Climate Blog
2025-06-20
2025 Bonn Climate Conference Special Feature: Paris Agreement Article 6 - Carbon Market
The Article 6 carbon trading mechanism under the Paris Agreement was designed to facilitate international cooperation and drive effective emissions reductions. However, since its implementation, doubts remain over whether it can truly deliver on its promises to reduce emissions and address the shortcomings of previous carbon markets. With the opening of the 2025 Bonn Climate Conference, the global community is set to further examine the progress, challenges, and future pathways of the Article 6 carbon markets.
From the Clean Development Mechanism to Article 6: Lessons Learned and New Expectations
The concept of carbon trading was first formalised in the 1997 Kyoto Protocol through the Clean Development Mechanism (CDM). This mechanism allowed developed countries to meet their emissions reduction commitments by funding mitigation projects in developing countries and earning carbon credits in return. However, the CDM revealed numerous integrity issues during its operation, including incidents of double counting carbon credits, potential risks in fraud, a lack of environmental and social impact assessments for projects, and potential harm to local communities and ecosystems.
In 2015, the Paris Agreement sought to address these issues by introducing two new mechanisms under Article 6: Article 6.2 enables bilateral or multilateral carbon trading between countries, referred to as Internationally Transferred Mitigation Outcomes (ITMOs). Article 6.4 establishes a United Nations-regulated carbon credit system known as the Paris Agreement Crediting Mechanism (PACM).
The primary goals of these mechanisms are to enhance transparency, reduce fraud, and ensure that carbon trading genuinely contributes to global emissions reductions. However, whether these mechanisms can overcome past shortcomings remains uncertain.
COP29 Breakthroughs and Challenges for the Bonn Conference
At COP29, significant progress was made in defining the rules for Article 6 carbon markets. Under Article 6.2, guidelines for bilateral carbon trading were finalised, and a two-tiered registry system—comprising both national and international levels—was established to track and audit the flow of carbon credits. However, inconsistencies in carbon trading information disclosure continue to pose a major challenge. For instance, differences in tracking technologies and regulatory capacities across countries increase the risks of double counting and fraud, which could undermine the credibility of the entire market.
Under Article 6.4, some technical breakthroughs were achieved, including the adoption of baseline and carbon leakage standards to evaluate the actual emissions reductions of projects. However, these newly implemented standards still have notable limitations. Many legacy projects transferred from the CDM to the PACM rely on outdated methodologies that often exaggerate emissions reductions. According to a report by Carbon Market Watch, the first batch of projects approved under the PACM—most of which originated from the CDM—may have issued significantly inflated carbon credits, with some projects potentially crediting up to 26 times the actual emissions reductions achieved. These issues highlight the urgent need for robust regulation and evaluation mechanisms.
Although the Article 6 mechanisms are no longer the primary focus of the Bonn Conference, several high-level discussions related to these mechanisms are set to take place. For example, the “Ambition Dialogue” under Article 6.2 will focus on how to prevent carbon trading mechanisms from undermining countries' domestic climate targets.
Risks of Greenwashing and Human Rights Concerns
The design and implementation of the Article 6 mechanisms continue to carry significant risks that require careful attention.
First, international carbon trading could be misused by some countries as a substitute for domestic climate actions, ultimately undermining global progress on climate goals. This approach risks sending the wrong message globally, suggesting that developed countries could simply purchase international carbon credits to meet their Nationally Determined Contributions (NDCs) without taking meaningful steps to strengthen their own emissions reduction efforts.
Second, challenges related to baseline setting and the permanence of carbon credits remain central to the integrity of the carbon market. Ensuring that emissions reductions achieved by projects are both real and long-lasting is critical to maintaining market credibility. For example, many of the first projects transferred to the Paris Agreement Crediting Mechanism (PACM) originated from the outdated Clean Development Mechanism (CDM), and their quality and integrity have been widely questioned. Without robust review and regulatory mechanisms, these carbon credits risk further undermining the effectiveness of global emissions reduction efforts.
Third, social and environmental risks cannot be ignored. Many civil society organisations have raised concerns that certain carbon credit projects—such as afforestation and energy infrastructure development—could have negative consequences for local communities and ecosystems. These risks include land grabbing, human rights violations, and ecological destruction. If left unaddressed, these issues could turn the carbon trading market into a tool for greenwashing, further eroding its credibility and effectiveness.
Opportunities for Hong Kong: Learning from Article 6 Carbon Markets
The development of the Article 6 carbon markets offers valuable lessons for cities like Hong Kong. As local industries increasingly focus on the potential opportunities in carbon markets, addressing integrity issues and mitigating social and environmental risks will become critical priorities for policy-making.
CCIL has emphasised that Hong Kong should draw on international experiences and closely monitor the progress of the Article 6 mechanisms discussed at the Bonn Conference. By developing stricter carbon trading regulations and ensuring transparency and fairness, Hong Kong can create a more credible and sustainable carbon market while balancing economic opportunities with social and environmental responsibilities.