The 29th United Nations Climate Change Conference (COP29) in Baku, Azerbaijan, concluded amid widespread disappointment and criticism. Though it is considered a failed COP, one part of the compromise deal was the operationalisation of Article 6 of the Paris Agreement.
Article 6 of the 2015 Paris Agreement establishes a framework for international cooperation to achieve climate goals through market-driven and non-market mechanisms. It facilitates emissions reductions via three pathways: Article 6.2, enabling nations to trade surplus reductions as Internationally Transferred Mitigation Outcomes (ITMOs) to meet their Nationally Determined Contributions (NDCs); Article 6.4, creating UN-regulated global carbon market to certify and trade credits; and Article 6.8, focusing on non-market approaches like technology transfer, capacity building, and sustainable development to support vulnerable communities.
Together, these mechanisms aim to enhance climate finance, foster collaboration, and ensure accountability in emissions reductions. However, a more pressing question remains: Are market mechanisms truly capable of delivering the deep emissions reductions required?
Can market mechanisms deliver?
Market mechanisms, such as those enabled by Article 6 of the Paris Agreement, operate on the premise that polluters can pay others to reduce emissions on their behalf and the market will act as the invisible hand to promote climate action. These mechanisms are lauded for their cost efficiency, enabling emissions reductions where they are most economical. For example, developed nations can fund renewable energy projects in developing countries, achieving greater reductions for the same investment. By leveraging global opportunities, markets enhance scalability and attract substantial private-sector investment, surpassing the limitations of public funding.
Initiatives like the Clean Development Mechanism (CDM) under the Kyoto Protocol exemplify how markets can channel resources into renewable energy and low-carbon solutions. Carbon pricing further incentivises innovation, driving industries to adopt advanced technologies. Moreover, the flexibility of these mechanisms allows countries to meet their Nationally Determined Contributions (NDCs) through a blend of domestic actions and international credits. When well-designed, mechanisms like Article 6.4 (PACM) can harmonise emissions reductions with sustainable development goals, supporting vulnerable communities.
Despite these advantages, critics argue that market mechanisms have significant shortcomings. A major concern is the risk of greenwashing, where participants claim emissions reductions without engaging in meaningful climate action. Offsetting emissions through carbon credits may delay the urgent transitions needed in key sectors, creating a false sense of progress.
Additionality—the principle that emissions reductions would not have occurred without the project—is another persistent challenge. Many projects under the Kyoto Protocol’s CDM, for example, were found to lack additionality, undermining the legitimacy of the credits.
Furthermore, market dependency on carbon prices introduces instability. During economic downturns, emissions reductions may result from lower industrial activity rather than intentional climate actions, reducing the credibility of mechanisms like the EU Emissions Trading System (EU-ETS). For example, following the 2008 global financial crisis, emissions within the EU-ETS dropped significantly, but this reduction was largely attributable to economic contraction rather than structural changes in energy systems or industrial processes. This raises concerns about the credibility of emissions reductions claimed under trading mechanisms, as they may not reflect genuine progress towards de-carbonisation. Similarly, the reliance on offsets can delay absolute emissions reductions, which are critical for meeting global climate goals, while administrative complexities and transparency challenges further erode trust in these systems. Finally, the most critical issue is related to equity concerns.
Who gains and who loses?
Wealthier nations and corporations with greater resources dominate carbon markets, marginalising developing countries and reinforcing inequalities. For instance, corporations in the Global North secure high-quality credits, while communities in the Global South often face land dispossession or environmental harm from poorly managed projects. Wealthier nations and corporations, with greater financial capital, expertise and institutional capacity, dominate Article 6 mechanisms, shaping carbon market standards and governance to serve their interests. They invest in large-scale renewable energy and reforestation projects, generating profitable carbon credits that enable them to offset domestic emissions without significantly altering their carbon-intensive practices.
Conversely, developing countries often face a lack of capacity to fully evaluate whether offset projects, even those in renewable energy, align with long-term sustainable development goals. Additionally, there is a danger that developing countries might sell off their carbon space at low prices, prioritising short-term revenue over the long-term welfare of their people. This not only undermines their future ability to meet their own climate and development goals but also exacerbates inequalities by enabling wealthier nations to continue high emissions with minimal domestic action. For developing countries, trading will have to be in lieu of what the country has and has not promised.
Furthermore, the upfront costs of designing and implementing emissions reduction projects can be prohibitively high for many developing nations, effectively excluding them from the system. As a result, wealthier actors often dominate, while poorer nations are relegated to the role of credit suppliers, often at the expense of their own development priorities. This perpetuates a neo-colonial dynamic, where the Global South serves as a site for emissions reductions that primarily benefit the Global North.
Similarly, market mechanisms often fail to address the historical responsibilities of developed nations, allowing them to rely on offsets instead of pursuing absolute emissions reductions or financing climate adaptation in the Global South. This market-driven approach can burden vulnerable communities, as projects like reforestation may restrict access to essential resources, prioritising profits and emissions accounting over local well-being. Without robust safeguards and equity-focused policies, Article 6 risks deepening inequalities instead of resolving them.
Way ahead
To make Article 6 a robust tool for climate action, it must address systemic challenges of equity, additionality, market stability, and governance while driving genuine and inclusive emissions reductions. Robust safeguards are vital to prevent greenwashing, ensuring only projects with verifiable additionality—those unachievable without market incentives—are approved. Rigorous baseline assessments, independent verification, and continuous monitoring will enhance credibility. Equity must be central, requiring capacity-building for developing nations, equitable governance representation, and mechanisms like allocating proceeds from carbon markets to adaptation funds for vulnerable communities. Stabilising carbon prices through tools like flexible price floors or systems akin to the EU’s Market Stability Reserve (MSR) is critical to prevent volatility and sustain investor confidence.
Differentiating structural emissions reductions from those driven by external factors, such as economic downturns, ensures claimed reductions reflect real progress. Non-market approaches under Article 6.8, such as technology transfer and capacity building, should complement market mechanisms to extend benefits to marginalised communities. By prioritising transparency, equity, and inclusivity, Article 6 can align emissions reductions with sustainable development and cement itself as a cornerstone of global climate cooperation.
Varun Mohan
PhD scholar at National Institute of Advanced Studies, Bengaluru.
Also research fellow with the Earth System Governance Project