The UN’s Paris Agreement Carbon Market Mechanism (PACM) represents a pivotal evolution in international carbon markets. In this first instalment of our three-part series, we break down the fundamentals of Article 6.4, exploring what this mechanism means for project developers, investors, and carbon market participants.
As COP30 gets underway in Brazil, countries are coming together to accelerate climate action and raise ambition ahead of critical 2035 NDC submissions. While Article 6 negotiations concluded at COP29 in Baku, the momentum behind international carbon cooperation continues to build. Over 60 countries now reference Article 6 mechanisms in their updated Nationally Determined Contributions (NDCs), including major economies like Japan, South Korea, and Switzerland, as well as developing nations across Africa, Asia, and Latin America. With countries increasingly banking on carbon markets to achieve their climate goals, understanding the current state of Article 6.4: The Paris Agreement Carbon Market Mechanism (PACM), has never been more important.
In this first instalment of our three-part series, we break down the fundamentals of Article 6.4, exploring what this mechanism means for project developers, investors, and carbon market participants.
Article 6.4 of the Paris Agreement (or PACM) represents a pivotal evolution in international carbon markets. As the successor to the Clean Development Mechanism (CDM), it introduces a new framework for high-integrity carbon crediting that aligns with countries’ climate commitments under the Paris Agreement. This mechanism stands to unlock significant capital flows for climate action while ensuring environmental integrity through robust international oversight.
The promise is substantial: Article 6.4 could reduce the cost of implementing NDCs by more than half by 2030, potentially enabling countries to increase their climate ambition. For market participants, it offers new opportunities in a rapidly changing carbon landscape.
Latest developments from the Supervisory Body
The latest meeting of the Article 6.4 Supervisory Body delivered significant progress in operationalising the mechanism, with a comprehensive package of standards covering the entire project lifecycle, from validation and verification requirements to CDM transition pathways and accreditation procedures.
Permanence standard unlocks nature-based solutions
The most consequential advancement is the newly approved standard on non-permanence and reversals, addressing one of carbon accounting’s most debated challenges: managing the risk that carbon stored through reforestation, soil, or land-use projects could be released back into the atmosphere.
The standard establishes four key principles:
- Flexible monitoring periods: Perpetual monitoring has been dropped. Each methodology will specify its own monitoring duration, with responsibilities transferable to host countries or third parties, while reversal liability remains with project participants unless alternative safeguards exist.
- Methodology-level risk assessment: Rather than fixing ‘negligible risk’ at a specific threshold, each methodology must define its own acceptable risk level using the Paris Agreement Crediting Mechanism’s Reversal Risk Assessment Tool.
- Multiple exit pathways: Projects can address reversal obligations through unit cancellation, insurance, or third-party guarantees, with forthcoming guidance emphasising flexibility for innovative approaches like buffer pools.
- National sovereignty preserved: Host countries retain final authority on Corresponding Adjustments and their application to buffer pools, with the SBM actively seeking practical input on accounting implications.
By delegating permanence parameters to individual methodologies rather than setting universal standards, the SBM has chosen flexibility over standardisation. This approach accommodates national circumstances and enables innovation, but introduces a potential challenge: permanence requirements may vary significantly across project types and geographies, creating less comparability.
Infrastructure taking shape
With the interim registry launched, Designated Operational Entities in place, and core integrity standards now approved (additionality, methodologies, removals, and permanence), the technical scaffold is complete. However, approval of specific project methodologies remains the critical bottleneck preventing full operationalisation. These methodology approvals will determine whether Article 6.4 delivers on its promise to set a new quality benchmark for carbon markets.
Operational status and timeline
It’s important to understand that while progress is substantial, Article 6.4 is still not fully operational. Despite CDM activities having a transition pathway and process, no credits can be issued until two key elements are established:
- A registry (and guidance from the secretariat on it).
- Approved methodologies by the Supervisory Body.
According to the preliminary Supervisory Body workplan for 2025, the body will be prioritising methodology reviews in key sectors like renewable energy and energy efficiency, responding to the CDM transition pipeline where most projects fall into these categories.
Despite the lack of complete frameworks, some host countries have already started to approve the transition from CDM activities to the new mechanism, demonstrating growing confidence in this new market approach.
While the CDM transition pathway offers an important bridge to scale Article 6.4 quickly, it’s worth noting significant concerns about the integrity of transitioning units, particularly given the composition of the pipeline. Renewable energy projects, which historically dominated the CDM and comprise a substantial portion of projects seeking transition, have faced mounting criticism over additionality.
The decisions made in the coming months will determine whether Article 6.4 becomes the gold standard it aspires to be, or whether it becomes another mechanism undermined by the very integrity gaps it was designed to solve.
