COP29: World Bank agency releases tools to help alleviate risks from Article 6 carbon trading

The World Bank's Multilateral Guarantee Investment Agency (MIGA) introduced a new initiative Nov. 14 aimed at assisting private investors in navigating the complexities and risks associated with Article 6 of the Paris Agreement.

This program, unveiled at the UN Climate Change Conference in Baku, features a standardized Letter of Authorization (LOA) template designed to streamline and de-risk transactions related to trading of Article 6 credits.

The LOA is essential for projects that require host country approval for corresponding adjustments under Article 6.2, a critical component that prevents double counting of carbon credits traded between nations.

MIGA Executive Vice President Hiroshi Matano emphasized that this initiative aims to clarify carbon rights for investors, stating: "The LOA template is designed to mitigate political risk and will secure insurable rights covered by MIGA guarantees."

Misguidance

Political and regulatory risks have been significant concerns for participants in the voluntary carbon market, particularly due to delays between the purchase of Article 6 credits and the acceptance of corresponding adjustments and a risk of revocation of the corresponding adjustment.

Margaret Kim, CEO of carbon registry Gold Standard, said an LOA template was needed to address a lot of misinformation and misguidance that currently exists on the market.

"If we really want to have these [carbon] projects ready for the [Article 6] market we really need consolidated, harmonized instructions on how to do that," Kim said at the event. "How do we make sure that these projects are ready, and de-risked?"

Article 6 allows countries to transfer carbon credits from eligible domestic projects to others, assisting them in achieving their climate targets. It enables governments, alongside private sector involvement, to leverage carbon markets, including existing independent crediting programs operated by organizations like Gold Standard and Verra's Verified Carbon Standard (VCS) Program.

Carbon credits with a corresponding adjustment currently trade at a higher premium than those without a corresponding adjustment,

Platts, part of S&P Global Commodity Insights, recently heard Article 6.2-certified Household Device credits indicatively valued at $25-$30/mtCO2e between an African country (host) and Switzerland (buyer) for forward vintage and delivery.

Platts assessed the Household Devices 2024 price at $3.85/mtCO2e Nov. 13, a marginal recovery from $3.50/mtCO2e seen on Sept. 26, the lowest since Platts began assessing the price in June 2021.