By Charles Di Leva and Scott Vaughan
The first international carbon market deals issued pursuant to Article 6.4 of the Paris Agreement on climate change are expected within the year. As the Article 6.4 project pipeline grows, proponents should scale up well-designed nature-based climate solutions.
The case for convergence
The scientific case for integrated, systemic responses to the climate, biodiversity, freshwater, and other environment-related crises has never been stronger. In part, this is due to cascading climate change impacts such as extreme flooding and prolonged drought, which are increasing pressure on biodiversity.
In January 2025, Singapore President Tharman Shanmugaratnam proposed tighter alignment across market-based credit systems to tackle the interconnected freshwater, climate, and biodiversity crises, drawing on recommendations from the 2024 Global Commission on the Economics of Water.
There are welcome advances. In late February 2025, the resumed 16th session of the Conference of the Parties (COP 16) to the Convention on Biological Diversity (CBD) agreed to a biodiversity finance target of USD 200 billion per year by 2030. A new Kunming-Montreal Global Biodiversity Framework (GBF) financing mechanism will be administered by the Global Environment Facility (GEF). This new funding pledge can help bolster the GEF’s blended finance program linking climate and nature, amplify its project portfolio such as ecological restoration that accentuates climate benefits, and help ramp up biodiversity-positive carbon credits.
Biodiversity at the heart of carbon credits
Carbon credits offer a critical potential link between climate, nature, and other objectives. Indeed, as much as 80% of voluntary carbon markets launched between 2021 and 2023 have included nature-based targets. In early 2025, a new Race to Belem fund with plans to issue USD 1.5 billion in new carbon credits to finance the conservation of Brazil’s Amazon forests was launched as part of a more ambitious drive to finance biodiversity goals via carbon credits. UNDP has reported on increased financing of land restoration under its BIOFIN program that is linking ecological restoration with climate benefits through biodiversity finance.
The largest carbon credit verifier, Verra, released its Climate, Community and Biodiversity Standards intended to better align carbon and biodiversity financing, while NatureFinance is pioneering valuable technical analysis required to scale up private sector nature financing that includes climate and freshwater goals.
Such integrated approaches reflect a key goal in the Paris Agreement text of “achieving a balance between anthropogenic emissions by sources and removals by sinks” (Article 4), as well as to “conserve and enhance” both carbon sinks and carbon reservoirs including via “result-based payments” for forests.
The Paris Agreement Crediting Mechanism (PACM) was envisioned as an important means of attracting private investors to result-based payments via international carbon markets. After nine years of negotiations, parties at COP 29 finally adopted the Article 6.4 rules and standards for carbon removals essential for the functioning of carbon markets.
Article 6.4 ramps up
The demand from governments has surged since the new Article 6.4 rules were adopted in late 2024. To date, some 1,000 proposed carbon credit deals have been notified under the Article 6.4 prior consideration procedures, a sharp increase in the last six months.
While governments are turning to the Article 6.4 carbon market, they do so at a lesser rate with project proposals involving nature-based carbon offsets via forest or other ecosystems. To date, roughly only 10% of Article 6.4 proposals involve carbon removals via afforestation, reforestation, and forestry management. India remains the largest proponent of forestry-linked carbon credit markets.
By contrast, energy projects dominate the Article 6.4 pipeline, led by solar, wind, energy efficiency, and electric transportation, in addition to waste management.
This focus on energy is understandable. Most country-level nationally determined contributions (NDCs) follow the Intergovernmental Panel on Climate Change’s (IPCC) sector-based approach to decarbonization, starting with the energy sector. Moreover, the bulk of private sector financing is focused on renewable energy and electric transportation.
Yet the prevalence of affordable low-carbon technologies ironically makes them less likely to be additional – in effect, solar, wind, and EVs are increasingly cheaper than conventional carbon-based technologies.
Past lessons
This is exactly the dilemma that undermined the credibility of the predecessor to Article 6.4 carbon credits. One assessment of the Kyoto Protocol’s Clean Development Mechanism (CDM) found that a meagre 2% of the thousands of CDM projects were additional and accurately estimated greenhouse gas (GHG) reductions compared to business-as-usual (BAU). Recent voluntary carbon markets have fared almost as badly in financing energy projects.
Despite this stark record, a number of Article 6.4 proponents remain reluctant to propose carbon credit deals based on the carbon sequestration generated from forests, peatlands, and other ecosystems. This reluctance is likely a response to reputational risks associated with greenwashing, and wider problems with carbon offset credit schemes that have harmed biodiversity. For example, while generating carbon credits is easier and cheaper with monoculture tree or crop plantations than from afforestation with native, biodiverse species, single-species plantations harm biodiversity, degrade soil quality, can negatively affect freshwater tables, and in the case of export crops like soy or palm, increase net GHG emissions. Indeed, meta-analysis shows that diverse forests sequester and store more carbon than monocultures. There is wide consensus among scientists that carbon credits for forest carbon sinks should strive towards supporting natural or native forests.
Biodiversity safeguards
Accordingly, Article 6.4 rules aim to ensure high-integrity projects principally through its Sustainable Development Tool that comprises over 20 nature-focused standards. These require proponents to implement soil, land, and groundwater protection before any carbon credits may be issued, assurance of zero loss of soil-based ecosystem services, the avoidance of all direct, indirect, and cumulative impacts affecting critical habitats and biodiversity, and managing and enhancing habitats of critical and endangered species.
While not as detailed or comprehensive as the biodiversity aspects of Verra’s Climate, Community, and Biodiversity Standards, the biodiversity-focused safeguards of Article 6.4 clearly set out due diligence expectations. These should be seen together with other safeguards addressing human rights, health and safety, land acquisition and involuntary resettlement, gender equality, Indigenous rights, the protection of cultural heritage, and avoidance of corruption. In addition, the Article 6.4 carbon removal standards require proposed carbon credits to anticipate risks from extreme events such as fires, pests, and droughts and will create a novel carbon sink buffer pool intended to cushion some of these risks.
The new buffer pool is just one of nearly a dozen technical details that will need to be clarified before the first Article 6.4 carbon credits (known as Internationally Transferred Mitigation Outcomes, or ITMOs) are likely to be issued.
What is already crystal clear is that these new rules are complex and likely costly. Indeed, they aim at making past carbon offset projects that worsened biodiversity a thing of the past.
An alternative route
The question is whether these rules will lead investors to look for more streamlined alternatives. Many are looking to Brazil’s Tropical Forest Forever Fund (TFFF) to leverage USD 125 billion to protect intact forests. Rather than requiring complex additionality rules for carbon sinks, the TFFF proposes a simpler measurement framework based on the total amount of intact forests. It is, however, likely that additional safeguards will be elaborated before the TFFF is launched at the 30th session of the Conference of the Parties (COP 30) to the UNFCCC in Belem, Brazil, in late 2025.
The early success of Article 6.4 hinges on whether it can ignite new private sector financing to developing countries in carbon credit schemes that support nature-positive outcomes. Carbon stocks are shrinking in many regions, the result of warming temperatures magnifying other stressors. Many public sector climate budgets and overseas development flows are also shrinking. Article 6.4 deals can learn from the past and attract climate and nature-based private financing through market credits.
* * *
Charles E. Di Leva is a Partner at Sustainability Frameworks, LLP, where he advises clients on environmental and social risk management strategies. He is the former Chief Officer, Environmental and Social Standards at the World Bank. Additionally, he serves as an Adjunct Professor of International Environmental Law at American University. Scott Vaughan is an IISD Senior Fellow. The authors are grateful to Mei Wang and Isaak Bowers.