This article examines the anticipated developments in the carbon market under Article 6.4 of the Paris Agreement. It discusses the critical interplay between climate and biodiversity crises, significant funding initiatives, and the challenges of implementing nature-based solutions. The article also highlights the increasing government interest in carbon credits and the implications for future private investments in sustainability.
The international carbon market is on the verge of a significant evolution, with the first deals anticipated under Article 6.4 of the Paris Agreement. As the project pipeline continues to expand, advocates are urged to implement well-structured nature-based climate solutions.
The urgency for integrated responses addressing climate, biodiversity, and related environmental crises has intensified due to growing climate change impacts, including extreme weather events that jeopardize biodiversity. In January 2025, Singapore’s President Tharman Shanmugaratnam advocated for cohesive alignment across market-based credit systems to mitigate these interconnected crises, drawing insights from the 2024 Global Commission on the Economics of Water.
Notable progress was made in February 2025 during the 16th session of the Conference of the Parties (COP 16) to the Convention on Biological Diversity, where a target of USD 200 billion annually for biodiversity finance was established by 2030. A new financing mechanism under the Kunming-Montreal Global Biodiversity Framework will be managed by the Global Environment Facility, bolstering efforts to align climate action with biodiversity restoration through carbon credits.
Carbon credits serve as a vital link between climate initiatives and nature conservation. Currently, 80% of voluntary carbon markets initiated between 2021 and 2023 have embraced nature-based targets. The Race to Belem fund, announced in early 2025, aims to generate USD 1.5 billion in carbon credits for the conservation of Brazil’s Amazon forests as part of broader biodiversity funding initiatives. There is also an increase in financing for land restoration through UNDP’s BIOFIN program that connects ecosystem recovery with climate benefits.
Verra, the leading carbon credit verifier, has introduced new standards to enhance the synchronization of carbon and biodiversity financing. NatureFinance is also developing essential technical analysis to amplify private sector investment that encompasses climate and freshwater objectives. These integrated approaches resonate with the Paris Agreement’s goal of maintaining a balance between emissions and removals, as stated in Article 4.
With the recent adoption of Article 6.4 rules by COP 29, the demand from governments for carbon credits has escalated. Approximately 1,000 credit proposals have been initiated under the Article 6.4 prior consideration procedures. However, the ratio of proposals for nature-based carbon offsets remains low, as only 10% focus on projects like afforestation and reforestation, with the majority leaning towards energy projects, particularly solar and wind.
This inclination towards energy projects aligns with the Intergovernmental Panel on Climate Change’s recommendations for national decarbonization strategies, primarily focusing on the energy sector. The cost-effectiveness of renewable technologies presents a paradox, as they may lead to less additional emission reductions than initially anticipated.
The challenges experienced previously with the Kyoto Protocol’s Clean Development Mechanism highlight the difficulties in ensuring additionality in carbon credit projects. In light of this, many proponents remain hesitant to engage in carbon credit deals related to ecosystem carbon sequestration, primarily due to fears of greenwashing and concerns over biodiversity.
The Article 6.4 regulations endeavor to uphold project integrity through a Sustainable Development Tool comprising over 20 standards focused on nature. These standards necessitate comprehensive biodiversity protection and risk management, providing due diligence expectations for various environmental and social issues.
As Article 6.4 evolves, there are proposals for alternative funding strategies, such as the Tropical Forest Forever Fund in Brazil, which seeks to protect undisturbed forests while simplifying measurement frameworks. The success of Article 6.4 will depend on its ability to attract private investment in nature-centric carbon credits and respond effectively to diminishing carbon stocks and funding.
In conclusion, the anticipated launch of carbon credits under Article 6.4 is an essential step towards fostering nature-based climate solutions. With increasing calls for integrated responses to environmental crises and concrete funding targets established, there exists a vital opportunity for aligning climate action with biodiversity goals. The challenges of ensuring additionality and avoiding greenwashing remain pertinent, underscoring the importance of rigorous regulations and innovative funding mechanisms to drive private investments in sustainable outcomes.
Original Source: sdg.iisd.org
