Category: Paris Agreement

The simple climate maths the IPCC didn’t fully explain

August 19, 2021

When I first started delving into the issue of climate change about 20 years ago, the clarion call of the day was to reduce emissions by 50% by 2050. Today, as we all know, the call is for net-zero emissions by 2050. Last week we also heard again from the Intergovernmental Panel on Climate Change (IPCC) with the release of the first part of the 6th Assessment Report (AR6), which the United Nations Secretary General called a ‘code-red for humanity’. But both the call in 2001 and again in 2021 are entirely consistent. It’s not the climate science that has changed, just the carbon maths associated with it.

As the IPCC clearly state in Part D of the Summary for Policymakers of AR6-WG I;

  • This Report reaffirms with high confidence the AR5 finding that there is a near-linear relationship between cumulative anthropogenic CO2 emissions and the global warming they cause. Each 1000 GtCO2 of cumulative CO2 emissions is assessed to likely cause a 0.27°C to 0.63°C increase in global surface temperature with a best estimate of 0.45°C. This is a narrower range compared to AR5 and SR1.5. This quantity is referred to as the transient climate response to cumulative CO2 emissions (TCRE). This relationship implies that reaching net zero anthropogenic CO2 emissions is a requirement to stabilize human-induced global temperature increase at any level, but that limiting global temperature increase to a specific level would imply limiting cumulative CO2 emissions to within a carbon budget.

While the biggest difference between now and 2001 is the shift in the goal from below 2°C to 1.5°C which in turn has contributed to the change in required emissions trajectory, this is not enough to explain the shift in the required outcome by 2050. That change is more a function of the cumulative carbon math associated with any level of warming.

To limit the temperature rise to 1.5°C, the notional carbon budget based on the above best estimate of TCRE is 1.5/0.45*1000 =  3330 Gt CO2 and for 2°C it is 4440 Gt. This is effectively targeting the central estimate in a range and is a calculation you might do before emissions start. However, we already know from IPCC AR6 that cumulative emissions of 2390 Gt correspond to a 1.07°C temperature rise in 2010-2019 vs. 1850-1900. They also indicate that the remaining carbon budget from 1.1.2020 for 1.5°C is 400 Gt and 2°C is 700 Gt for a 67% likelihood, which implies an overall carbon budget of 2790 Gt for 1.5°C and 3090 for 2°C with a good degree of certainty.

In the following calculations and accompanying charts I will work on the basis of a simple linear reduction in emissions to net-zero from a particular point in time to calculate the overall cumulative emissions. Returning to 2001, the annual CO2 emissions (from energy, cement and land use) were approximately 30 Gt, the cumulative emissions from 1850 at that time were about 1700 Gt and a linear reduction pathway from 2001 for 2790 Gt final cumulative emissions (1.5°C) means net-zero emissions in about 2073. This is illustrated in the chart below.

As noted for 2001, cumulative carbon dioxide emissions since 1850 were at 1715 Gt (Source: Our World in Data), which means net-zero emissions in 2073 for 1.5°C and 2123 for 2°C. Back in 2001 the focus was more on 2°C, so targeting well below 2°C, to completely avoid the 2°C threshold, would mean net-zero emissions around 2100 and therefore a 50% reduction in emissions by 2050 assuming a linear decline.

But twenty years later the story is very different. At the time of the IPCC Special report on 1.5°C cumulative carbon dioxide emissions had reached 2300 Gt, so a linear reduction to net-zero had a target date of 2040. For 2°C it was 2077. In fact the IPCC opted for scenarios with a steeper early reduction pathway, and therefore targeted 2050 for net-zero emissions, but that means a very steep early reduction of over 50% by 2030 to balance the longer tail to 2050. With twenty further years of rising emissions, a considerable portion of the 2001 carbon budget had been consumed and therefore the date for net-zero emissions had moved forward in time dramatically.

In fact, for each year that emissions don’t reduce, the requirement for net-zero emissions comes towards us by a year, effectively narrowing the gap for action by two years. The IPCC Special Report on 1.5°C was baselined from 1.1.2018, so another four years has passed (or will soon pass). Even the recent IPCC AR6 is two years out of date now in terms of its carbon budget baseline. This rapidly shifting picture is shown below. In 2015 the target year for 1.5°C is shown to be 2042, a gap of 27 years, but by 2019 the target year is 2038, a gap of only 19 years.

Should carbon dioxide emissions remain at 40 Gt (below the pre-COVID high) for the coming few years, the available carbon budget for 1.5°C is rapidly consumed, as illustrated in the chart below. By 2025 net-zero emissions would be required by about 2033 and by 2029 net-zero emissions would be required before 2030, in other words the available carbon budget will have been consumed.

All the above presupposes that emissions cannot go below zero in the future, thereby drawing carbon dioxide out of the atmosphere and eventually correcting any overshoot of the carbon budget and its associated temperature goal. But negative emissions are a possibility, through the implementation of large scale air capture systems with geological storage (BECCS or DACCS) and enhancement of natural carbon uptake in the biosphere via programmes such as those that increase global forest cover and improve soil carbon management in agriculture.

Today, the carbon budget is still a rather arcane subject, well understood by a few but not widely appreciated in terms of relevance to managing surface temperature. That understanding will need to improve rapidly so policymakers can develop better mechanisms to manage it, also ensuring large scale deployment of atmospheric drawdown practices and technologies.

A ten year reduction challenge for the USA

May 4, 2021

In April, at the opening of the White House Climate Summit, President Biden announced the United States Nationally Determined Contribution (NDC) for the period up to 2030, encompassing a target of greenhouse gas reductions 50-52% below 2005 levels. The US Greenhouse Gas inventory is available on the US EPA website and is summarised in the table below.

Sector and gases(Mt CO2e)2005Latest data for 2019
CO2 Fossil Fuel Combustion5753.54856.7
CO2 Non-Energy & Industrial381399.1
CH4 from all sources686.1659.7
N2O from all sources455.8457.1
HFCs, PFCs, SF6, NF3 from various industries146.5185.6
Total Emissions (Sources)74236558.3
LULUCF Emissions16.823.5
LULUCF Carbon Stock Change(804.8)(812.7)
Net Emissions (Sources & Sinks)6635.05769.1

Given a baseline of 6635 Mt CO2e, a 50% reduction in 2030 would require US emissions to be 3318 Mt or lower in that year. The 2019 data represents a reduction of 13% over 2005, so the reduction in the next 10 years must be nearly triple that of the last 15 years. The reduction seen to date from fossil fuel combustion is running slightly ahead of the overall improvement, with a reduction from 2005 to 2019 of nearly 16%.

The goal that President Biden put forward is aligned with a strategy that is designed to achieve a goal of net-zero emissions for the US in 2050. Recently, the Shell Scenario team released a US Sketch outlining one possible pathway to such an outcome. The Sketch is illustrated below (N.B. 2020 figures are a pre-pandemic view of US emissions which the US is approaching again as the recovery gains momentum).

The Sketch provides the opportunity to look at the nature of the transition required in the 2020s for the NDC. The Sketch energy system emissions in 2030 are 3440 Mt against a 2005 baseline of 6030 Mt (small differences in baselines result from different categorizations of emissions), or a reduction of 43%. While this isn’t exactly aligned with the NDC, it could be in that the NDC makes specific reference to a major expansion of sink capacity through enhanced soil carbon uptake in the agricultural sector.

Key elements of the journey to 2030 outlined for the US in the Sketch are as follows;

  • In 2020 (pre-COVID calculation) the US generated 3970 TWh of electricity, with 80% from coal, gas and nuclear. Solar and wind made up less than 10% of the total. By 2030 in the Sketch, the generation mix has shifted to natural gas and solar each making up about 25% of the total, with wind, nuclear and coal combined at around 40%. Notably, total electricity generation has increased to 5720 TWh, or 43% over 2020. This is in a pathway that still sees electricity system emissions at 600 Mt in 2035, the year President Biden has targeted for a zero emission system. His goal is about 5 years ahead of the Sketch.
  • The increase in electricity consumption comes from an increasing proportion of electricity in final energy, displacing gasoline in cars, natural gas in homes and coal in industry. Electrification is a major lever for decarbonisation. The proportion of electricity as final energy rises in a decade from 22% to 35%, breaking a near century long trend which if continued, would otherwise see it rise to 25% at most.
  • Over the 2020s, solar generation of electricity grows fastest, increasing by a factor of nearly 12 in a decade. The U.S. installed 19.2 gigawatts (GWdc) of solar PV capacity in 2020 to reach 97.7 GWdc of total installed capacity. With a utilisation factor of 15-20%, this could be expected to generate around 150 TWh of electricity, although the Energy Information Agency reported a total of 130 TWh (perhaps because the capacity at the start of the year was 79 GWdc). In any case, capacity by 2030 will need to grow to at least 1 TWdc, assuming some efficiency improvement in new installations compared to existing facilities. With a year-on-year installation growth of 30%, the US could be installing some 260 GWdc per year by 2030, bringing the total installed capacity to 1.2 TW by the end of that year. Very large scale energy storage will also have to deploy to support solar.
  • The Sketch also shows a three-fold increase in wind generation throughout the 2020s and importantly, no decline in nuclear generation. The latter becomes increasingly important as other non-intermittent generation sources decline in use.
  • Electric vehicle (EV) deployment is an important part of the trend towards electrification and it emerges rapidly in the Sketch. By 2030 the US will need to see 20% of all passenger vehicle use as electric, with hydrogen fuel cell vehicles rapidly appearing in the large SUV sector. At the moment, there are about 1.5 million EVs on the road, out of a total US passenger vehicle fleet of some 280 million. To reach a level of 20% EVs in terms of use, sales will need to climb rapidly from some 400,000 vehicles per year now, to over 13 million in 2030, or nearly 80% of all sales. This represents a year-on-year growth rate in EV sales of 42% through the decade.
  • Road freight makes less use of electricity, although it does impact the lighter end of the freight market. For larger, longer haul freight trucks, hydrogen emerges during the 2020s, with some 200,000 trucks on the road by end of the decade. This is still relatively small, but the sector is non-existent today. In the second half of the century in the Sketch, hydrogen becomes the dominant fuel for heavy road freight.
  • Natural gas, propane and oil are used widely in the US for cooking and/or heating in homes. Although the majority use electricity for cooking, heating is provided mostly by gaseous hydrocarbon fuels. In the US Sketch, heating and cooking in residences shifts from 13% electricity to 42% electricity in just a decade. Of all the transition tasks ahead, this may be the most challenging in that it involves convincing millions of households, individual consumers and landlords to change their behaviour, refit existing properties, invest money for the change and in some instances make use of a less preferred energy option.
  • While electricity already plays a significant role in light industry, this is not the case for heavy industry where very high temperatures and high thermal loads are often required for conversion processes. Heavy industry energy use in the US is currently three-quarters gas, coal and biomass and one quarter electricity. This begins to shift rapidly and by 2030 in the Sketch, 40% of energy demand for heavy industry is supplied by electricity. In addition, hydrogen is emerging, with the first industrial installations making commercial use of this fuel. While the amount is small in 2030 it could mean significant development, design and engineering of new processes in a limited amount of time. Alternatively, the amount could point to natural gas being topped up with hydrogen as a mixed fuel for industrial furnaces, prior to converting whole processes over to hydrogen based fuels.
  • The many changes across the energy landscape result in steep decline in the use of fossil fuels in the Sketch, with coal falling fastest. By 2030 there is a 40% reduction in coal use, a 14% reduction in natural gas and a 25% reduction in oil within the economy, compared to 2020 (pre-COVID) use.
  • But even by 2050 in the Sketch, natural gas and oil still play an important but significantly diminished role in the US economy. That points to the need for carbon capture and storage (CCS), both directly linked to facilities and indirectly as an atmosphere removal mechanism (e.g. BECCS). The US already has the most mature CCS industry in the world, underpinned by years of enhanced oil recovery using carbon dioxide. But an order of magnitude change is required here as well during the 2020s, with a shift from some 30 mtpa carbon dioxide stored to some 300 mtpa.

While the Sketch does not require nature based solutions (NBS) for the US energy system to reach net-zero emissions by 2050, natural carbon sinks do provide an additional lever to support the transition and the NDC also discusses this aspect of emissions mitigation. In the US, national forests cover 193 million acres, an area larger than Texas. Apart from their significant bioenergy potential, forests act as natural carbon sinks. The US could reduce CO2 emissions by up to 300 million tons a year by 2050 through afforestation – the planting of new trees where there were none before. While new forests represent significant additional sinks, there is also potential to expand areas such as wetlands and mangrove swamps, and perhaps most importantly to encourage farmers to adopt practices that enhance soil carbon. The US NDC references this opportunity. 

The rates of change outlined above are substantial, with year-on-year growth rates for several new energy technologies of 20-50%, depending on the sector. While growth at this level can be sustained when a sector is very small and this has been observed for renewable energy deployment, it becomes increasingly difficult as the sector grows and absolute levels of deployment become very large. Many of the sectors mentioned will face this issue during the 2020s. Nevertheless, the Sketch was designed to show what is possible given the right policy levers for innovation and deployment, sufficient and targeted financing and overall transition design.

Note: Scenarios don’t describe what will happen, or what should happen, rather they explore what could happen. Scenarios are not predictions, strategies or business plans. Please read the full Disclaimer here.

A very different pathway forwards for India

March 31, 2021

As COP 26 approaches, the UK government (as President of the COP) and the UNFCCC are encouraging as many countries as possible, in accordance with Paragraph 36 of the Paris Agreement Decision Text, to communicate mid-century, long-term low greenhouse gas emission development strategies. These should ideally include a net-zero emissions goal for the same time period as such ambitious national contributions are required from all countries to meet the 1.5°C goal of the Paris Agreement. To date, about 30 such strategies have been posted on the UNFCCC website.

For India, a mid-century goal of net-zero emissions points to a fundamentally different development pathway to one that might have been imagined just a few years ago. While the busyness and intensity of traffic and commerce in Indian cities like Mumbai and Delhi give the impression of a country bound to fossil fuels, the reality is very different. With around 1.4 billion people in total and a large rural population engaged in agricultural activities, per capita CO2 emissions – at 1.8 tonnes per person in 2015 – are around a ninth of those in the USA and around a third of the global average of 4.8 tonnes per person.

However, overall, India is now the planet’s third-largest emitter of CO2, behind China and the USA. Some costs of the country’s dynamic growth are increasingly visible, namely major congestion in urban centres and declining air quality.

The emissions focus should be on where India might go, rather than where it has been. For example, there are about 3 billion tonnes of steel in use within the country, in buildings, cars, appliances, pipelines and industrial plants. But as India aspires to be a developed economy, that number will likely rise to around 15 billion tonnes. Every other country has built its steel infrastructure with coal as the energy source, but if India does the same that could add another 24 billion tonnes of CO2 to the atmosphere globally, based on production emissions of about 2 tonnes of CO2 per tonne of iron. A good proportion of this would come from smelters in India, many of which may not have even been built yet. This is 6% of the IPCC 1.5°C carbon budget globally and would create a significant emissions spike, even considering efficiency improvements in smelting and optimised recycling. It will also add to the local environmental stresses that people in India feel each and every day. So a different smelting pathway should be considered and that is just one aspect of India’s future national development.

Similarly, the Indian electricity sector is largely based on coal fired generation, but here there are visible signs of change as solar and wind become the preferred choices for new generation capacity. By 2020, India had all but met its Nationally Determined Contribution goal of 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 (solar, wind, nuclear, hydro, biomass). Whether its cars, trucks, housing, factories or commercial buildings, the story is largely the same; what is yet to come far exceeds what is already there.

This points to a strategic emissions focus for India that is very different to countries with substantial legacy infrastructure. Rather than needing to dislodge the status quo, India has the opportunity to embark on a different development pathway based around cleaner energy technologies and efficiency. These future choices will be important, not just at the national level when making important infrastructure decisions, but also in homes. At the household level, ownership of domestic appliances such as washing machines, refrigerators and air conditioners is relatively low, varying between 15% and 30%, depending on the appliance. As the country develops over the coming 30 years, appliance ownership may well head towards the 90% level seen in much of the world. Once in use these appliances will consume energy, so the choice of model and efficiency rating will be important. These appliances could add 300-500 terrawatt-hours a year to electricity demand, nearly a third of that generated in 2019, but lower efficiency choices might double this amount.

But what might such a development pathway look like? Over recent months the Shell scenario team and Shell India have worked with The Energy and Resources Institute (TERI) of India to illustrate what the future could hold. In this collaboration the team developed a Net-Zero Emissions (NZE) scenario, the principle focus of the work, to examine whether adequate opportunities exist to fully decarbonise the energy sector; areas where India’s energy sector does not have enough choices for full decarbonisation by 2050 are also highlighted. From a second scenario, Towards Net-Zero (TNZ), barriers to change that might emerge are revealed. Energy efficiency, electrification and a switch towards decarbonised fuels are the three main pillars of India’s energy strategy, with the need for a transformative move towards renewable electricity, hydrogen and bioenergy as key fuels. This analysis indicates that the industrial and heavy transport sectors are likely to face limits in achieving full decarbonisation, primarily due to technological constraints which leave residual emissions in the system. This necessitates the need for carbon removal options to achieve net-zero emissions, including both technical and natural solutions.

An overview of the pathway reveals both radical and very rapid change. For example, in India today, there is a successful programme of solar PV installation under way, but by 2030 as solar starts to dominate the generation mix in the NZE scenario, it will need to be matched by large-scale energy storage to manage intermittency. More than 1,000 gigawatts of solar PV, 700 GW of which with matching storage, needs to be installed through the 2020s, far exceeding the amount of solar PV installed over the last decade. This level of deployment is challenging, even in global terms. In 2019 global solar module production was about 140 GW, but growing at some 20% per year. Even if growth continues at this rate through the 2020s, the demand in India for modules under NZE would still equate to 20% of global supply. Embodied within the pathway is a monumental challenge, but one that is worth aiming to achieve.

The scenario analysis was released last week and can be found here. The analysis incorporates both the pathway forwards and the policy framework required to get there.

Note: Scenarios don’t describe what will happen, or what should happen, rather they explore what could happen. Scenarios are not predictions, strategies or business plans. Please read the full Disclaimer here.

Getting going with Article 6 of the Paris Agreement

April 9, 2020

Article 6 was inserted into the Paris Agreement with a view to providing similar compliance flexibility to that offered by the trading mechanisms within the Kyoto Protocol (i.e. CDM, JI, AAU transfers). But given that the Paris Agreement doesn’t have strict targets and emissions management compliance in the way the Kyoto Protocol did, Article 6 was instead rephrased under the term cooperative approaches. The word trading (or trade) doesn’t appear in the Paris Agreement or its associated Decision Text.

The Kyoto Protocol was built from the ground up on an emission allowance basis (i.e. Assigned Amount Units or AAUs for developed countries), such that trade between developed countries (e.g. through Joint Implementation or JI) was strictly accounted for and the necessary adjustments made through the AAU system. But the protocol also included the Clean Development Mechanism (CDM), which offered the opportunity for developing countries to implement emission reduction projects and sell units into developed countries, which in turn incentivised a shift away from fossil fuels in the project host countries.  However, the CDM could not make use of the two sided accounting system that AAU and JI trades offered. This was because developing countries didn’t have targets under the Protocol and therefore didn’t have AAUs matched to emissions. The solution, in a qualitative attempt to avoid double counting, was to establish rules around the additionality of the projects, in other words to attempt to show that the project was a real reduction and wouldn’t have happened anyway. As such, project baselines and analysis of counterfactual energy trends became important areas of study.

Within the Paris Agreement, Article 6.2 offers the means to transfer bilaterally agreed emission units between countries and Article 6.4 offers a mechanism to generate units under UNFCCC supervision from various national approaches, but with an emphasis on projects. In many ways, Article 6.4 mirrors the CDM of the Kyoto Protocol, although under the Paris Agreement the 6.4 mechanism can be hosted in any country for potential transfer of emission reduction units to any other country.

Whereas the Kyoto Protocol had strict accounting provisions, albeit with the caveat of the CDM transfers as described above, the Paris Agreement has no such architecture. Nevertheless, the requirement to avoid double counting (Article 6.2 and 6.5) has led to proposals for the Paris ‘rule book’ which will require a detailed emissions accounting approach. The proposed accounting text that emerged from COP25 in Madrid is shown in part below;

Under the 6.2 rule book:

8. Each participating Party shall apply corresponding adjustments . . . . .

    . . . .

    1. Where the participating Party has a multi-year NDC:

i. Calculating a multi-year emissions trajectory, trajectories or budget for its NDC implementation period that is consistent with the NDC, and annually applying corresponding adjustments for the total amount of ITMOs first transferred and used each year in the NDC implementation period and cumulatively at the end of the NDC implementation period;

9. Each participating Party with an NDC measured in tCO2 eq shall apply corresponding adjustments pursuant to paragraph 8 above, resulting in an emissions balance, reported pursuant to paragraph 23 for each year, by applying corresponding adjustments in the following manner to the emissions and removals from the sectors and GHG covered by its NDC:

a) Adding the quantity of ITMOs authorized and first transferred, pursuant to paragraph 8 above;

b) Subtracting the quantity of ITMOs used pursuant to paragraph 8 above.

 Under the 6.4 rule book

 IX. Avoiding the use of emission reductions by more than one Party

 70. A host Party shall apply a corresponding adjustment for all A6.4ERs first transferred consistent with decision X/CMA.2 (Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement) . . . . .

In a Kyoto like world this could be easily implemented. NDCs would first be converted to emissions and AAUs assigned, which would give every country a clear carbon budget. As units were transferred between countries, then the necessary corresponding adjustments could be made via the AAUs. The challenge for the Paris Agreement and Article 6 is to do this in a world that doesn’t have such approaches built into the system but nevertheless needs them to fulfill the accounting requirements.

All the above brings me back to the current state of play on Article 6. Although some excellent text emerged from Madrid, it has yet to be agreed by all the Parties. In the interim, a number of organisations and some governments are pushing ahead with programs to operationalise Article 6 through demonstration. Most of these programs are focused on developing transfers through the 6.2 architecture, creating units under bilateral crediting systems and progressing with the physical transaction of the units between two parties, in some instances using technologies such as blockchain to track the transaction and ensure it is secure. The practitioners within these programs are looking at project baselines, calculating emission reductions, assessing additionality and building registries. But is this really the best use of their resources?

There is a solid twenty year history of project development and emission reduction unit issuance, starting in about 2000 with the likes of the World Bank and their Prototype Carbon Fund. This then led to the early days of the CDM and numerous other regulatory and voluntary market offset schemes. Collectively, we know how to do this and there is a high level of expertise in many institutions, companies and governments. We don’t need to learn this again. But not one of these offset schemes has ever dealt with the complexity of the problem posed by the Article 6 accounting requirements.

What we need are a number of good demonstrations of how corresponding adjustments can be implemented in practice and how they might work when dealing with the wide variety of Nationally determined Contributions (NDC) that currently exist. A prerequisite will be clear demonstrations of how robust emissions accounting can be applied to sometimes vague or non-economy-wide NDCs and to NDCs that have targets other than absolute emissions. Once there is trust around NDC accounting the application of corresponding adjustments is more straightforward and credible for everyone (including both the host country and recipient).

A demonstration program that seeks to establish best practice for corresponding adjustments will require strong cooperation between governments who are tasked with managing NDCs and national greenhouse gas emission inventories, the private sector who will be the likely investors and developers of projects and civil society who have a strong vested interest in environmental integrity and Article 6 itself. This is where the time needs to be invested to operationalise Article 6.

 

What to make of Article 6 at COP25?

December 18, 2019

I spent a week at COP25 in Madrid, with great hope that the negotiators would land the Article 6 text and complete the so-called Paris ‘rule book’. Unfortunately it wasn’t to be the case and the longest COP to date was closed with little to show for the immense amount of effort that was put into it, from the Chilean Presidency, the Spanish hosts and the thousands of attendees. But the COP didn’t end with nothing, in that we do have near completed text for Article 6, albeit entirely bracketed, reflecting the lack of final agreement. Brackets are normally used to surround individual words or short passages of text that remain contentious, but in this case they surrounded the Article 6 guidance in its entirety.

In a world where there is increasing pressure (and need) to get to  an effective state of zero emissions, the ability to use the market to deliver such outcomes by “trading” emission reductions and sinks between countries and sectors, becomes critical. I illustrated this in a recent post which stepped through the transition illustrated below.

Screenshot 2019-10-08 at 23.15.54

Despite a goal of zero, 300 units of CO2 emissions still remain in hard to abate sectors.

Screenshot 2019-10-08 at 23.17.18

Article 6 delivers an overall reduction, with a net-zero emissions outcome.

The final Madrid text reflects a great deal of effort by the Parties, albeit many of the same issues resurfaced during the discussions and highlighted the differing perspectives, and understanding, of Parties on the role and application of Article 6. This will require all Parties to work hard to bridge differences to see an agreement in 2020.

The entirely bracketed Article 6.2 text looks very good in that it covers the key requirements for a transfer. The definition of the internationally transferred mitigation outcome (ITMO) is sound and importantly includes removals, a clear requirement over the longer term and a necessity for net-zero emissions (see above illustration). The guidance on corresponding adjustments adopts a carbon budget approach to the methodology, which provides the highest standard for environmental integrity of the transfer. The text also provides for Article 6.4 emissions reduction units (6.4ERs) to be transferred via this process.

The 6.2 guidance asks participating Parties to cancel some ITMOs to ensure overall mitigation in global emissions, but importantly this is not a requirement for use of the process. In some instances it may be practical for participating Parties to agree on such a step, but in others it is unlikely to happen. For example, the net flow of allowances between two linked emission trading systems (e.g. Switzerland and the EU) will be an ITMO relative to the respective Nationally Determined Contributions (NDC) within which the trading systems sit, but deciding which allowances to remove from the system when hundreds or even thousands of private entities might be involved is both impractical and self-defeating for the link, in that if there is a penalty for trading with a cross-border entity against a domestic entity, then domestic trades will prevail and the synergy of the link will be lost.

Despite the big brackets and the meeting of the Parties to the Paris Agreement (CMA) only noting the guidance on Article 6, it is very likely that the 6.2 text will be used by Parties as it currently stands. Switzerland and the EU may well be the first Parties to do so as they link their respective trading systems from 1.1.2020. Use of the current 6.2 text may also help legitimize it in the case of the CMA never actually agreeing it.

While the 6.2 guidance was largely (but not completely) without contentious points within the bracketed text, this was not the case for 6.4, where many of the issues going into the COP remained unresolved as it finally closed on Sunday, resulting in the big brackets around everything – remember, in UN parlance, nothing is agreed until everything is agreed. Unlike 6.2 transfers where Parties can simply start using the text on a bilateral basis, this cannot be the case for 6.4 because it is a centrally administered mechanism with a supervisory body, which cannot exist until all Parties agree to the text. So while there is text that looks to be complete, we are still some distance away from it being agreed and the mechanism beginning to function. This means that some countries looking for foreign direct investment through the mechanism as a means of achieving mitigation will have to wait. It may also mean that they pursue other energy infrastructure projects which could lead to lock-in of a higher emitting system. Nobody wins through such a delay.

Some of the points that remain to be agreed in 6.4 are also issues that shouldn’t really be open for debate; not in a world looking for a successful implementation of the Paris Agreement.

  • The issue of actions taking place outside the bounds of the NDC is one, when in reality the NDCs need to quickly shift to cover all emitting activities. This should be the first requirement for the agreement that was reached in Madrid that all NDCs are resubmitted next year. As such, there would be no actions taking place outside the bounds of the NDC, which makes the provision entirely superfluous.
  • A second issue is related to the transition of remaining units (CERs and AAUs) from the mechanisms of the Kyoto Protocol, with the request from some Parties that they can be utilized and transferred under the Paris mechanism. For existing projects with future issuance, this shouldn’t be an issue in that any use of the units will be balanced by the necessary corresponding adjustments required under the transfer process of 6.2, although some Parties argued that these projects are outside the scope of current NDCs, to the extent that corresponding adjustments wouldn’t be required. But for vintage units there is a clear reason not to allow future use which sits in the IPCC Special Report on 1.5°C. That report established the current level of warming and reset the carbon budgets for various levels of future warming, with a 1.1.2018 baseline. For example, limiting warming to 1.5°C with a 67% chance has a carbon budget of 420 Gt from 1.1.2018. The Paris Agreement is increasingly being formulated around the finding of the report. As such, events prior to that date are now irrelevant, including any units that may have been created.

There was still no agreement on a share of proceeds from the use of Article 6.4 or on how an overall mitigation in global emissions is determined, key issues for some Parties that reflects the importance of demonstrating the potential of trade to deliver emissions reductions. A simple analysis of the use of Article 6 shows that it alone delivers mitigation that wouldn’t otherwise occur, as I illustrated in the recent post referenced above. Unfortunately, some negotiators didn’t see this point and the call for surrender of units continued, with a minimum haircut of 2% appearing in the bracketed text. Penalties such as this will do nothing to promote the use of the mechanism, but only deter investment.

So there we have it, a fortnight of negotiation that very nearly resulted in a good Article 6 ‘rule-book’. But it didn’t and that is unfortunate for all concerned, but particularly for the successful implementation of the Paris Agreement. Let’s hope that Parties can quickly reconvene around the final Madrid text and bring it to a conclusion, perhaps even before COP26 in Glasgow, in that the formulation of mid-century development strategies and more ambitious NDCs for that COP is in part dependent on the availability of Article 6 transfers.