Market mechanism debate: Article 6 key to emissions reduction

HE 29th United Nations Climate Change Conference (COP29) in Baku, Azerbaijan, concluded amid widespread disappointment and criticism.

- VARUN MOHAN PhD scholar at National Institute of Advanced Studies, Bengaluru. Also research fellow with the Earth System Governance Project

Though it is considered a failed COP, one part of the compromise deal was the operationalisation of Article 6 of the Paris Agreement. Article 6 of the 2015 Paris Agreement establishes a framework for international cooperation to achieve climate goals through market-driven and non-market mechanisms. It facilitates emissions reductions via three pathways: Article 6.2, enabling nations to trade surplus reductions as Internationally Transferred Mitigation Outcomes (ITMOs) to meet their Nationally Determined Contributions (NDCs); Article 6.4, creating UN-regulated global carbon market to certify and trade credits; and Article 6.8, focusing on non-market approaches like technology transfer, capacity building, and sustainable development to support vulnerable communities.

Together, these mechanisms aim to enhance climate finance, foster collaboration, and ensure accountability in emissions reductions. However, a more pressing question remains: Are market mechanisms truly capable of delivering the deep emissions reductions required?

Can market mechanisms deliver?

Market mechanisms, such as those enabled by Article 6 of the Paris Agreement, operate on the premise that polluters can pay others to reduce emissions on their behalf and the market will act as the invisible hand to promote climate action. These mechanisms are lauded for their cost efficiency, enabling emissions reductions where they are most economical. For example, developed nations can fund renewable energy projects in developing countries, achieving greater reductions for the same investment. By leveraging global opportunities, markets enhance scalability and attract substantial private-sector investment, surpassing the limitations of public funding.