The 58th session of the UNFCCC’s Subsidiary Body for Scientific and Technological Advice will take place in Bonn from June 5-15 and one of the features of the session is further progress in operationalising Article 6 of the Paris Agreement. My colleague, Malek Al-Chalabi, and I thought it would be useful to reflect yet again on the critical importance of this somewhat overlooked corner of the Paris Agreement.
Article 6 of the Paris Agreement is the section that formally promotes cooperative approaches between the Parties, but is widely recognised and is being negotiated as a carbon trading mechanism. The thinking behind Article 6 is profound, but the reality of a working mechanism is taking too long to appear in practice. Article 6 was the apparently the last piece of the Agreement to be completed in December 2015 and we all know that the completion of the so-called Paris ‘rule book’ was extended by two COPs (from Katowice in 2018 to Glasgow in 2021) because of Article 6. Now the fine detail of the mechanisms is trying to find a landing point.
One area that is really struggling, weighed down by constant challenge, is the incorporation of carbon dioxide removals (CDR) within Article 6.4, the project based mechanism under Article 6. A recent information note released by the UNFCCC seems to lean heavily towards land based removals (reforestation, ecosystem restoration, carbon farming etc.) but is particularly scathing on the prospect of engineered removals (direct air capture with geological storage or DACCS and bioenergy production and use with geological storage or BECCS), with statements such as;
- Engineering-based removal activities are technologically and economically unproven, especially at scale, and pose unknown environmental and social risks. Currently these activities account for removals equivalent to 0.01 MtCO2 per year (P15:a) compared to 2,000 MtCO2 per year removed by land-based activities.
- These activities do not contribute to sustainable development, are not suitable for implementation in the developing countries and do not contribute to reducing the global mitigation costs, and therefore do not serve any of the objectives of the Article 6.4 mechanism.
In any thorough analysis of net-zero emissions during this century, such as in the IPCC 6th Assessment Report, both land carbon management and engineered removals are critical for achieving the net-zero goal, so to simply dismiss engineered removals now because they have yet to scale can only be seen as short sighted. In the recently released Shell scenario Sky 2050, the role of both in 2050 is very clear, as shown below. In 2050 the use of fossil fuels is far from over, so balancing remaining emissions against sinks via various removal mechanisms is critical.
While land-based removals are larger in 2050 than engineered removals, the longer term mechanism for correcting overshoot and addressing atmospheric CO2 levels is engineered removals. By 2100 fossil fuel use is largely done with so the balancing of 2050 is not really required, but a robust business model will be needed to support ongoing negative emissions through engineered removals as a means of reducing atmospheric CO2 levels. This will also require a trading mechanism.
Further to the above, there is an almost certain dependency on the structure of Article 6 in the delivery of large scale removals. This is because the countries and sectors that find themselves in the situation of needing removals to balance ongoing emissions or to finance long term negative emissions may not have local access to them, perhaps for reasons of geography. This was highlighted in the Shell Scenario Singapore Sketch released last year. Without Article 6 Singapore cannot reach it’s goal of zero CO2 emissions, but with Article 6 in place net-zero emissions is achieved. Arguably the very essence and purpose of Article 6 is embraced within the word ‘net’ in net-zero. Eventually, removals become the only type of unit traded under Article 6 or created through the 6.4 mechanism.
The same clear message was also delivered in the IPCC AR6 Synthesis Report where CDR is shown to be vital if the world is to achieve 1.5°C, the more ambitious goal of the UN Paris Agreement. And similar to the case for Singapore described above, not all countries will have the same geographic and geological ability to harness or deploy CDR options or reduce emissions at the same rate, and the majority of countries cannot expect to reduce emissions to zero such that CDR is not needed.
In a previous blog post, we illustrated the importance of trade and how countries and sectors can work together in Article 6. This message can also be found in publication from a variety of organizations, including the International Chamber of Commerce, the International Emissions Trading Association (IETA), the International Energy Agency, and others.
There have been numerous examples that show how trade helps countries contribute to economic growth. This includes the trade of automobiles, medicines, clothing, electronics, and a variety of other goods. Not all countries will be automobile hubs, medicine hubs, clothing hubs, or electronic hubs. Trading allows countries to specialize in certain segments of the economy and trade with others that have other expertise in other goods – and it is a win-win for both countries. There have also been an equally abundant examples of how isolation or trade disputes can disrupt economic growth and progress.
Trading of carbon is a win-win – for economic growth and for decarbonization – and Article 6 has the potential to catalyse both elements. As such, in order to maximize the use of Article 6, IETA has identified the following elements for governments to consider (see the full IETA paper here):
- Announce whether and how the country will authorize Article 6 credits and/or accept towards the achievement of its NDC.
- Provide a clear strategy and stable guidelines on which sectors, activities and vintages will be eligible for Article 6 credits.
- Articulate how the use of Article 6 will help achieve the goals of the Paris Agreement.
- Elaborate what policy framework the host country will adopt and how it will interact with the receiving country.
- Establish an effective interaction between compliance instruments and the voluntary carbon market (VCM).
- Support the emergence of a widely accessible traded market for carbon credits.
- Ensure a suitable digital registry or other infrastructure for GHG accounting and reporting is in place.
- Address key risks in the activity cycle and identify mechanisms to reduce them.
- Emphasize the areas where capacity building is required and the role of international organizations
But more recently, IETA and several other observers have called for the Article 6.4 Supervisory Body to take a more balanced approach to the assessment of removals. The IETA submission can be found here.
Carbon markets have the opportunity to contribute to decarbonization and economic growth. A recent example of this was highlighted at COP27, where the governments of Switzerland and Ghana agreed to the first government to government bilateral carbon trade. More signs of this are taking place, with Japan signing over 25 MOUs and other countries showing a keen interest, like the UAE, Sweden, and others. Further information on how carbon markets can assist decarbonization efforts can be found on a recent episode of the Energy Podcast (Season 5).
With the global stock take taking place in Dubai later this year, Bonn provides an opportunity for policy makers and governments to continue to encourage the use of Article 6 and embrace the role of removals, in all forms, within the 6.4 mechanism. Further government to government trade of carbon will be one of the cornerstones to limiting warming to 1.5°C.
Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.