The Carbon Market’s Credibility Problem: Can Article 6 Fix It?
The question is whether the Paris Agreement’s Article 6 mechanisms can build something more credible, or whether the market’s structural incentives will reassert themselves.
For much of the past decade, the voluntary carbon market operated on a kind of collective suspension of disbelief. Companies bought offsets. Certification bodies issued credits. Forests were declared saved, communities were declared benefited, and tonnes of carbon were declared avoided. The system hummed along, expanding steadily, and most participants had a reasonable incentive not to look too closely at whether the underlying claims held up.
Then people started looking.
What followed was one of the most significant credibility crises in the history of environmental finance. Investigations by The Guardian, Zeit Online, and independent researchers found that the majority of rainforest offset credits issued by Verra (the world’s largest carbon standard body) may have had little or no climate benefit. Studies examining actual deforestation rates in areas claimed as “protected” found that, in many cases, the counterfactual (the deforestation that would have occurred without the offset project) was substantially overstated. Credits were being issued for forests that weren’t actually under threat.
This is not a minor accounting discrepancy. If the credits don’t represent real emissions reductions, then the companies buying them to meet their net-zero commitments aren’t actually reducing their net emissions at all. They’re engaging in what is, at best, an elaborate accounting exercise and, at worst, fraud dressed in sustainability language.
The voluntary carbon market is now at an inflection point. The question is whether it can be reformed into something that actually works, and whether the Article 6 mechanisms of the Paris Agreement represent a credible path to doing that.
The Structural Problems in the Voluntary Carbon Market
To understand why the market has struggled, it’s necessary to understand its structural incentives. The voluntary carbon market was built on a decentralised model: private certification bodies set standards, project developers fund and implement projects, and buyers purchase credits in an over-the-counter market with limited price transparency and no centralised registry.
Every actor in this chain faces incentive pressures that push toward credit issuance rather than credit quality. Project developers earn revenue from the sale of credits. Certification bodies earn fees from the projects they certify. Brokers earn commissions from transactions. Even buyers have had limited incentive to scrutinise quality closely. A cheap, low-quality credit that allows a company to claim carbon neutrality serves their immediate communications needs just as well as a rigorous, expensive one.
The result is predictable: a market under persistent pressure to produce credits that look right without necessarily being right.
Three specific methodological problems have been extensively documented. The first is additionality: the requirement that a project’s emissions reductions would not have happened in the absence of carbon finance. If a forest had not been logged anyway (because it’s in a national park, or remote, or economically unviable to log), then “protecting” it from logging doesn’t represent an actual reduction in emissions. The second is permanence, the challenge that forests can and do burn, and a credit issued for a tree that burns ten years later doesn’t represent a durable carbon removal. The third, and most pervasive, is the counterfactual baseline problem: how do you estimate what deforestation would have happened without the project? These estimates have been systematically generous.
None of these problems is new. They were identified by researchers and critics of carbon markets years before the major credibility crisis broke publicly in 2023. The problem was that the market grew faster than the methodological rigour needed to underpin it.
Article 6 of the Paris Agreement: What It Is and What It’s Trying to Do
Article 6 of the Paris Agreement establishes a framework for international cooperation on emissions reductions, including mechanisms for countries to trade emissions reductions. It is divided into three main parts: Article 6.2, which allows bilateral carbon trading between countries; Article 6.4, which creates a UN-supervised carbon market (the successor to the Kyoto Protocol’s Clean Development Mechanism); and Article 6.8, which covers non-market approaches.
After years of contentious negotiations (Article 6 was one of the most contested elements of the Paris Agreement), the technical details of these mechanisms were largely resolved at COP26 in Glasgow and subsequent COPs. The rules now exist on paper. What matters is whether they represent a meaningful improvement on what came before.
There are reasons for cautious optimism, and reasons for serious concern.
On the positive side, Article 6.4 introduces a centralised international body, the Supervisory Body, with authority to review and approve methodologies, set additionality requirements, and maintain a centralised registry. This is a significant structural improvement over the decentralised voluntary market. Centralised oversight reduces the race-to-the-bottom dynamics that have afflicted private certification bodies competing for project developer business.
Article 6.2 introduces the concept of “corresponding adjustments”, a mechanism designed to prevent double-counting, where both a host country and a buying country claim the same emissions reduction toward their nationally determined contributions. This is technically complex but conceptually important: without corresponding adjustments, a country could sell emissions reductions to a company or government while also counting them in its own national inventory.
On the concerning side, the ambition of the mechanisms has been significantly diluted through negotiation. Early drafts included stronger additionality requirements and clearer permanence standards. The final rules leave substantial discretion to the Supervisory Body and to host countries, and the experience of previous international carbon mechanisms (particularly the Clean Development Mechanism under Kyoto, which was plagued by its own quality problems) provides reason for wariness about whether the rules on paper translate to rigour in practice.
The Policy Challenge: Who Should Govern Carbon Markets?
The governance question is, in some ways, the central question. Markets for financial assets are regulated by financial regulators. Markets for physical commodities are regulated by commodity regulators. Carbon markets sit awkwardly between these categories, with fragmented oversight across environmental, financial, and international treaty bodies, none of which has comprehensive authority.
This fragmentation creates gaps. In Australia, the Australian Carbon Credit Unit scheme, the government-backed domestic market, has faced its own credibility questions, with independent reviews finding methodological problems with certain human-induced regeneration projects. The regulator (the Clean Energy Regulator) and the auditing body (the Australian National University’s review panel) reached different conclusions about the scale of the problem. The lesson is that even government-backed markets with mandatory reporting are not immune to the quality problems that have afflicted voluntary markets.
What a well-governed carbon market requires is, at a minimum, an independent, rigorous methodology review; transparent registries that prevent double-counting; robust monitoring, reporting, and verification (MRV) requirements; and meaningful liability for false claims. It also requires something harder to legislate: a culture within market participants that treats credit quality as a genuine constraint rather than a compliance formality.
The Securities and Exchange Commission’s climate disclosure rules, now in legal flux, and the European Union’s Corporate Sustainability Reporting Directive both create pressure on companies to be more rigorous about the emissions reductions they claim. If companies face legal liability for misleading climate claims, the calculus around purchasing cheap, low-quality credits changes materially. The demand side of the carbon market is shaped by the regulatory environment in which buyers operate.
What a Functioning Carbon Market Would Actually Look Like
It’s worth being clear that the problems with carbon markets do not demonstrate that carbon markets are inherently impossible. They demonstrate that markets without adequate governance fail. This is not a distinctive feature of carbon; it’s a general feature of markets.
A functioning voluntary carbon market would have a small number of recognised standards organisations, themselves subject to independent oversight and methodology review, with clear and conservative additionality requirements. It would have transparent, publicly accessible registries with mandatory corresponding adjustments for credits used by entities in countries with Paris-compliant NDCs. It would have monitoring requirements that extend for decades beyond project implementation, not just for the crediting period. And it would have clear legal consequences (reputational, financial, or regulatory) for buyers who make climate claims based on credits that don’t represent real reductions.
This is a high bar. It is, arguably, higher than the current market can meet at scale. But the alternative, a large, fast-growing market built on questionable claims, is not serving the climate. It is serving the companies that want to claim net-zero without doing the harder work of actual decarbonisation.
Article 6 is neither the salvation of carbon markets nor their obituary. It is a framework that, with strong implementation and sustained political will, could support a smaller, more rigorous, and more credible market. That market would be more expensive per credit and less convenient for companies that want a cheap way to offset their emissions. It would also be far more likely to represent actual climate progress.
The question is whether the political and commercial will exists to build that market, or whether the incentives that have consistently pushed toward credit volume over credit quality will reassert themselves under new institutional clothing.
History gives reason for scepticism. The climate emergency gives reason to keep trying.
This article draws on publicly available research, including Guizar-Coutiño et al. (2022), West et al. (2023), and reporting by The Guardian and Zeit Online. All characterisations of methodology and policy are my own analysis.