To Trade or Not to Trade: Options for Operationalizing Corresponding Adjustments Under Article 6

The Paris Agreement laid the groundwork for a new era of carbon credit trading with the establishment of Article 6. Article 6 allows countries to cooperate in achieving their nationally determined contributions (NDCs) and sets up opportunities for countries to trade internationally transferred mitigation outcomes (ITMOs).

At its best, Article 6 offers countries a way to invest in actions outside their borders and raise collective global ambition to limit temperature rise to 1.5C by 2050. However, this is only possible with clear and transparent accounting around how countries plan to meet their NDCs and what is traded. At the heart of carbon accounting lies the concept of corresponding adjustments, which requires seller countries to subtract emission reductions and removals from their NDC before the buyer country adds the credits to their NDC target.

Countries only established the framework for corresponding adjustments in late 2021. One year later, in Sharm el-Sheik, countries shed additional light on the process of corresponding adjustments, though many questions around the implementation and operation remain.

This paper seeks to take stock of the existing Article 6 guidance around accounting and to draw insights from how countries are currently implementing this guidance. We focus exclusively on the topic of corresponding adjustments, and not on other – equally crucial – aspects of Article 6 implementation, such as how these trades may include or impact Indigenous Peoples and Local Communities. Finally, this paper reflects on the role of the voluntary carbon markets (VCM) as it increasingly intersects with guidance and norms developed under Article 6.