ARTICLE 6 AND VOLUNTARY CARBON MARKETS

In contrast to the top-down approach to setting climate and emissions targets implemented under the Kyoto Protocol, the Paris Agreement adopts a bottom-up approach in which each country sets out the mitigation contributions it pledges to undertake to reduce its emissions. Specifically, each ratifying party must submit and communicate a Nationally Determined Contribution (NDC) describing its mitigation contributions and climate actions. To achieve their NDCs, many countries have included the use of 'cooperative approaches'. The completion of the Article 6 rulebook and clarifications of related procedures and frameworks are some of the most important outcomes of COP26 in Glasgow. However, despite the important progress, uncertainty remains, especially around the implications of the voluntary carbon markets (VCMs) and what investors could claim by purchasing various types of carbon credits on the VCMs. Various supervisory efforts are already underway to help reduce uncertainty and provide more clarity for users of these markets. Market participants will be monitoring clarifications from a variety of initiatives and bodies.