Article 6: A job to do at COP25

As the Parties and representatives of the many UNFCCC observer organisations gather in Madrid, there is talk of increased mitigation ambition and the need to step up the global response to the many changes now being seen in the climate system. With the release of the Gap Report, the UN Environment Programme (UNEP) noted that greenhouse gas emissions in 2018, also accounting for deforestation, rose to more than 55 gigatonnes, and have risen on average by 1.5% a year for the past decade.

UNEP Gap Report

Source: UNEP Gap Report 2019

UNEP stated that global emissions must fall by 7.6% every year from now until 2030 to stay within the 1.5°C ceiling on temperature rises that scientists say is necessary to avoid disastrous consequences.

While this is an important statement, should another clarion call be the overriding theme of COP25?

Perhaps even more important than the call to act is the creation of the economic conditions, mechanisms and processes that will facilitate the shift. The Paris Agreement itself was a critical step in that journey and we have seen in just a few years that the global focus has shifted from talk of percentage reductions to an emphasis on net-zero emissions. This has changed the landscape and given a clear long-run signal to businesses and governments, with the result that numerous countries are now either pondering a 2050 goal of net-zero emissions or have actually established such a goal. Similarly, many businesses and sectors are now thinking along such lines and some have a focus on establishing zero emission business models to grow alongside the (diminishing) legacy systems they have in place.

But the landscape required for global action is far from complete and this is what COP25 can help deliver. Article 6 of the Paris Agreement was left out of the otherwise complete ‘rule-book’ at COP24 in Poland, with the Parties unable to agree on the architecture of cooperative approaches. Superficially this may seem to be a minor issue and certainly not something that would stand in the way of progress, but cooperative approaches should be viewed in the context of global trade which is a key enabler of the global economy.

Trade underpins economic activity and offers society the flexibility to provide the wide range of goods and services that we all benefit from – not everyone can economically produce everything themselves. For example, trade in commodities provides materials for manufacturing and construction that may be unavailable domestically. Trade is often the underpinning reason for foreign direct investment. It encourages the business sector to engage in projects and activities outside their traditional base with a view to bringing goods and services into that base.

This is also true for managing emissions – not all countries can reduce emissions at the same rate and it is certainly not the case that every country can be at zero emissions when needed, so we could use trade to collectively get there through Article 6.

Article 6 is essential for the journey to and destination of net-zero emissions. Recently published research from IETA and the University of Maryland found that cooperation through Article 6 has the potential to reduce the total cost of implementing NDCs significantly, in the order of $320 billion/year in 2030, or alternatively facilitate removal of more emissions, in the order of 9 GtCO2/year in 2030, at no additional cost if those cost savings are reinvested into additional mitigation.

By channeling investment towards zero emission energy systems and expanding the use of natural and artificial sinks, Article 6 can help deliver of the goals of the Paris Agreement. For the most part, this would be pursued through projects enabled by the private sector, including their use of the provisions within Article 6 and the issuance of tradable units by host governments.

Article 6 offers the opportunity to scale the millions of tons of emission reductions that the Clean Development Mechanism (CDM) of the Kyoto Protocol delivered from a multitude of small projects to gigaton reductions from large-impact programmes featured in economy-wide NDCs. To do this, Article 6 must be fit for that purpose and not anchored to the thinking of two decades ago. We learned much from past mechanisms, but they were never designed for the long haul. Carbon would potentially trade at the scale of the commodities that underpin it, such as oil, coal and iron ore. Today, the global crude oil market is around $2 trillion per year (based on producer to end-user sale at $50-$60 per barrel); a global carbon sink market of around $1 trillion per year could be envisaged as underpinning the journey to net-zero emissions in the 2050s (Sky 1.5 Scenario with sinks trading at a notional value of $50 per ton of CO2).

Article 6 establishes a reliable framework within which carbon based trade can be efficiently and expeditiously executed between various national emission markets and projects while ensuring environmental integrity at a global level. This is analogous to the way globally established rules and institutions allow currency markets to function. Article 6 will give confidence to investors in clean energy and emissions mitigation projects and ensures that all countries access the market through a common framework. This in turn delivers cost efficiency and ultimately enhanced mitigation.

COP25 in Madrid must deliver a simple but rigorous rule book for Article 6, which is based on transparent numerical accounting, recognizes both natural and industrial sinks and supports and encourages large scale transactions.