The Paris Agreement on climate change has opened a new era of development for the world carbon market. Article 6 of the Paris Agreement creates a flexible mechanism for countries to achieve their Nationally Determined Commitments (NDCs) on greenhouse gas emission reduction. In simple terms, Article 6 allows a country to transfer its emission reduction results (converted into carbon credits) to another country (or several) to help the buyer achieve its targets under the NDC.

Article 6 helps to encourage investment in emission reduction projects based on international cooperation. At the same time, it helps to increase transparency in the carbon market, avoiding double counting of the same emission reduction result.

If you are interested in carbon markets, Articles 6.2 and 6.4 are most noteworthy.

Source: The Nature Conservancy 2023

Article 6.2: Bilateral or multilateral cooperation mechanism

• [What is] Article 6.2 establishes a mechanism for transferring the results of bilateral (or multilateral) greenhouse gas emission reduction projects between countries, known as Internationally Transferred Mitigation Outcomes (ITMOs).
• [Principle] This mechanism allows countries flexibility in approving, reporting, verifying and trading carbon credits under ITMOs, but must still ensure general principles such as real, measurable, sustainable, additional and verifiable emission reductions.
• [Case study] A typical example for reference in the implementation of the ITMOs mechanism is the multilateral agreement between the Purchaser, Switzerland, and the Implementers of the emission reduction project, Ghana and Vanuatu.
• [Vietnam] Many developed countries are interested in and want to cooperate to implement emission reduction projects under the ITMOs mechanism, because Vietnam is assessed to have great potential to implement emission reduction projects.
• [Policy] Vietnam is finalizing the legal framework and it is expected that projects will go through 4 steps of registration and credit issuance, before proposing MONRE to issue a Letter of Approval to transfer emission reduction results to foreign partners.
• [32 types of emission reduction projects] It is expected that the Vietnamese Government will participate in the ITMOs mechanism.

Article 6.4: The Paris Agreement's (carbon) credit mechanism

• [What is] The mechanism set out in Article 6.4 is called the Paris Agreement Crediting Mechanism, which aims to contribute to reducing greenhouse gas emissions and supporting sustainable development.
• [Compare with Article 6.2] Quite similar to the mechanism in Article 6.2 when both allow the exchange of emission reduction results between countries to achieve targets in NDC or private organizations to achieve emission reduction targets. The difference is that instead of bilateral exchanges, Article 6.4 stipulates that the exchanges must be carried out under a centralized mechanism and through approval and supervision by a management body established by the UNFCCC. The mechanism in Article 6.4 is similar to the previous Clean Development Mechanism (CDM).
• [To understand in simple terms] Article 6.4 establishes an international carbon market, where carbon credits will be approved by the United Nations regulatory body before being bought, sold, or exchanged.
• [Supervisory Body] is a body established by the UNFCCC to (i) Develop and approve guidelines on emission reduction calculation methods; (ii) Approve emission reduction activities; (iii) Accredit organizations with the task of verifying emission reduction results.
• [The Enhancement] This mechanism helps create a common ground for emission reduction activities on an international scale. At the same time, it helps to enhance compliance with the general principles of carbon credit projects such as practicality, transparency, additionality, sustainability and avoiding double counting for an emission reduction result.
• [Participation] The mechanism in Article 6.4 allows for the participation of both public and private entities, enabling a wide range of projects to be registered under this mechanism.
• [Vietnam] It is expected to participate in the mechanism in Article 6.4 after Vietnam's mandatory carbon market (ETS) is officially operated (around 2028).

Conclusion:

Article 6 of the Paris Agreement not only creates the premise for international cooperation in reducing greenhouse gas emissions and responding to climate change, but also helps "unlock" green financial resources to support developing countries.

Vietnam is a country with great potential to implement initiatives to reduce greenhouse gas emissions. Therefore, actively participating in the international emission reduction mechanism under Article 6.2 and Article 6.4 of the Paris Agreement will help Vietnam mobilize international resources to reduce emissions in order to achieve the country's NDC target and move towards the Net Zero 2050 target.