The 29th Conference of Parties (COP29) has concluded as a rather dull affair except countries finally adopting Article 6 after a decade of negotiations. On November 23 – followed by overnight extended negotiations, well after COP29 was supposed to officially end – world leaders at the UN Climate Change Conference in Baku, Azerbaijan, formally adopted foundational rules and guidelines for international carbon trading under Article 6 of the Paris Agreement, marking a milestone moment for carbon markets.

However, not every nation has the capacity to build its own carbon market registry owing to financial constraints, technical expertise, institutional readiness, data management challenges among others.

This is why the climate negotiations at COP29 have ushered in a new paradigm for global carbon markets, creating demand for mechanisms that echo the scalability and efficiency of the Software as a Service (SaaS) model. This evolution has the potential to redefine how nations, particularly those with limited capacity, can engage with Article 6 of the Paris Agreement. At its core, carbon as a Service model that can leverage the infrastructure and expertise of established voluntary carbon market (VCM) registries to operationalise compliance frameworks under Article 6.2 and Article 6.4, addressing challenges around scalability, accessibility, and operational efficiency.

Article 6.2 and 6.4

Articles 6.2 and 6.4 of the Paris Agreement are like the yin and yang of global carbon markets, each offering its own path to emission mitigation collaboration, yet supplement each other to complete themselves.

Article 6.2 is the “peer-to-peer” model. It defines bilaterally trade of carbon credits with rules to ensure fairness and transparency. It allows nations to authorise trades directly, helping them meet their climate targets by leveraging emissions reductions achieved elsewhere. Think of it as a climate marketplace where everyone plays by the same rules, ensuring environmental integrity.

Article 6.4, on the other hand, is the “centralised” system, led by the United Nations. It’s like the official online store of carbon credits, designed to help not just countries but also companies and organisations. This mechanism creates verified credits through projects like renewable energy or reforestation, making it particularly valuable for developing countries eager to attract green finance.

They turbocharge global climate cooperation by creating a transparent, accountable, and credible carbon market. While 6.2 focuses on direct trading between nations, 6.4 builds a UN-backed platform for broader participation. Both are crucial for cutting costs and emissions while pushing us closer to a net-zero future.

What is Carbon as a Service Model?

Carbon as a Service – though not officially defined – is an emerging model that offers carbon market infrastructure and expertise as a service to countries and stakeholders. By outsourcing these critical functions to established carbon market registries, countries can seamlessly participate in compliance mechanisms under Article 6. This approach mirrors the SaaS model, where software providers manage infrastructure, updates, and services for their clients. Similarly, carbon registries under the CaaS model act as third-party vendors, offering end-to-end solutions for:

-Developing and managing national registries in relations to countries’ NDCs

-Operationalising Article 6.2: Setting the country priorities and parameters of importance, Facilitating the approvals (LoA), registrations, tracking, transfer, and reporting of Internationally Transferred Mitigation Outcomes (ITMOs) between countries.

-Supporting Article 6.4: Defining the technologies and sectoral priorities for countries, assisting in the issuance of Letters of Authorisation (LoA) for projects and managing related compliance requirements.

The Rise of Carbon as a Service 

Just as Software as a Service (SaaS) revolutionised the software industry, a new model has the potential to emerge on the same lines in the carbon market: Carbon as a Service. This model will try to streamline the approach to accessing carbon markets, making it easier for businesses and organisations to reduce their carbon footprint and achieve their sustainability goals.

The Need for Carbon as a Service Model

Developing and maintaining a registry requires significant investment in technology, infrastructure, and skilled personnel. Many nations, especially in the Global South, struggle with limited budgets for such initiatives. The constraints also come in the form of technology. Establishing and operating a carbon market registry demands advanced technical knowledge and expertise in emissions tracking, verification processes, and data security, which some countries may lack.

A robust legal and regulatory framework is essential for a registry to function effectively. Many nations do not have the institutional capacity to design, implement, and enforce these frameworks.

Carbon market registries require precise data on emissions and reductions. Developing countries may face difficulties in collecting, verifying, and managing such detailed and reliable datasets.

Smaller economies or nations with low emissions may not have sufficient carbon trading activity to justify the establishment of a dedicated registry. Many countries rely on international organisations or third-party platforms to provide the necessary technical and financial assistance for emissions trading, making it difficult to develop independent registries.

The Role of Established Voluntary Market Registries

Voluntary carbon market registries are not newcomers to managing carbon credits and project validation processes. Their expertise and technical capacity make them ideal candidates to bridge the gap between the voluntary and compliance markets. Over the past few years, these registries have begun aligning with compliance requirements under Article 6, aiming to serve as turnkey solutions for countries embarking on their carbon market journeys.

Here’s how these registries are evolving:

-Building Infrastructure for ITMOs: Voluntary registries are enhancing their systems to meet the transparency, reporting, and tracking requirements set forth under Article 6.2. These platforms provide secure, scalable solutions that enable nations to manage ITMO transfers with minimal administrative burden.

-Issuance of Authorisations: Under Article 6.4, projects require authorisation from participating countries to be recognised as compliance-grade activities. Voluntary registries are positioning themselves to handle the issuance of Letters of Authorisation (LoA), ensuring compliance with international standards.

-Vendor-Client Model: Similar to TCS (Tata Consultancy Services) managing India’s passport issuance system, voluntary registries can offer their services as vendors to countries that lack the capacity to establish standalone systems. This vendor-client relationship not only streamlines operational processes but also ensures adherence to the high standards expected in compliance markets.

Advantages of the Model

For countries with limited budgets, outsourcing these functions to an experienced registry can save millions in infrastructure and operational costs.

The SaaS-inspired nature of this model allows countries to scale their carbon market activities as their participation grows. Whether managing a handful of projects or hundreds, the infrastructure is designed to accommodate varying levels of activity without overburdening national resources.

Navigating the complexities of compliance mechanisms under Article 6 requires technical expertise that many nations currently lack. Countries can tap into a reservoir of knowledge and experience, avoiding the steep learning curve associated with building systems from scratch with this model.

For nations eager to participate in global carbon markets, the model will remove the bottlenecks associated with registry setup and management. This ensures faster entry into compliance frameworks, enabling them to capitalise on opportunities in the growing carbon market.

Voluntary registries bring a wealth of experience in maintaining transparency and accountability, key requirements under Article 6. Their platforms are built to withstand rigorous scrutiny, ensuring that ITMO transfers and LoA issuances are conducted with integrity.

The Future of Carbon Markets

The adoption of this model will align with broader trends in global markets, where outsourcing and shared services are becoming the norm. As the demand for carbon credits grows and compliance requirements become more stringent, the Carbon as a Service model will offer a scalable, efficient, and inclusive pathway for nations to participate in carbon markets.

COP29 has been a turning point for the operationalisation of Article 6. By providing a clear framework for ITMO transfers and project authorisation, it has created the foundation for the CaaS model to flourish. 

While the primary focus of this model has to be on compliance markets, its potential extends to the voluntary market as well. Private sector players, non-governmental organisations, and regional bodies could also leverage the model to enhance their carbon market activities, creating a holistic ecosystem that supports climate action at all levels.

The emergence of Carbon as a Service represents a seismic shift in how carbon markets operate. By borrowing the principles of the SaaS model, CaaS offers a practical solution to the challenges faced by nations in operationalising Article 6. Its promise lies in its ability to democratise access to carbon markets, ensuring that even the least-resourced countries can contribute to global climate goals.

However, realising this potential will require collaboration, innovation, and a commitment to addressing the challenges that accompany such a transformative approach.

With the framework laid at COP29, the path forward for Carbon as a Service is not only promising but necessary for achieving the goals of the Paris Agreement. As nations and stakeholders embrace this model, the global carbon market could finally become the inclusive and impactful tool it was always meant to be.

—The article is written by Manish Dabkara, Chairman and Managing Director, EKI Energy Services