Linkages within Article 6 of the Paris Agreement

National negotiators are in the process of getting their thoughts together on Article 6 of the Paris Agreement, both in preparation for the next round of negotiations in Bonn in May, but also for submissions to the UNFCCC in preparation for the Bonn meetings. Article 6 is a key provision of the Paris Agreement in that it encourages cooperative action between parties through approaches that are compatible with carbon pricing and carbon market development.

While much has been written about the use of Article 6 in the context of linking between national emissions trading systems, it is perhaps the linkages within Article 6 itself that are the ones that really need to be thought through. There are three key provisions within the Article;

  1. Paragraph 6.2 proposes the use of ‘internationally transferred mitigation outcomes’. This has been widely recognized as an arrangement between two parties – either governments or companies – that results in a bi-lateral adjustment of national emissions inventories.  This could be after a transaction in an emissions trading system, such as the trade of European Allowances (EUAs) between countries in the EU and Norway.
  2. Paragraph 6.4 proposes a mechanism to promote the mitigation of greenhouse gas emissions while fostering sustainable development. Within this, section (c) notes that the reductions can be used by another party to fulfil its nationally determined contribution (NDC), but Paragraph 6.5 makes it very clear that both Parties cannot benefit from the use of the mechanism in terms of delivery of their NDCs, i.e. no double counting.
  3. There is the less talked about but still important paragraph 6.8 which is focussed on non-market approaches to promote mitigation and adaptation ambition.

One question that negotiators face is how these three provisions sit together, or should they be viewed as entirely separate approaches?

Perhaps the most immediate consideration is the link between 6.4 and 6.2. While 6.4 defines a mechanism, it is not specific as to what this mechanism might look like or how it might operate. However, the history here lies with the Clean Development Mechanism (CDM), which generated project-based Certified Emission Reduction units that were then traded across borders for use under the compliance requirements of the Kyoto Protocol in developed countries. But there is a fundamental difference with the CDM, in that the Paris Agreement introduces more robust greenhouse gas accounting. As such, a cross border trade impacts both parties in terms of the accounting around their nationally determined contribution (NDC). Of course, this new mechanism doesn’t have to result in a cross border transfer, but if it does then is this a mitigation outcome transfer under 6.2?

One possible construction for Article 6 is that all cross border carbon unit denominated trades fall under paragraph 6.2. This would be all trades that are executed between those areas of the respective economies that are covered by NDCs and where a quantified adjustment equivalent to the amount of the trade is then made to each NDC. Such an adjustment requires quantification of each NDC, as I discussed in a post last year. This is quite a straightforward process between linked emission trading systems, but less so when these may not be in place.

The purpose of Article 6.4 then becomes clearer; it facilitates the process of quantification of mitigation activities, such that trades can be executed and the necessary adjustments to the NDCs then made. This allows the necessary funding for the mitigation activity to be directed efficiently and with the required financial rigour and emissions quantification to support the investment.

But this may not be the only use of 6.4. Mitigation activity could take place within the NDC of a single economy that attracts external climate finance, but does not result in carbon units crossing borders. Such an arrangement might help channel funds from green investment banks. This would be more in line with the intent of 6.4(b) which positions the mechanism to incentivise and facilitate participation in the mitigation of greenhouse gas emissions by public and private entities authorized by a Party. Nevertheless, this is still likely to involve facilitation through quantification of the mitigation activity.

Finally, there is paragraph 6.8, the framework for non-market approaches. While quantification of emission reduction activities is important in developed or emerging economies, building a developing economy along a different energy and emissions pathway to what might otherwise take place is a more holistic activity; in fact the word ‘holistic’ even features in the text of the paragraph. Establishing a reference, quantifying emissions and trading carbon units around this may not be appropriate for an energy system that is largely a blank sheet of paper. This is perhaps where 6.8 can add value, along with cooperative activities such as under the Kigali Amendment of the Montreal Protocol and the various global methane programs.

Much remains to be done to fully define Article 6, but linkage of the pieces within it to suit various economies in different ways is perhaps a useful starting point.