An Article 6 Case Study: Brazil

In a recent post I illustrated how Article 6 of the Paris Agreement might work in practice, using a small set of archetype countries as shown below. While there are many ‘Country A’ examples, it is more difficult to think about what sort of economies come close to ‘Country B’. Brazil could well be such an example.

Brazil is rich in renewable energy, it has a mature biofuel industry that could doubtless move towards new biofuel processes as they emerge and it certainly has vast potential for developing carbon dioxide sinks through reforestation and afforestation in the Amazon area of the country. Although it isn’t at zero emissions as illustrated in the diagram, the major current use of fossil fuels is oil for transport, which could diminish significantly through electrification, leaving a near zero emissions economy. In Brazil, industry makes considerable use of biomass for energy.

One would therefore imagine that Brazil could make considerable use of Article 6 of the Paris Agreement and generate real benefit for the domestic economy. But just how significant might this be for Brazil?

A recent analysis by the University of Maryland, underwritten by the International Emissions Trading Association (IETA) and the Carbon Pricing Leadership Coalition (CPLC), models the impact of Article 6 on the global implementation of the Paris Agreement. The study finds that the potential benefits through cooperation under Article 6 in achieving the Nationally Determined Contributions (NDC) are considerable and all parties could benefit. Potential cost reductions over independent implementation of countries’ NDCs total about $250 billion per year in 2030, although this number rises to $320 billion when Article 6 includes trade in carbon units related to land use change. This would appear as the sale of carbon removal units (or sinks) as a result of forestry and other land use change activities. Cost reductions from cooperative implementation are achieved through improved global economic efficiency and effective sourcing of the lowest cost mitigation opportunities. It should also be noted that the cost and benefit number produced are model outputs, which should be obtainable under perfect economic conditions akin to the model parameters, but otherwise are representative of the direction and scale of change that will be seen for the scenarios they represent.

2030 Potential Article 6 Reduction in Cost (Billions 2015 USD/year)
	Reduction in Cost	Increased Ambition
Fossil Fuels Only	$250 billion	5 Gt CO2 per year
Land Use Only	$70 billion	4 Gt CO2 per year
Combined Impact	$320 billion	9 Gt CO2 per year

Modelling results show that land use policies are important for the cost-effectiveness of climate change mitigation. The comprehensive approach of integrating terrestrial and energy systems could further lower the cost of meeting the same mitigation target, consistent with findings of other studies. Meanwhile, the potential sellers and buyers in the virtual carbon market change depending on whether land-use mitigation measures are included or not.

Within the analysis there is the opportunity to look at a country such as Brazil and get some indication of the benefits for that country should Article 6 be fully implemented and then used to its maximum potential. With the inclusion of nature based solutions, Brazil, along with countries in similar latitudes in Africa, becomes one of the largest sellers of carbon units through to 2050, with China flipping to become a buyer.

The table below, extracted from the University of Maryland study, explores in more detail the implications of the inclusion of land-use mitigation measures for Brazil and the use of them under Article 6. In the fossil fuels and industry only scenario, Brazil is shown to be a marginal seller until 2025 and then switches to become a buyer after 2030. The inclusion of land-use mitigation measures under Article 6 contrasts sharply with this scenario. Brazil takes on the role of a prominent seller in the international carbon markets, which increases over time (as opposed to the decreasing trend in the fossil fuels and industry only scenario). Associated financial gains are also significantly larger and increase over time, as shown in the table.

International trade for Brazil through Article 6  (positive = seller; negative = buyer)
	2020	2025	2030	Units
Fossil Fuels Only	0.05	0.017	-0.049	Gt CO2
	0.66	0.49	-1.88	US$ Billion (2015)
Fossil Fuels and Land Use	0.582	0.823	0.932	Gt CO2
	1.62	8.46	18.41	US$ Billion (2015)

The financial benefits associated with Article 6 cooperation, especially with the inclusion of land-use mitigation measures, are reflected in the GDP gains showed in table below.

Net GDP change for Brazil through use of Article 6 **
	2020	2025	2030	Units
Fossil Fuels Only	0.38	0.22	0.42	US$ Billion (2015)
Fossil Fuels and Land Use	1.61	8.27	17.66	US$ Billion (2015)

** Note that here are always gains in GDP growth as a result of Article 6 cooperation on NDC achievement but gain for Brazil are expected to be much larger as a result of the inclusion of nature based solutions under Article 6.

The University of Maryland analysis clearly shows the benefits of Article 6, but importantly it brings into context the scale of change that emerges for some countries when nature based solutions are incorporated within the carbon markets that will operate under Article 6. In the case of Brazil and the potential it has to develop these natural carbon sinks, the benefits rise towards US$20 billion per year by 2030, which could bring considerable economic growth to the Amazon region and encourage landholders to look at reforestation options. However, that potential can only be unleashed if Article 6 is designed to incorporate nature based solutions when the national negotiators sit down at COP25 in Madrid to finalize the rule book.