Regulatory Extract:
New rules governing international carbon markets under Article 6.4 enable project-level crediting and transfer of emission reductions. ESG compliance and climate policy update priorities converge. ESG BROADCAST shares key takeaways.
Following landmark decisions at COP29 in Baku in November 2024, the United Nations Framework Convention on Climate Change (UNFCCC) has formally operationalized the Paris Agreement Crediting Mechanism (PACM) under Article 6.4. This regulatory milestone finalizes the rules for international carbon markets and provides countries and project developers a fully functioning mechanism to generate and transfer carbon credits known as Article 6.4 Emission Reductions (A6.4ERs).
The PACM’s operational readiness culminates a multi-year, dual-track process: COP26 in Glasgow established the foundational “Rules, Modalities, and Procedures” (RMPs), including the supervisory governance structure and registry provisions; subsequent work by the Article 6.4 Supervisory Body (SBM), established in 2022, addressed complex regulatory details such as removals methodologies and project standards. At COP29, the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA) endorsed the SBM’s standards on methodologies and removals, making them legally binding and resolving longstanding deadlocks that stalled progress at COP27 and COP28.
Key regulatory provisions clarified in Baku include enhanced procedures for host country authorization of Mitigation Contribution Units (MCUs), including retroactive approval, and a broader scope of eligible activities transitioning from the Clean Development Mechanism (CDM), now encompassing afforestation and reforestation (A/R) projects. Transitioning CDM projects must align with Article 6.4 standards and meet the December 2025 application deadline. The first transitioned project, a cookstoves programme in Myanmar, has already been approved.
New PACM projects must adhere to updated validation, verification, and prior consideration notification requirements under activity cycle standards. Validation and verification are to be conducted by Designated Operational Entities (DOEs), with documentation submitted through the mechanism’s digital infrastructure. The PACM registry, central to the tracking and issuance of A6.4ERs and MCUs, is in advanced stages of development, with interim functionalities enabling early issuances. As of early 2025, 1,478 CDM activities have undergone stakeholder consultation and are pending full transition, with six host countries already providing approval.
Additionally, the SBM’s Methodological Expert Panel (MEP) continues to refine procedures, with critical elements such as sampling standards and further guidance on removals expected by August 2025. These developments are essential for maintaining environmental integrity and ensuring the fungibility of credits across jurisdictions and compliance markets.
Strategic significance lies in the mechanism’s role in unlocking international cooperation and private sector investment under net-zero targets. The operational PACM provides certainty and structure for cross-border carbon crediting, which supports nationally determined contributions (NDCs) while incentivizing high-integrity mitigation outcomes. ESG stakeholders—particularly sustainability officers, carbon market participants, and compliance officers—must monitor host country policies, registry developments, and forthcoming SBM guidance to align with this evolving regulatory landscape.
ESG BROADCAST will continue monitoring the updates related to this topic. Stay tuned to be updated on the related policy and pivotal regulatory shift.
