that they are voluntarily reporting the wrongdoings to law enforcement authorities. As a result, Verra has suspended 27 projects issued by CQC pending further review.

The CFTC and DOJ's recent actions signal heightened regulatory scrutiny in the carbon market – much needed to rebuild buyers' and investors’ confidence in the market. At NetaCarbon, we welcome this increased oversight and believe it could lead to stricter compliance, verification processes, and more robust standards for carbon projects. Ultimately, these developments emphasize the need for transparency and accuracy – a pain point we have heard repeatedly from buyers and hence solving with NetaCarbon’s solution.

3. Several developing countries are implementing or expanding their emissions trading systems (ETS) and carbon pricing mechanisms

The carbon market landscape is evolving rapidly across Asia and South America. Several jurisdictions have taken significant steps toward implementing carbon pricing mechanisms and developing their domestic carbon markets.

Some examples include:

• Taiwan has launched the Taiwan Carbon Solution Exchange, a platform for trading locally issued carbon credits. This marketplace aims to boost domestic carbon reduction efforts, enhance liquidity, and make emissions trading more accessible for local businesses.

• Malaysia is advancing carbon pricing with plans for a 2026 carbon tax on the steel, iron, and energy sectors, as announced by Prime Minister Anwar Ibrahim. This targeted approach, focusing on high-emission industries, aims to cut emissions, foster low-carbon innovation, and pave the way for a future expansion of the carbon tax.

• Chile, in partnership with the World Bank, is launching a multi-year program to develop and harmonize carbon pricing initiatives. This collaboration will provide technical assistance and policy support, reinforcing Chile’s commitment to an effective carbon pricing system and potentially serving as a model for other countries in the region looking to develop their carbon pricing strategies

The emergence of new country-specific carbon exchanges and pricing mechanisms contributes to a more diverse and potentially more resilient global carbon market. As more countries in Asia and South America implement carbon pricing, it could lead to greater regional participation in global climate efforts and potentially the development of regional carbon market linkages. While these initiatives promote local action, they also raise questions about how these various national and regional systems will interact with existing international carbon markets.

4. UN aviation body ICAO has awarded full approval to four voluntary carbon standards for Phase 1 of CORSIA (2024-2026)

The International Civil Aviation Organization (ICAO) has approved four carbon programs from Verra, Gold Standard, Climate Action Reserve, and Global Carbon Council for eligibility in the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) from 2024 to 2026, and represents a significant milestone for Verra and the voluntary carbon market.

CORSIA is a global carbon program whereby airlines and other aircraft operators will offset any growth in CO2 emissions above 2020 levels. Developed by ICAO in 2016, it began its pilot phase in 2021 and moved to a voluntary first phase in 2024, which will be followed by a mandatory second phase in 2026.

The ICAO's recognition is an exciting development that unlocks new compliance-driven demands from the aviation sector for voluntary carbon credits, as CORSIA completes its pilot phase. However, projects will need to obtain Article 6 authorization from the project’s host country in order to be CORSIA-eligible and manage risks of double-counting – details will be announced in the next weeks. Given the additional requirements, CORSIA credits could achieve higher prices than comparable credits, which could be worth the investments for project developers looking to differentiate their projects and tap into this new stream of compliance demand from the aviation sector. 

5. New Gold Standard pilot program for digital Measurement, Reporting, and Verification (dMRV)

Gold Standard, a leading carbon credit certification organization, has launched a pilot program to test digital Measurement, Reporting, and Verification (dMRV) solutions as part of its strategy to digitize the entire process of climate and sustainable development impact certification. This initiative, set to run until October 2026, aims to evaluate how digital technologies can enhance the accuracy, transparency, and efficiency of monitoring and reporting for carbon credits and verified impacts under Gold Standard’s framework.

The adoption of dMRV solutions could significantly reduce the burden on project developers, potentially lowering costs and accelerating the certification process. In addition, automated data collection and streamlined reporting are likely to enhance the accuracy and transparency of emission reduction claims, potentially increasing trust in the carbon credit market.

The pilot introduces an "interim issuance track," allowing participating projects to issue credits more frequently, which could improve cash flow for project developers and increase market liquidity. If successful, dMRV solutions could enable more efficient scaling of carbon credit projects, potentially increasing the supply of high-quality credits in the market.

This pilot program represents a significant step towards modernizing the carbon credit certification process. By leveraging digital technologies, Gold Standard aims to create a more robust, efficient, and transparent system for measuring and verifying climate impacts.