From CDM to Article 6.4
Navigating the new era of carbon credits
The evolution of carbon markets has witnessed a significant shift with the transition from the Clean Development Mechanism (CDM) to the Sustainable Development Mechanism (SDM) under Article 6.4 of the Paris Agreement.
The CDM, established under the Kyoto Protocol, was pivotal in promoting sustainable development and emission reductions in developing countries. However, with the advent of the Paris Agreement, the focus has shifted towards a more inclusive and global approach to carbon trading. Enter the SDM.
Article 6.4's SDM is designed as a 'top-down' global platform operated by the UNFCCC, allowing all countries to participate in the trading of Internationally Traded Mitigation Outcomes (ITMOs). Unlike the CDM, which was primarily for developing countries, the SDM provides a level playing field, emphasizing high integrity, transparency, and the avoidance of double counting.
One of the most notable changes is the Certified Emission Reductions (CERs) transition from the CDM. While CERs can still be used towards Nationally Determined Contributions (NDCs) under certain conditions, the CDM after 2020 is no longer registering or issuing CERs. Instead, financial resources from the CDM Trust Fund were redirected to support the SDM and the Adaptation Fund.
The SDM promises to be more inclusive, with a broader scope and a focus on mitigation and adaptation. However, the rules and methodologies are still being developed, and the landscape is evolving.
Once these foundational rules are in place, the UNFCCC process will build on existing rules and not reopen the basics. The consensus of nearly 200 countries will be challenging to achieve, as such deals are delicate. The Paris Agreement has been built for the century – “to achieve a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century.” There is no reset in sight if rules will need revisions. The Article 6 mechanisms will be used for decades to come. Hence, the rules on removals designed over the following years will most likely be in place until 2050 and beyond, with continuous fine-tuning.
As we navigate this transition, it's crucial to stay informed, adapt to the changing dynamics, and leverage the SDM's opportunities. The future of carbon markets is here, and it's more global, inclusive, and ambitious than ever.
