Another year, another climate COP, another round of negotiations to refine the carbon market instruments of the Paris Agreement. Although the basic rules have been set in Glasgow, it is now necessary to design the flows, procedures and infrastructure on which this system will operate. But beyond Article 6 of the Paris Agreement, COP 27 in Egypt should bring together many private actors and bring good discussions on the voluntary carbon market and compliance markets in the world.

Only the guidelines for the functioning of Article 6 of the Paris Agreement were adopted at the Glasgow Police.

On the one hand, it was defined that countries can transfer their "mitigation results" to each other (so-called ITMOs). There is no limitation on what can be considered a transferable mitigation result. The only requirement is that it be compatible with the sectors provided for in the NDCs of the countries concerned. And, of course, the ITMOs-transferring country has to make sure it has sufficient mitigation results to comply with the NDC itself, when it is accountable within the reporting and transparency system of the Paris Agreement.

In practice, this should happen through cooperation agreements between countries. Thus, the countries concerned should report on such cooperation to the UNFCCC Secretariat, which will administer the infrastructure of Article 6 of the Paris Agreement.

In addition, unique and traceable identifier numbers will be created for the ITMOS, which must be kept in records and may be transferred between participants, according to rules to be defined also on the accounting infrastructure, registration and reporting of Article 6 of the Paris Agreement.

On the other hand, with regard to the "new CDM", the logic is that, in addition to countries, non-state actors - public or private - can submit mitigation projects to be certified under the Article 6.4 mechanism. The credits generated in this mechanism do not have exactly one name, but are called for now "Article 6.4 Emission Reductions" or in the acronym A6.4ERs (Article 6.4 Emissions Reductions). They will be costed in a proper registry to be created for this mechanism.

As in the CDM, the project will be subject to validation by a Supervisory Body of Article 6.4, after passing the approval of the national government where the project is located. Once the credits have been issued, a 5% benefit allocation percentage will be allocated to the Adaptation Fund; and 2% of the generated units will be automatically cancelled to maximize overall mitigation in global emissions (OMGE), leaving the zero-sum emissions compensation game.

In either instrument – be it the transfer of ITMOS or a6.4ERs – whenever the transfer of these credits is intended for use by another country for compliance with their NDC, both countries must report and make the appropriate "corresponding adjustments" in their balance sheets issued under the Paris Agreement.

Furthermore, in Glasgow it was decided that certain credits issued by the CDM and certain projects registered within the CDM mechanism could be transferred to the Paris Agreement system, with some caveats and conditions.

Now that countries have agreed to these principles, it is necessary to effectively create the processes and infrastructure for this to work.

Throughout 2022, at least 14 formal meetings and 1 2-week conference of technical discussion between countries were held to promote this alignment. In addition, the Supervisory Body of the Article 6.4 mechanism was constituted, which is similar to the Executive Council of the Clean Development Mechanism (CDM). This body has met twice this year, and will meet for the third time just before the COP in Sharm El-Sheik, Egypt.

In the technical workshops, the countries discussed more bureaucratic and structural aspects of the accounting system, reporting and registration of Article 6, such as models of tables and reports, the database infrastructure, accounting and transfer of the units of Article 6.2, including the possible connection between national registration mechanisms and the international registration of Article 6 to be created; in addition to guidelines for reviewing and verifying the consistency of information that will be reported by countries participating in activities under Article 6.

On the mechanism of Article 6.4, they discussed operational issues such as when to apply the adaptation rate and the cancellation of the 2% of A6.4ERs; how to structure the registration mechanism of Article 6.4; and how to operationalize the process by which countries will be able to use cdm CREs to comply with NDCs of the Paris Agreement, as well as the process of transitioning the activities registered today in the CDM to the Article 6.4 mechanism.

Discussions continue at COP 27, with the aim of reaching a decision that can create a skeleton of processes, flows and structures minimally necessary for the functioning of article 6 instruments. Still, it will take at least 1 year more for the procedures to be finalized and the technical infrastructure for registration, transfer and storage of article 6 data will be implemented, so that the system as a whole can be fully operational from 2024.

But the COP is not only a decision-making space of the Paris Agreement: within the conference there is a pavilion aimed at promoting meetings, debates and exhibitions between governments, civil society, companies, financial institutions and any other non-state actors.

With the Glasgow decision, the expectation is that more and more private actors will participate in these spaces of the UNFCCC. The Supervisory Body of Article 6.4, e.g., conducts its meetings openly to interested observers accredited to the UNFCCC, and transmits them live to the entire public through the UNFCCC website. For those who attend in person, there is a space at the end of the last day dedicated to the 12 members of the body answering questions from those present. And moreover, space is made to receive written submissions from any interested stakeholders.

More recently, two opportunities have been opened for stakeholders to present opinions on criteria for the adoption of methodologies of the Article 6.4 mechanism, including specific criteria for greenhouse gas removal (GHG) methodologies.

Voluntary carbon market standards are seeking to adapt to the characteristics of the "new standards" of Article 6 of the Paris Agreement, as demonstrated by the public consultation of the Verra program for the creation of a new seal for projects that have applied corresponding adjustments by the project's host government, a path that is also being followed by the Gold Standard program.

In this sense, the conversation between private actors and governments may be important to align that government action strategies in article 6 instruments can live with the expansion of the voluntary carbon market, avoiding noise and legal uncertainty, as in the carbon regulation episodes of Indonesia and Papua New Guinea.

At the Bonn Conference in June this year – a kind of COP preview, where countries do a technical negotiation round – a curious brochure was being distributed through the tables of all those in the conference space: "We buy ITMOS!". It was signed by the Klik Foundation, a private organization that brokered agreements for the purchase and sale of ITMOs that are being closed between the Swiss government and several other countries in the world. The short brochure already described how this "international climate protection program", its implementation and benefits works, and invited you to participate in an event in which more details would be disclosed. No for nothing, after that the Government of Switzerland signed three more bilateral agreements with Morocco, Malawi and Uruguay.

It's literally the carbon market happening at COP.