Greenhouse Gas Trading Advocates: We Have a Steep Mountain to Climb at COP (26)

A Changeblock blog on COP26

The Contentious Issue of Article 6

Article 6 is the key to opening up the greenhouse gas compliance credit market, but many provisions have not been agreed upon. Outstanding issues include Article 6.2, 6.4, and 6.8 of the Paris Agreement:

- Article 6.2 provides an accounting framework for international cooperation, such as linking the emissions-trading schemes of two or more countries (for example, linking the European Union cap-and-trade program with emissions-reduction transfers from Switzerland). It also allows for the international transfer of carbon credits between countries.

- Article 6.4 establishes a central UN mechanism to trade credits from emissions reductions generated through specific projects. For example, country A could pay for country B to build a wind farm instead of a coal plant. Emissions are reduced, country B benefits from clean energy, and country A gets credit for the reductions.

- Article 6.8 establishes a work program for non-market approaches, such as applying taxes to discourage emissions. For this explainer, we will focus on the carbon markets elements of Article 6.

While the number and kind of market participants increase, their views related to the GHG-trading provisions in the Paris Agreement can be summarized in one thought “give us certainty”. Give us certainty so the Smithian invisible hand of economic self-interest can move more money, now toward green, carbon-reducing projects.[1]

What are some of the priorities for cooperative approaches described in Article 6.2?

- Article 6 guidance should give clarity on the metric, the form, and the scope of internationally tradable GHG quotas called ITMOs[2].

- The Article 6 rulebook should clearly define the relationship between ITMOs and the originating country’s GHG management commitments.

- The rules for accounting and ensuring environmental integrity must be agreed upon before developers will undertake regulatory-approval risks.

Priorities for the emission mitigation mechanism under Article 6.4:

- The Article 6 rulebook must clearly define the scope of the mechanism and the scope of activities under the mechanism.

- There should be rules for the governance of the mechanism, including the establishment of the Article 6.4 Supervisory Body.

- The rulebook should clarify the transition of CDM and JI credits going forward.

However, after six years of meetings, little progress has been made. An IISD summary of a COP (26) meeting on Article 6 focused on “just these issues:”

- Many groups called for further addressing environmental integrity under Article 6.2 (Internationally Transferred Mitigation Outcomes) guidance.

- Many groups also called for some level of parity between rules for Article 6.2 and those for 6.4, including with regard to environmental integrity, baseline additionality, and accounting.

- Many called for avoiding double counting.

- Many developing countries called for a capacity-building program for enabling readiness for Article 6 operationalization, with one group suggesting including this in the Article 6 cover decision.

- Many countries, both developed and developing, called for reflecting human rights and rights of Indigenous Peoples in the text.

- Some stressed the need for Article 6 to contribute to the 1.5°C goal.

- Some drew attention to the need for balance across the three “mechanisms” under Article 6, with one party stating that “little or nothing has been done on Article 6.8 (non-market mechanisms).[3]”

And, if that was not enough:

Parties and groups also called for, inter alia: defining the role and process for the Article 6 review team; equal treatment of shares of proceeds under the Article 6.2 and 6.4 instruments; unlimited use of pre-2020 Kyoto credits under 6.4; transition of all Clean Development Mechanism methodologies to 6.4; ensuring inclusivity and market friendliness to improve overall mitigation in global emissions; safeguards; and timelines for completing the Article 6 work program. They also expressed various views on baseline additionality.[4]

Stating above that “just these issues” need to be resolved was a sarcastic comment highlighting the difficulty in getting agreement? Virtually all open issues from six years ago remain open today.

The bureaucratic weights on the shoulders of Article 6 are almost too burdensome to be borne. The next few days must witness Solomon-like wisdom on the part of delegates to the COP to make difficult decisions affecting economic and environmental winners and losers. Hopefully, compromise is in someone’s vocabulary.

No one is sure of the outcomes, but failure to reach an agreement assures one outcome, and all residents of planet earth and their progeny are losers when action to thwart climate change is delayed or hobbled.

We would like to give thanks to John Palmisano, the head of climate & risk at Changeblock for writing this article on COP26. For more articles like this, follow our Medium page.

[1] https://www.ieta.org/resources/COP26/IETA-Views-and-Priorities-for-Article-6-(2021).pdf

[2] Article 6 of the Paris Agreement allows for the use of co-operative approaches, such as internationally transferred mitigation outcomes (ITMOs), to increase ambition and promote sustainable development. https://www.pembina.org/pub/internationally-transferred-mitigation-outcomes

[3] https://enb.iisd.org/Glasgow-Climate-Change-Conference-COP26-daily-report-1Nov2021?utm_medium=email&utm_campaign=ENB%20Update%20-%202%20November%202021&utm_content=ENB%20Update%20-%202%20November%202021+CID_d6ff0e6b811e886bb25703dac5c1d8fe&utm_source=cm&utm_term=Read%20full%20daily%20report

[4] Ibid