COP29 climate agreement a boost for India's carbon market ambitions

India’s plans to set up a carbon market received a boost at the 29th Conference of the Parties (COP29) in Baku, Azerbaijan, after the United Nations Framework Convention on Climate Change (UNFCCC) ratified key rules for a global carbon trading mechanism at this UN-sponsored climate event, officials said.

 

On Monday night, states assembled for the first day of the UN Climate Change Conference reached a consensus on standards for projects to qualify for  carbon credits under Article 6.4 of the Paris Agreement, UN Climate Change reported. 

This agreement enables climate action by increasing demand for carbon credits and ensures that the international carbon market operates with integrity under UN supervision. It also guarantees that emission reductions and removals are real, additional, verified, and measurable. 

 

“This step is a good move toward making Article 6.4 work as intended, but more needs to be done to ensure strong and effective implementation,” said Dhruba Purkayastha, director - growth and institutional advancement, at New Delhi-based think tank CEEW.  

India has faced delays in defining the terms, structure, and compliance measures for a carbon trading market, with Indian officials projecting a start date for the market by late 2025 or 2026. This would be three years after the government authorised the Bureau of Energy Efficiency to create an enabling mechanism. Officials attributed part of India’s delay to the non-finalisation of rules under Article 6 of the Paris Agreement. Article 6-compliant markets are expected to channel more investment to developing countries and enable them to target mitigation efforts where costs are lowest. 

Article 6, proposed in the 2015 UN Paris Agreement, is an international framework that allows countries to achieve national emission mitigation targets via a market-based mechanism in which the private sector plays a key role. It aims to unlock climate finance based on a uniform global framework agreed upon by all nations. These measures are intended to help nations set up domestic carbon markets with a global reach. Key Sections of this Article are 6.2, 6.4, and 6.8, covering non-market approaches. 

Article 6.4, approved on Monday, establishes a carbon crediting mechanism at the UNFCCC level, with operational rules and processes developed by a supervisory body and ratified by states. These credits can be used to meet nationally determined contributions (NDC) targets and by companies for compliance purposes, though they cannot be double-counted. If an Indian company uses credit for compliance, it cannot also be used by India for its climate mitigation targets under its NDC. 

Simon Stiehl, chief of UN Climate Change, listed finalising Article 6 as a key negotiating priority at COP29. The full functioning of Article 6 will advance the realisation of NDCs, submitted by nations to the UN every five years, by reducing implemen-tation costs by $250 billion per year through cross-border cooperation. 

The parties still need to agree on the remaining building blocks of Article 6, including Article 6.2 and the final elements of Article 6.4. 

Climate Action Network (CAN) criticised framing Article 6 as part of the climate finance solution. CAN argued that countries like the UK and the US are pushing Article 6 as a major achievement, similar to the loss and damage fund agreed upon at COP28 in Dubai, but Article 6 push is not. 

“Carbon markets can help to some extent in facilitating investments, but for a country like India, whose needs are vast, they are playing a limited role so far in financing India’s energy and clean industrial transition,” said Jagjeet Sareen, partner and global climate co-lead at Dalberg Advisors. 

UN Climate Change has assessed the climate finance needs of 98 nations at around $500 billion annually. By pushing a $250 billion figure via Article 6, wealthier countries may be seeking to partially offset their funding commitments, explaining the urgency with which Article 6 was operationalised.

 

The build-up to this long-delayed agreement included an October meeting hosted by Azerbaijan, where the supervisory body for Article 6.4 proposed a set of standards for the article.    ‘Sectors with $4.3 trn in debt face increased risk of environmental credit’  

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