Building a transition into Article 6

It would seem that transitions are all important at the moment and while many may be focussed on the latest ideas for Brexit, I am actually talking about Article 6 of the Paris Agreement.

At the opening of the IETA Carbon Forum North America in New York last week, the Fijian Climate Ambassador gave a major push forward for Article 6, outlining to the attentive audience that it was perhaps the most important part of the Paris Agreement. Her assertion rested on the argument that a functioning global carbon market can enhance ambition. Looking some decades down the road, trade in carbon units can give confidence to nations to set net-zero emission goals, given that they will feel assured that the balance that needs to be reached against remaining emissions in their economy can be achieved by purchasing suitable units from a recognized international market. Without such a market, net-zero emissions is unlikely to be realized.

While the full need for such a mature global market may be many years away, the negotiators faced with the task of fleshing out Article 6 into suitable guidelines, rules and procedures need to consider that endpoint now. Although it is always possible to return to the table and build on existing systems, the history of this within the climate negotiations is not good. Back in May, IETA released a ‘straw-proposal’, outlining in very clear terms the necessary pieces required to further define Article 6. That proposal can now be found on the recently created IETA Article 6 Portal. It represents a desirable end-point for the shape of Article 6, which is a major step from where the international carbon market stands today.

But this may be insufficient for the current negotiators, who are also focussed on the near term and the role that carbon markets might play over the next five to ten years. Many have seen the Clean Development Mechanism (CDM) of the Kyoto Protocol bring much needed energy investment into their countries and some are keen for such projects to continue, rather than wait for a new round of activity to get going under a new mechanism; that could take some years. But the Paris Agreement will also bring fundamental changes to the accounting around these projects, given the existence of Nationally Determined Contributions. I discussed this in a previous post. But again, accounting of this nature may take some years to develop.

All the above points to a transitional arrangement; an approach which allows the structure, project pipeline and methodologies of the CDM to continue, but which sees the CDM subsumed into the new Article 6.4 mechanism as it emerges. Retaining aspects of the CDM and encouraging smaller energy development based projects in least developed economies and sub-national regions should be part of the new mechanism, but equally this mustn’t end up as the mechanism itself.

Article 6, including the transfer arrangements of 6.2, the mechanism of 6.4 and the non-market approaches of 6.8 must herald in trade and cooperative arrangements that operate on the gigaton scale, not kilotons and megatons as has been the case with the CDM. The mitigation challenge ahead is enormous and even the potential trade in a net-zero emissions world could be very large. Continued emissions from agricultural systems, chemical processes, smelters, aviation and shipping alone would require several gigatons of trade to offset with units representing removed carbon dioxide (i.e. sinks).

This points to a relatively short transition period, perhaps one or two of the five-year cycles for Nationally Determined Contribution (NDC) implementation and review. After that, if the Paris Agreement goals are to be met, NDCs should have expanded to cover all parts of every economy, therefore introducing the full accounting rules on which Paris is based. While project activity such as under the CDM will doubtless continue, it will need to be transparently accounted for within the NDC process. This in turn will change the nature of the trading arrangements for the reduction units coming from the projects.

The task for the negotiators in Bonn will be to find a balance between the shorter term needs of several Parties and the project investment pipeline that is important to their energy development, along with the creation of a new emissions mitigation mechanism and accompanying transfer provisions that are scalable and robust for the decades ahead. Transitional arrangements could be an important part of the solution.