Katharina Cavano l Palladium - Nov 16 2022
The Paris Agreement’s “Article 6”: What You Need to Know

The Paris Agreement, established in 2015, is the international treaty on climate change that lays out the actions countries must take to reduce emissions, build resilience, and decrease their vulnerability to the effects of climate change, and uphold and promote regional and international cooperation. It went into effect in 2020, but a critical article of the Agreement has yet to be operationalised: Article 6.

Unresolved and highly contentious, for some Article 6 could be the answer to some of our greatest challenges in the fight against climate change. For others, it’s a hindrance.

So, what exactly is Article 6, and with less than a week to go, will it be resolved at this year’s UN Conference on Climate Change in Egypt?

“Simply put, it was introduced to make sure that the world is moving towards the 1.5 degree future by trading mitigation outcomes and thereby channelling finance to the most cost-effective, at-scale climate solutions, while ensuring that countries aren’t double counting or double claiming mitigation outcomes,” explains Morten Rosse, Chief Investment Officer of Partnerships for Forests.

Essentially, he adds, Article 6 allows a country that has beaten its designed pathway towards net zero, it can sell anything additional to other countries in the form of a mitigation outcome.

That pathway towards net zero include the greenhouse gas emissions reductions targets set by participating countries, also known as nationally determined contributions (NDCs) and the ‘overachievements’ could be in the form of emissions reductions, nature restoration, or renewable energy. In its essence, Article 6 would promote and establish a means for governments to implement their NDCs through voluntary international cooperation and establish a policy foundation for an emissions trading system. In establishing that system, the hope is also that it would establish a global price for carbon, yet another contentious issue.

“In theory and on paper, it makes sense,” Rosse contends. “But the problem is when it comes to accounting for these transactions and creating a system or marketplace where they can happen.”

He adds that it’s a central planner’s big dream but because the world isn’t homogenous - and never will be - it’s harder than ever to agree what one country should do over another and who should be deciding. “It’s not going to be easy to make it happen, but if it works, it means that more money is flowing to the places that are the most carbon efficient, creating incentive.”
But how do you set up a fair system to price these mitigation outcomes?

“Right now, we’re trusting that some of the countries that are first movers on this, like Switzerland and Singapore, are promoting market mechanisms that put a fair value on the carbon,” Rosse says.

He notes there are potential bigger picture pitfalls, especially when it comes to educating and communicating it to the public at large. “Imagine if Colombia sells its mitigation outcomes to Switzerland in 2023, and in 2024 Colombia sees an increase in emissions or experiences a substantial negative event for the climate, like forest fires, then Switzerland has to explain to its people why their tax money is going to Colombia.”

“In theory and on paper, it makes sense, but the problem is when it comes to accounting for these transactions and creating a system or marketplace where they can happen.”

And this is just the beginning. Rosse explains that some tricky language within Article 6 has actually called into question the voluntary carbon markets (VCM) that already exist – markets where both the private and public sector can sell and buy carbon offsets. “They didn’t write in the articles that a VCM would exist in parallel to the UN system, instead they wrote that countries can authorise transactions of mitigation outcomes and it’s implicit then that anything beyond the UN system would be unauthorised.”

Why is this such an issue? In many countries, VCMs are already thriving, functioning markets, but Rosse adds that because of this language, some countries have put their VCMs on hold till they can fully understand the ‘authorisation’ process, while others have stepped back from using it until there’s clarity from the UN.

For Rosse, it shouldn’t be an either/or situation, both Article 6 and VCMs should, and must, be able to operate in tandem, especially if we’re to collectively reach the Paris goal. “There’s a danger here in incorporating what Article 6 proposes, that theoretically makes sense, but in practice isn’t up and running yet, and affecting or hindering a lot of good activities in the climate space that are already underway.”

As COP27 is well underway in Egypt, many are hopeful that the UN will emerge with clearer guidance on Article 6 and that significant time will be spent sorting out how it will work in practice. “I’m personally not convinced it’s the smartest thing to do, but as long as it doesn’t do any harm to the activities already happening, it’s worth a shot,” Rosse adds. “But it must only be just one of many solutions out there working in tandem. My ask is that in these negotiations, we recognise that other solutions exist and that they should coexist explicitly in the language.”

For more, read "Do Wealthy Countries Owe Reparations for Climate Change?" or contact info@thepalladiumgroup.com.