With the push for rigorous climate action, particularly around emissions reductions, Article 6 of the Paris Agreement has quickly become one of the hottest topics at COP26. Despite longstanding international debate around the specifics of Article 6, an agreement has not been reached in six years and diplomats are now facing pressure to formalise commitments during current climate talks at COP26.
What is Article 6?
Article 6 was designed to allow two or more Paris Agreement countries to increase the mitigation of carbon emissions by working cooperatively to achieve their Nationally Determined Contributions (NDCs). This can be done through a variety of methods but focus has centred around emissions trading, low-carbon projects and carbon offsetting.
The units generated from cooperative approaches are called Internationally Transferred Mitigation Outcomes (ITMOs).
An agreement on Article 6 would give countries that are struggling to meet their NDCs an alternative route, allowing governments to acquire ITMOs from other nations that have exceeded their emissions goals.
This also applies to emissions reductions generated from low-carbon projects. For example, one country could pay another to build a plant powered by renewable energy instead of coal.
The rules that are yet to be agreed upon with Article 6 are the fundamentals of the accounting framework that will serve as a global standard for the carbon market and allow for the transfer of ITMOs.
Why reaching an agreement is tricky
Brazil has been a consistent outlier in Article 6 negotiations. The nation holds a lot of leverage as it houses the Amazon rainforest – one of the largest carbon sinks in the world. Brazil’s reluctance to compromise left negotiations in a deadlock at COP25 in Madrid.
The major point of disagreement comes down to the accounting framework that validates each carbon credit. Many countries argue that reductions should not be counted in both the country that made them and the country that bought the offset credits. Under this method, countries that sell carbon credits to other nations would need to reduce their reported emissions reductions by the same amount. This would prevent “double dipping” and put in protections to ensure the carbon credit system is not abused. Brazil has long argued that this adjustment is not initially needed.
Another sticking point is whether to allow the use of old credits generated under the now defunct Clean Development Mechanism (CDM). Brazil was a leader in emissions-reduction projects under the scheme and, in the past, argued that those credits should be valid. China and India have made similar arguments.
However, Brazil has publicly signalled its willingness to compromise prior to the COP26 climate talks and outlook remains positive on Article 6 being settled tomorrow.
Why it’s important
Without an agreement on Article 6, the Paris Agreement is not fully operational. Execution of the rules that govern Article 6 is also crucial as the ripple effects will be felt in many ways. This includes:
Achievement of Nationally Determined Contributions (NDCs)
For countries that don’t have the upfront capital or infrastructure it’s important there are additional options available to assist in reducing emissions efficiently to avoid climate catastrophe. In a 2021 NDC synthesis report, it was stated that:
According to the report, many Paris Agreement nations have said that fulfilling their NDCs are conditional on access to financial resources, technology transfer, technical cooperation, and the market-based mechanisms included under Article 6.
Despite the explosion in corporate carbon offsetting, no global oversight exists. This has lead to an abundance of low-quality offsets that have made little impact on climate change. The carbon market needs a consistent global standard and one that is skilfully regulated to make a real difference in reducing emissions. Poor execution of Article 6 also threatens to undermine the entire Paris Agreement and could lead to countries offsetting their way to net zero instead of making lasting sustainable change.
The correct implementation of Article 6 has the potential to unlock trillions of dollars worth of green investment as the carbon credit market is already flourishing due to corporate demand. In a joint report with the University of Maryland, the International Emissions Trading Association (IETA) said an operational Article 6 could generate up to $1 trillion per year in financial flows by 2050.
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