Yangyel Lhaden

Baku, Azerbaijan—As negotiators at the 29th Conference of Parties (COP29) continue discussions on Article 6 of the Paris Agreement, Bhutan is looking to tap into carbon markets to generate debt-free funds for renewable energy projects, climate adaptation, and its broader sustainable development goals.

Already a carbon-negative and committed to maintaining carbon neutrality, Bhutan has long championed environmental conservation. However, the country has been increasingly impacted by climate change, including extreme weather events and climate-induced disasters, while receiving few incentives for its environmental leadership.

The director of Climate Change at the World Bank, Jennifer Sara, said that while Bhutan might lack significant financial resources, it possessed invaluable natural assets, including vast forests and its carbon-neutral status, making it eligible to sell carbon credits. “So, how do we compensate countries like Bhutan, who play no role in global emissions but face the consequences of emissions from other countries?”

She said that the World Bank was also working with Bhutan to help set up its own carbon crediting system to attract external funding. “We are not parties but observers, and it depends on negotiators how carbon markets would function,” Jennifer Sara  said. “We are waiting for Article 6 negotiations on carbon markets to resolve how the carbon market functions, and with that, we could help countries like Bhutan secure funding.”

Singapore has signed an agreement with Bhutan to buy carbon credits.

Speaking at World Bank pavilion in COP29, Prime Minister Tshering Tobgay emphasised the critical role carbon markets played in climate strategy, allowing Bhutan to secure sustainable, non-debt funding to support conservation efforts. “Our partnerships with global leaders like the World Bank and Singapore are examples of how economic resilience and environmental stewardship could advance hand in hand.”

The Prime Minister also said that Bhutan’s approaches demonstrated the transformative potential of high-integrity carbon markets in addressing the global climate challenge.

What is Article 6?

Article 6 of the Paris Agreement focuses on carbon markets, outlining mechanisms for countries and companies to trade emission reductions in order to prevent additional carbon from entering the atmosphere.

The goal is to establish carbon trading markets, allowing higher-emitting entities to offset some of their pollution by purchasing carbon credits from nations with lower emissions.

Essentially, carbon markets serve as systems for curbing greenhouse gas emissions by assigning a financial value to carbon. Each credit represents a tonne of carbon dioxide that has been eliminated or avoided through initiatives like tree planting, forest conservation, and renewable energy projects.

There are three sections under Article 6 and so far, Article 6.4, which establishes a UN-supervised carbon market for trading emission reductions, and Article 6.8, focusing on non-market-based approaches like technology sharing, were both adopted.

However, Article 6.2, which deals with direct carbon trading between countries, is still under discussion.

Why is Article 6 controversial?

Article 6 has been one of the most contentious parts of the Paris Agreement, with years of negotiations marred by disagreements over transparency, the rules for credit trading, and the criteria for valid carbon credits.

Critics worry that the carbon market could repeat the failures of the Kyoto Protocol’s Clean Development Mechanism (CDM), which struggled with inconsistent standards, low-impact projects, market volatility, and financial inefficiencies.

For example, Bhutan’s Dagachhu Hydropower Project, which was registered under the CDM between 2015 and 2023, generated about 700,000 tonnes of carbon credits, earning over USD 7.77 million. However, critics argue that carbon credit mechanisms like CDM have often allowed countries to continue emitting greenhouse gases without making actual reductions.

Next, Critics say that a poorly adoption of Article 6 could lead to more emission as buying carbon credit meant that rich countries could continue emitting which did not meant they were reducing emissions. The hot topic under negotiations is how to transfer projects from CDM to Article 6.

Dr Laurent Fouinat (PhD), a senior expert in Mountain Environment with GRID-Arendal, expressed concerns about the carbon market, noting that while it has the potential to fund transitions from high-emission industries to more sustainable practices, it faces risks. “If the market is misused or misdirected, such as by giving money without reducing actual emissions, it could undermine its purpose.”

He emphasised that carbon markets must be carefully structured to ensure they contributed to real emission reductions, rather than simply facilitating financial transactions without achieving meaningful environmental progress.

This story was produced as part of the COP29 Climate Change Media Partnership, a journalism fellowship organized by Internews’ Earth Journalism Network and the Stanley Center for Peace and Security