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Blog | The Green Climate Fund's Role in Operationalizing Article 6 of the Paris Agreement & Carbon Markets

Updated: Apr 26

Key Takeaways:

  • The GCF supports carbon market and pricing approaches in the absence of explicit COP guidance. Through available funding modalities, the Fund responds to country and partner requests to integrate carbon market and pricing elements into projects and readiness activities in areas such as forestry, energy and climate-smart agriculture.

  • The GCF has tangentially integrated carbon market elements into its institutional framework and sectoral guides across several sectors, including forests and land use, urban systems, ecosystems and energy access.

  • CCAP identifies opportunities for the GCF in carbon markets, highlighting the use of the Operational Framework for Complementarity and Coherence to support countries, in collaboration with other organizations, in developing national carbon market frameworks, exploring broader mitigation actions with results-based payments and innovative approaches to improve traceability and transparency in carbon markets.

  • As Parties make progress in finalizing Article 6 rules, explicit COP guidance can empower the Fund to play a more coherent and strategic role in this area during GCF-2 and beyond.


As the UN climate negotiations continue to unfold this week in Dubai, the Conference of the Parties (COP) has not yet provided explicit guidance to the Green Climate Fund (GCF) on carbon markets and cooperative approaches under Article 6 of the Paris Agreement. However, the GCF has nonetheless ventured into supporting such approaches through its funding proposals (FPs), readiness support and other funding modalities.

The Standing Committee on Finance (SCF), tasked with assisting the COP with the Financial Mechanism of the Convention and offering draft guidance to the operating entities of such a mechanism (including the GCF), has not provided guidance on market-based approaches or Article 6. However, some of the SCF’s guidance emphasize the role of the GCF in channeling results-based finance and urges the GCF to operationalize results-based payments.

As the GCF gears up for GCF-2 (2024-2027) with an updated Strategic Plan and revised Readiness Strategy, and as countries build the institutional arrangements to operationalize Article 6, it is worth considering how these processes intersect and whether they should at all. In this context, the purpose of this blog is twofold:

  • To explore how the GCF supports the advancement of carbon market and pricing approaches, either through institutionalized means or ad-hoc country requests

  • And to present options for integrating these approaches in a more formal and structured way to support Article 6 operationalization and the orderly expansion of the carbon pricing system.

Smart Agriculture

Carbon Market Integration Across GCF Institutional Infrastructure

The GCF's institutional infrastructure, including its mandate, governing instrument, top-level policies and regularly updated strategies such as the Strategic Plan and Private Sector Strategy, only tangentially address carbon markets and pricing. While there is no explicit mandate from the Board or guidance from the COP, the GCF’s governing instrument acknowledges the use of results-based financing approaches to incentivize mitigation actions and explains in strategies and guides the various ways in which the Fund can support carbon market and pricing initiatives.

The first step in operationalizing the results-based feature enshrined in the governing instrument was the pilot program for reducing emissions from deforestation and forest degradation (REDD+) results-based payments (RBPs), which had allocated almost its entire USD $500 million envelope by 2020 primarily to projects in Latin America. Notably, while REDD+ RBPs are not traded in carbon markets, GCF staff have characterized REDD+ carbon credits as de facto RBPs. This interpretation underscores how the GCF pilot has provided opportunities to enable carbon credits and potentially serve as a steppingstone to meet the surging demand for high-quality carbon credits in the private sector.

Ecuador and Costa Rica, which have received USD $18.6 million and USD $54.1 million, respectively, from the GCF pilot program exemplify how strategic reinvestment in initiatives can unlock carbon credits. Beyond REDD+, at least one approved project in Bangladesh highlights the use of a results-based financing approach where incentives are disbursed when clean cooling technologies are sold, used and verified.

The case for private sector involvement in carbon pricing is outlined in the Private Sector Strategy. As reflected more broadly in the Readiness Guidebook, one of the four pillars of the GCF’s Private Sector Strategy is to promote private sector engagement by using the Readiness Programme proposals to support national actors in developing policies and strategies such as carbon pricing.

Carbon market features are embedded in the GCF sectoral guides, particularly within the domain of forest and land use (FLU). “The 10 GCF sectoral guides seek to provide an overview and understanding of country needs and of the potential to deliver the greatest impact in support of country priorities." Within the FLU guide, under the driver, "mobilizing finance at scale," the GCF promotes private investment at scale, including innovative financing for next-generation payments regarding environmental services schemes and de-risking of REDD+ investments. In line with Article 6, the GCF stands ready to support the development of carbon markets as a means to mobilize private finance, including through REDD+ as appropriate.

Forestry landscape

Possible actions under this driver include creating an enabling national regulatory framework to increase domestic funding sources (such as green levies) and enhancing carbon markets for reforestation projects. On REDD+, the guide states that the GCF will continue to support developing countries in meeting the growing demand for higher standard emission reductions, provide REDD+ results-based payments and innovative finance and help countries develop voluntary carbon markets (VCMs), among other activities. It is also signaled that approaching a paradigm-shifting co-financing pathway in this result area may involve deploying carbon finance to scale up financing for land restoration.

Although not explicitly defined by the Fund, carbon finance covers a range of financial strategies, including carbon markets, ecosystem services, natural capital investments and low-emission project funding. Further unpacking the Fund’s focus on forest and land use, the Simplified Approval Process (SAP) guidance specifies that SAP project proposals may include upscaling RBPs from REDD+. Regarding carbon markets, the GCF can offer instruments to reduce the uncertainty of the future demand from compliance and voluntary carbon markets. For instance, these may be first loss guarantees, carbon market risk guarantees, contingent loans/grants for performance risks, forest bonds and/or other instruments. An example of a SAP-able intervention would be the application of blockchain technology in sustainable forest management to improve traceability, land titling and monitoring of the use of funds in carbon markets.

The integration of carbon markets and pricing approaches extends to other sectoral guides. Within the Cities, Buildings and Urban Systems guide, the GCF focuses on de-risking a pipeline of low-emission, climate-resilient urban investments through blended finance and improving cities’ access to international and domestic capital markets and carbon markets.

The guide further underscores the role of carbon pricing in contributing to the decarbonization of urban energy systems. This is accomplished in part by incentivizing distributed, resilient and low-emission energy sources for urban systems and energy efficient buildings and infrastructure, achieved by lowering subsidies and making the true cost of energy visible to users. Similarly, the Ecosystem and Ecosystem Services guide recognizes investment opportunities in carbon markets that seek to bundle climate adaptation benefits with carbon credits for corporate buyers and mobilize private finance in line with Article 6.

The Energy Access and Power Generation guide explores options encompassing support for VCMs to facilitate private sector financing. It also presents options for enabling independent power producers to contribute to investments in grid improvements and low-emission power generation through carbon pricing and energy subsidy reforms. Finally, the Low Emission Transport guide examines accelerating the electrification of transport systems through various strategies and policies, including carbon pricing. Tangible measures discussed include policy implementations and subsidies to expedite the adoption of electric vehicles and discourage internal combustion engines and includes elements such as carbon pricing, fuel taxes and reforms of fossil fuel subsidies.

Electric Bus

In the revised Readiness Strategy 2024-2027, under certain climate finance objectives, the GCF will help address policy gaps and enabling environments, and where requested, support the creation of market-based mechanisms to unlock climate investments at scale, including private sector-led climate investments and international and domestic public financial flows beyond GCF funding.

GCF's Impact on Carbon Markets

Across its portfolio and readiness proposals, the GCF plays a multifaceted role in promoting and facilitating the advancement of carbon markets and pricing approaches (Figure 1). The GCF has supported projects that introduce carbon market components in different ways. In Laos, the “FP200 project” focuses on transitioning to low-emission, deforestation-free practices and exploring climate finance sources such as REDD+ results-based payments and Article 6 mechanisms, supporting readiness activities, transparency and sustainability. In Kazakhstan, “FP047” advances regulatory reforms in the energy and carbon markets, including the integration of renewable energy projects/programs into this market and explores the use of Article 6 mechanisms to further leverage renewable energy developments and enhance long-term sustainability beyond GCF support. “FP210” in several African countries connects climate businesses with carbon markets, expanding capital sources. This involves enhancing carbon accounting, verification and access to technology, data solutions and carbon finance platforms.

Timor-Leste's Simplified Approval Process (SAP021) scheme develops small-scale carbon offset projects to attract private investments, incentivizing farmers to maintain planted trees, creating a carbon offset system and links to potential buyers in the VCM in the absence of a national registry. The multi-country "FP140" offers an "accelerated" milestone for retiring carbon credits during construction, reducing loan margins and improving carbon market engagement and climate governance by reporting carbon credit volumes to the GCF. “FP214” enhances climate-smart rice farming in Thailand through the Thailand Verified Emission Reduction Rice Scheme, unlocking revenue for climate-smart rice transition. The project integrates the Thai Agricultural Standard (TAS) certification, facilitating farmer registration and contributing to a carbon market paradigm shift by expanding into rice farming.

Smart Agriculture

In other FPs, carbon market elements have an indirect but significant role. “FP137” complements Ghana’s efforts to access results-based payments, leverage Article 6 opportunities and establish a REDD+ investment plan and registry. GCF funding strengthens Ghana’s compliance with the safeguards, monitoring and reporting requirements of the Warsaw Framework, thereby improving the framework for financing emission reductions in the agriculture, forestry and land use sectors. “FP138,” backed by a robust monitoring, reporting and verification system, makes Senegal more attractive to public and private sources of climate finance, including carbon markets. “FP128,” implemented in Ecuador, Paraguay and Peru, addresses concerns about the permanence of carbon offsets over time in reforestation projects. Using the Verified Carbon Standard and Gold Standard certification methods, this project ensures the long-term sustainability of projects that are economically viable, socially beneficial and environmentally sound. All projects must achieve and maintain Forest Stewardship Council certification, with regular audits and renewals every five years to demonstrate their sustainability.

The GCF supports carbon markets through readiness proposals by facilitating and enabling countries to develop the necessary frameworks, policies and capabilities for carbon market engagement.

In the case of the "Traditional Savanna Fire Management Readiness Proposal" in Belize, the GCF helps establish a science-based methodology for reducing emissions from fires, creating measurable emissions reductions and generating carbon offsets tradable in carbon markets. The "Agriculture Sector Readiness for enhanced climate finance in India" proposal explores opportunities for generating carbon credits from the Agriculture, Forest and Other Land Use (AFOLU) sector with GCF support for the study of VCMs. The "Advancing programming and partnership framework with GCF" proposal from Armenia develops a carbon pricing regime and supports private sector involvement through environmental, social and governance (ESG) frameworks and the development of carbon markets. Meanwhile, the "Capacity Building to Monitor the Agriculture, Forest and Other Land-Use Sector in the National Determined Contributions" proposal in Bolivia seeks to enhance capacity for carbon market engagement. In the "Enhancing Subnational Climate Finance via Direct Access Entities" proposal in Mexico, the GCF promotes carbon markets, sustainable finance and concept note development.

Other readiness proposals have addressed crediting approaches, such as a multi-country initiative to establish a pipeline of viable REDD+ projects and design a REDD+ Catalytic Fund (including a REDD+ credit model), a readiness implemented in Central American countries to strengthen their technical and institutional capacity to meet their NDCs while also supporting the design of market-based instruments to engage the private sector in NDC implementation and Jamaica's efforts to develop eligibility guidelines for forest carbon credits. Additionally, the "Readiness for registry and nesting system to facilitate climate-related investments in agriculture, forest and land use (AFOLU) sector in Papua New Guinea" proposal focuses on developing legal and regulatory processes for private sector engagement in carbon markets and climate finance, facilitating private sector investments in AFOLU mitigation actions and carbon markets. Across all these readiness proposals, the GCF plays a crucial role in helping countries and regions build the foundation for engaging with carbon markets, encouraging private sector investments and advancing their climate goals through carbon finance.

In the readiness proposal entitled “Capacity Building to prepare for the implementation of Carbon Markets and Article 6 in Latin America,” carbon markets take center stage. The proposal focuses on enhancing the understanding of Article 6 and assisting stakeholders in Panama, Guatemala, Nicaragua, Honduras, Argentina, Dominican Republic, Costa Rica and El Salvador in establishing or participating in carbon markets. It promotes compliance with NDC targets, fosters increased ambition and facilitates cooperation in aligning with the goals of the Paris Agreement.

GCF supports carbon markets through its Project Preparation Facility (PPF). In the "Mexico - Sustainable Communities for Climate Action in the Yucatan Peninsula,” the GCF assists in establishing a financial mechanism for blue carbon projects, including mangrove conservation and restoration, which can produce carbon credits for trading in carbon markets. In the "Pathways to Dairy Net Zero - Promoting Low Carbon and Climate Resilient Livestock in East Africa,” the project focuses on enhancing the dairy sector's capacity for low emissions and climate resilience, providing access to carbon markets for dairy farmers through low-emission certification. Furthermore, the "PPF Application for the Programme Blue-Green Investment Corporation (BGIC) in Barbados" evaluates and supports green initiatives that have the potential to generate carbon credits, such as renewable energy and carbon reduction, that can be traded in carbon markets, ultimately contributing to greenhouse gas reduction and sustainability.

Countries supported by GCF Carbon Markets and Pricing

CCAP’s Perspective on the Way Forward

The integration of carbon markets and pricing within the GCF requires action at different levels and by different stakeholders. This discussion will start at the broader COP and SCF level and then proceed to the Board and Secretariat levels.

Formalizing GCF’s Role Through COP Guidance.

The SCF first, and the COP later, could explore approaches to integrating carbon markets and Article 6 into the GCF and then consider the possibility of drafting guidance to empower the Fund on this issue. Building on a longstanding practice of exploring linkages, such as those between the SCF and other constituted bodies of the Convention and the Paris Agreement, and institutional linkages and relations between the Adaptation Fund and other institutions under the Convention, the SCF could begin a similar analytical exercise with the GCF. By responding to this possible guidance, the GCF could transition from its current ad-hoc approach of responding to individual requests to a more systematic and standardized strategy that could capitalize on the Fund's collaborative advantage, increase its effectiveness in supporting market-based approaches and provide partners with a clearer perspective on opportunities for engagement.

Leveraging the GCF Operational Framework for Complementarity and Coherence with Other Climate Finance Institutions

As part of the Operational Framework, which enhances collaboration and consistency among institutions at both the institutional and operational levels, the GCF, in collaboration with knowledgeable partners such as the World Bank, could establish an advisory desk to assist countries in developing effective national frameworks for carbon markets and pricing. This practical support, informed by proven models, can enhance coherence and facilitate smoother integration into the evolving climate finance landscape.

Pre-determined Allocation of Carbon Credits From Forest and Land Use Projects

The Fund could leverage the driver of "mobilizing finance at scale" in line with Article 6 objectives to allocate proceeds to adaptation. Doing so capitalizes on the GCF's commitment to support FLU carbon markets and private investment, as outlined in the SAP Guidance, as well as concurrent efforts to improve the regulatory framework for reforestation projects.

Exploring Broader Mitigation Actions with RBPs

As broadly defined in the Governing Instrument, one aspect to consider is the use of RBPs for mitigation actions beyond what is reflected in the 2024-2027 Strategic Plan. Originally piloted for REDD+ projects, RBPs have shown promise as an incentive to reduce emissions. The application of RBPs to a broader range of mitigation actions holds great potential, providing a comprehensive framework to support efforts across multiple sectors. By directly linking financial incentives to specific climate goals, countries and sectors are encouraged to pursue carbon pricing mechanisms.

Tailoring Financial Solutions for Private Sector Engagement

Customized financial approaches can create an enabling environment for private sector interest and participation in carbon markets. The Fund's Private Sector Strategy and Readiness Programme have laid the groundwork for fostering collaboration with the private sector to accelerate investments in low-emissions initiatives.

Complementing Project-Specific Activities with Broader Policy Development

The GCF can engage in comprehensive policy development to support the advancement of carbon markets and pricing in tandem with project-specific activities. Aligned with the GCF's core mission of mobilizing climate finance and spurring low-emission investments, these policies can consolidate new funding streams for countries. By integrating project-specific initiatives with broader policy developments, particularly in carbon pricing, the GCF can contribute to reaching its goal of catalyzing a paradigm shift towards low-emission pathways.

Exploring Innovative Approaches to Carbon Markets and Pricing

Technologies such as blockchain can offer traceability and transparency in carbon markets. These innovations can enhance trust and confidence in carbon credit transactions, making them more attractive to businesses, investors and governments. This approach, which has already been suggested as a possible SAP-enabled intervention in the forest sector, could be extended to other areas.

Acting as a Carbon Market Guarantor

Among its financial instruments, the GCF guarantees borrower loans in the event of non-performance or default (Decision B.08/12). As countries begin to deliver their first internationally transferred mitigation outcomes (ITMOs), in line with the SAP guidance mentioned above, the GCF can provide instruments to reduce the uncertainty of the demand or the risks related to the use of carbon credits by offering instruments such as first loss guarantees, carbon market risk guarantees, contingent loans/grants for performance risks and forest bonds, especially in the case of underperformance or the failure of carbon projects. Given its limited budget, the GCF could be asked to prioritize projects with high risk and mitigation potential, while also acknowledging countries with lower emission reduction potential that have been overlooked in the clean development mechanism era, where such guarantees could enhance their participation in the carbon market and make it more inclusive.

River Landscape

Final Remarks

The GCF Secretariat’s will is necessary but not sufficient to position itself in the carbon market and pricing landscape. Its work on carbon markets and pricing, either in response to country requests or as integration into sectoral guides and strategies, is commendable, especially in the absence of guidance from the COP. It has capitalized on available modalities, such as projects and readiness support, to finance readiness and project elements that contribute to carbon markets and Article 6 operationalization.

However, only explicit COP guidance can enable the Fund to support a coherent and strategic engagement in the carbon market and pricing landscape, as it intersects with the climate finance landscape, where it plays a more prominent role as the largest climate fund. The GCF-2 (2024-2027) presents an opportune moment to leverage the more and less structural elements enshrined in the GCF’s institutional set-up, especially as Parties finalize the rules of Article 6 and countries advance preparations for operationalization and ultimately transition to formalizing and strengthening the GCF’s role in supporting carbon markets and pricing approaches. This strategic move is consistent with CCAP's proactive collaborative approach, which emphasizes early engagement to enhance the integration of carbon market and pricing elements into GCF funding modalities.

CCAP, a GCF-observer organization, is well positioned to collaborate with countries and entities interested in integrating carbon markets and pricing into GCF-supported activities, as well as other activities consistent with its methane mitigation and climate finance programs. Drawing from its three program areas—methane mitigation, climate finance and carbon markets—and its experience in developing readiness proposals, CCAP is pursuing a programmatic approach to engagement with the GCF that revolves around a strategic focus on methane mitigation and/or carbon markets on a multi-country and multi-regional basis.

Through this endeavor, CCAP envisions working with partner organizations, including GCF-accredited entities, to facilitate access to the GCF and its various funding modalities, explore alternative sources of funding and develop a pipeline of projects and programs, while encouraging scaling up and sequencing, including in the context of the GCF's operational framework of complementarity and coherence.

The Carbon Markets program aims to assist countries in effectively implementing Article 6 and incorporating carbon market mechanisms into climate finance, thus strengthening the GCF's role and enabling results-based payments for various climate actions, extending beyond REDD+. The Methane Mitigation program can support the formulation of projects in the waste sector that implement technologies associated with reducing methane emissions, as well as the structuring of business models and financial mechanisms that contribute to the sustainability of projects. The Climate Finance program seeks to mobilize resources from the public and private sector and raise ambition to drive the decarbonization pathway and net-zero emissions.


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CCAP’s mission is to support every step of climate action, from ambition to implementation. A recognized world leader in climate policy and action, CCAP creates innovative, replicable climate solutions, strengthens capacities, and promotes best practices across the local, national, and international levels to accelerate the transition to a net-zero, climate resilient future. CCAP was founded in 1985 and is based in Washington, DC.


Jan 04

Very good and sharp analysis!


Dec 09, 2023

Great work, Martin. Keep bringing light onto this matter!

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