Article 6 at COP26

My home country, Australia, seems to reside permanently in the international climate doghouse, but a closer look reveals that they have made steady progress on some of the less advertised fronts related to mitigation. This was highlighted again recently when the government’s Energy and Emissions Reduction Minister Angus Taylor announced that carbon capture and storage (CCS) projects would be eligible for emission reduction credits.

This might seem like a distraction to some, but Australia has been forging a clear path towards growing its carbon removal capacity for some years now. The Federal Emissions Reduction Fund (ERF) has long targeted opportunities in soil carbon, forest management and reforestation and now CCS is added to the list. Short of a miracle in energy technology development and deployment, the current mechanisms for energy supply do not hold within them a net-zero emissions solution available within 30 years, so it is only through the addition of direct carbon dioxide management in the form of removals that the goal of the Paris Agreement can be met. Unfortunately, this doesn’t seem to be widely appreciated, with the exception of the United States and their 45Q tax incentives for CCS, Canada with their early demonstration projects and Australia with its behemoth Gorgon CCS project, creation of the Global Carbon Capture and Storage Institute and domestic focus on removals. Other countries are now scrambling to establish similar initiatives, but are somewhat lagging.

The case for CCS and carbon removals is an easy one to make – it emerges from any credible analysis of the energy system that accounts for likely future energy demand, real world deployment rates and the expected fossil fuel legacy that will persist into the 22^nd century even as significant reductions in use are made. Depending on assumptions, removals can stretch to a trillion tonnes of carbon dioxide over the course of the century. It is only in a scenario with a very constrained future energy demand that removals become less important, but still don’t disappear. The chart below, which I have posted before, shows the four IPCC 1.5°C archetype scenarios (P1, a high sustainability consciousness develops across society, to P4, a technology driven society with high energy demand and technical solutions to environmental issues) and the Shell Sky 1.5 scenario – all require carbon removals. In the P1 scenario sink use is quite low, highlighted by an end to land based anthropogenic emissions and the subsequent development of the land as an enhanced sink from mid-century on, at about 5 Gt per year drawdown of carbon dioxide. P1 makes no use of geological storage. By contrast, the P4 scenario makes very extensive use of geological sinks with BECCS playing a substantial role even as land based emissions are eventually reigned in.

So how does all the above relate to COP26? Of course ambition is very much on the agenda and removals are required to deliver on that ambition, but so are many other steps. However, one of the features of carbon removals is that they will likely have to emerge through cooperative action between governments. Remaining emissions and the availability of removal sinks probably won’t exist in the same geographies, so a global trade in emission sinks will need to emerge. This would happen under Article 6 of the Paris Agreement, which still remains as unfinished business after the rulebook negotiations at COP24 in Katowice. Article 6 establishes a framework for cooperative action between countries in realizing their NDCs, which includes trading carbon units across borders.

The charts below illustrate how a standstill in global emissions (at 300 units in the illustration) is brought to net-zero through cooperative action between governments and the aviation sector. Large scale cross border investment results from the development and trading of carbon units, including removals, that would otherwise not take place. This is why Article 6 is so important – it helps all sectors and Parties to the Paris Agreement reach net-zero emissions.

While the UK Government has many ambitious plans for COP26, and Article 6 is certainly among them, I believe that agreement on the Article 6 rulebook is the most important outcome needed from Glasgow. Apart from its future value to society, an agreement on this difficult piece of rule-making would demonstrate that countries can work together to achieve an outcome that may not be in their immediate self-interest. Article 6 brings a rigour to emissions reporting and accounting that we must have for net-zero emissions. It introduces concepts such as carbon budgets and emissions inventory adjustments for trade to take place, which progressively caps the emissions of nationally determined contributions and forces them towards exact quantification, rather than narrative description. Of course nations aren’t required to use Article 6, it’s voluntary, but once they choose to they must also choose accounting rigour.

After the failure to agree on the Article 6 rule-book at Katowice, great progress was made at COP25 in Madrid, but final agreement still wasn’t possible. Nevertheless, a text emerged that would do the job, although it was entirely bracketed. But the text did capture the key elements that are required for Article 6 to function;

• Removals specifically referenced.
• A simple but robust approach for adjusting nationally determined contributions (NDC – the national plan for emissions reduction and adaptation put forward by a country) when an Article 6 transfer takes place.
• A centralized accounting and reporting platform, with a clear focus on the avoidance of double counting of mitigation actions.
• The creation of a supervisory body for the 6.4 mechanism.
• Specifications for the design of a 6.4 activity and subsequent issuance of associated emission reduction units.
• An approach to meet the requirements for adaptation funding required under 6.6 of the Paris Agreement.
• A transition arrangement for ending the Clean Development Mechanism (CDM) of the Kyoto Protocol. The CDM has left several countries holding project carbon units that they are keen to monetize so as to support the underlying internal project investment.
• A simple framework giving some structure to Article 6.8, the non-market approach cooperation.

Nevertheless, some disagreement between countries remains and these issue will need to be resolved in Glasgow.

There is a set of issues related to the scope of an NDC and whether some activities that are in addition to the NDC and involved in a transfer should be subjected to the same adjustments as the Madrid text outlines. This feels like a distraction for two reasons; the NDCs should rapidly expand to cover all activities within an economy and if there are activities still not covered by the NDC, they have no place under Article 6 anyway as this provision of the Paris Agreement is about cooperation to achieve NDCs.

Another tough issue has been the need to give meaning and substance to 6.4 (d) To deliver an overall mitigation in global emissions. The proposal in the Madrid text is to cancel a portion of the emission reduction units issued to the 6.4 activity, but this is unnecessarily punitive. It also risks pushing all activities into simple 6.2 transfers, which would undermine the whole purpose of having a project based mechanism which is more suited to many countries. The discussions in Glasgow simply need to recognize that, by definition, a 6.4 activity and related transfer with NDC adjustments always results in an overall reduction in global emissions. This is illustrated in the diagrams above and is the inherent purpose of an emissions trading structure.

Finally, there is the lingering problem of how best to wind up the CDM and what then becomes of the projects still delivering reductions and the legacy unused CERs sitting in registry accounts. For projects that continue to deliver reductions, the answer seems straightforward – they continue to operate, produce CERs and these are transferred under the provisions of 6.2, which ensures corresponding adjustments to NDCs. In the case of legacy units, I think the IPCC have answered the question, both in the 2018 SR15 and the 2021 AR6 reports. Both reports show that the temperature rise is now around 1.2°C and both offer a carbon budget requirement from 1.1.2018 and 1.1.2020 respectively to ensure that 1.5°C isn’t passed. By rebasing the climate issue in 2020 (in the case of AR6), anything that happened before that is now irrelevant in that it is part of the 1.2°C baseline. The carbon budget they developed has subsequently informed Parties on their NDC requirements and is already being used by the UNFCCC to assess the NDC gap . Adding pre-2020 units to current mitigation activities is simply undermining the carbon budget calculation.

With an agreement hopefully reached on Article 6 in Glasgow, the spotlight will then turn to national governments to open up the possibility of cooperative arrangements. This could come through linking of trading systems, opening up trading systems to external units and encouraging the private sector to develop mitigation projects through Article 6.4. Importantly, governments should also follow the lead of Australia and develop protocols for removals, as these are the units that will be in particular demand as net-zero emission goals and targets need to be met. Europe, in particular, will need to accelerate its removals thinking, an area where it is lagging in its mitigation efforts.

On to Glasgow!