15 December 2021
The Voluntary Carbon Market and Article 6: Paths to Convergence?
Oli Parker
Carbon Credit Analyst
Nandita Lal
Carbon Markets Consultant
9min
BeZero’s Carbon Credit Analyst, Oli Parker, and Carbon Markets Consultant Nadita Lal, build upon our earlier analysis to unpack the agreement on Article 6 which emerged from COP26, focusing specifically on its implications for the voluntary carbon market (VCM).
The advent of cross-sector bilateral offset transactions provides a boost for the VCM’s credibility, as both prices and demand continue to soar.
Uncertainty remains regarding the purposes for which non-adjusted credits can be used, with key market players adopting divergent stances.
Assessing offset quality becomes more difficult in a world of corresponding adjustments. This is where BeZero Carbon Markets comes in.
The dawning of a new day
Following two failed attempts to reach an agreement on Article 6 at conferences in Katowice and then Madrid, negotiators at COP26 in Glasgow were finally able to clarify the rules that guide international carbon markets.
Article 6.4 and 6.2 contain the key provisions. As a successor to the Kyoto Protocol’s Clean Development Mechanism (CDM), the text’s fourth passage establishes a centralised carbon market mechanism regulated by the United Nations Framework Convention on Climate Change (UNFCCC).
This signifies a clean slate for climate mitigation. With a more predictable market-based approach built on more stable foundations, countries can now use carbon credits to help meet their Nationally Determined Contributions (NDCs) via the agency of government-to-government cooperation.
Meanwhile, the agreement’s second paragraph stipulates that when an Internationally Traded Mitigation Outcome (ITMO) is issued under the new crediting mechanism and sold abroad, as opposed to being used by the host country, then a corresponding adjustment can be made. The choice is left to the host country.
Corresponding adjustments require host countries to deliver a guarantee that transferred credits won’t be used against their own NDCs, which they will declare in their Biennial Transparency Reports (BTRs) from 2024 at the latest¹. This process aims to ensure that carbon benefits can only be claimed once — either by the host country, or by the purchaser.
A byproduct of these developments is the recalibration of carbon credits from global to national assets. Governments now exercise the authority to pick and choose which, if any, domestic offset projects they are willing to export for use against other countries’ NDCs, and which they want to keep for themselves. This has seen carbon shift from being a freely tradable international commodity, to an asset inseparable from national emissions targets and geographical boundaries.
As for private engagement with carbon trading, the Voluntary Carbon Market (VCM) has experienced rapid growth in recent years and reached an all-time peak market value of $7bn in 2021². For context, the 300 Mn tCO₂e traded on the VCM so far this year roughly equals the entire volume of Spain’s annual greenhouse gas emissions³. However, to date widespread skepticism has been levied at the VCM’s integrity, and fundamentally, its utility in tackling the climate crisis.
Although the newly agreed rules around Article 6 still leave many nuances unresolved, the key takeaway is that carbon markets are here to stay; and with more fine-tuning will play a vital role in enabling effective climate action, at both governmental and corporate levels.
A reputational triumph
A significant win for the VCM is its implicit inclusion with regards to correspondingly adjusted credits under Article 6.
Similarly, Article 6.4 allows for the transfer of authorised emission reductions for international mitigation purposes. This may include the VCM and schemes like the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) (see Chart 1)⁴.
Despite the semantic ambiguities, these developments are understood to enable countries and private companies to engage in bilateral offset transactions, allowing credits backed by corresponding adjustments to be generated and traded in the VCM. Given that investors were often deterred from participating by the absence of mechanisms to prevent double counting previous to COP26, this is welcomed by players in the market and ultimately affords the VCM a greater degree of credibility moving forward⁵.
By allowing governments to authorise carbon credits for use by corporations, the new rule reduces the chances of credits being used by both the host country and the purchasing company. While only time will tell how far these transactions contribute to an active and liquid market, their endorsement serves to improve the integrity of voluntary credits and thus raise their investment potential.

Up, up and away
So tangible is this reputational boost that it has already been reflected in offset prices and demand. As traders bet on the emerging potency of carbon markets off the back of the Glasgow conference, soaring carbon prices reached an all-time high of €89 per tonne within the European Union Emissions Trading System (EU ETS) as of 8th December, more than doubling February 2021 levels⁶.
And this is just the beginning. With the advent of corresponding adjustments giving governments first refusal on offset projects, state actors are expected to claim the cheapest available credits to use against their NDCs. Through this process, the market will be subjected to mounting buying pressure and both itself and project developers will be driven up the cost curve, with this high-growth trend looking set to continue in the long-term.
Project developers will face increased uncertainty and political risk on account of some credits being backed by corresponding adjustments, and some not; leading investors to demand high risk premiums for participation and thus sustaining high carbon prices.
Another driver of higher prices will be the time it takes to create the infrastructure for new markets and adapt to its mechanisms. Since today’s backdrop is one of subdued supply of new projects in the short-term amidst rising demand, the race is on for project developers to catch up⁷.
The result of such swelling prices and demand, in all likelihood, is improved competitiveness for previously unaffordable offset projects, and seemingly boundless expansion. Regimes which impose corresponding adjustments are also likely to see continued upward price pressures as demand grows, such as CORSIA. So far, so good for stakeholders in the VCM.
A double-edged market
Perhaps unsurprisingly, however, it’s not all sunshine and rainbows with much remaining unexplained. As already touched upon, the complex world of Article 6 allows VCM participants to choose whether they need corresponding adjustments for their credits. This will almost certainly result in the establishment of a fragmented market, whereby adjusted credits are regarded as offering greater climate benefits and thus wield a higher premium than non-adjusted credits⁸.
It’s worth noting that it will be some time before sufficient supplies of adjusted units become available for the VCM, with such credits in high demand among CORSIA and other international compliance schemes (see Table 1)⁹.
The big question centres on how non-adjusted credits can be used. While the role of adjusted credits in mitigating companies’ footprints is clear and easily claimed, allowing non-adjusted credits to be used against emissions reduction targets would be counter-intuitive and represent double counting. Yet, no consensus could be reached in Glasgow over the function and associated claims of non-adjusted offsets.
Overall, the industry view is that non-adjusted credits will most likely be used by corporations to claim against Environmental, Social and Governance (ESG) indicators, aside from offsetting emissions. Nonetheless, greater clarity is needed regarding the claims which companies will be able to make, and whether both, adjusted and non-adjusted credits can co-exist in the medium-term. It is hoped that a report by the Voluntary Carbon Markets Integrity Initiative (VCMI) will provide actionable guidelines, expected in April 2022¹⁰.
