On 13 November 2021, the Paris Agreement Article 6 Rulebook was finally approved, after intensive negotiations over the course of COP26, not to mention several years of prior talks.
The resolution of Article 6 at COP 26 was critical. Six years on from its inception under the Paris Agreement, the rules for its implementation had still not been finalised. There had been a number of attempts over the years, but with many points still unresolved, it became important that negotiations in Glasgow were successful.
The pressure to finalise the negotiations as the COP drew to a close was apparent, with last minute compromises and concessions unlocking the deadlock and opening the way for success. This development is very much welcomed by the international community, with the UNFCCC noting that agreement on Article 6 “will make the Paris Agreement fully operational” and “will give certainty and predictability to both market and non-market approaches in support of mitigations as well as adaptation”, which are two key pillars of collective climate change action.
The International Emissions Trading Association (IETA) reported on the following compromises having been made on the key political issues at hand:
- “Corresponding adjustments will ensure no double-counting of units in both Article 6.2 and Article 6.4 mechanisms. IETA supports this decision because it assures integrity in the accounting system for the markets and mechanisms advanced in Article 6.
- Certified Emission Reductions produced between 2013–20 may be used against countries’ first Nationally Determined Contributions. While this may not be the most ambitious outcome, it allows the carryover of a limited supply of pre-2020 units. IETA believes this will maintain the flow of finance to developing nations until the new mechanism is up and running.
- To assure an overall mitigation in global emissions from the Article 6.4 mechanism, a 2% discount will be cancelled from issuances from that mechanism. However, this factor was not applied to Article 6.2 market linkages.
- On the Share of Proceeds (SoP) for adaptation, negotiators agreed on a rate of 5% to be taken from issuances in the new Article 6.4 emissions crediting programme, but no fixed rate will apply to Article 6.2 transactions. Instead, countries using Article 6.2 are encouraged to contribute voluntarily to the Adaptation Fund.”
The requirement to make corresponding adjustments in respect of international transfers of emissions reductions was always expected to happen, however it was unclear how far this would go. It is now clear that it extends in two very significant ways:
- To cover the international transfer of emissions reductions/removals that fall outside the host country’s NDC. There was a strong contingent of parties who felt it should only extend to emissions reductions/removals within the NDC, but it was ultimately decided that drawing the line here would weaken the effectiveness of the double-counting rules; and
- To cover emissions reductions/removals which are claimed as carbon credits under a voluntary carbon market scheme once those credits are transferred to a private/public entity located in another country. There was a real dichotomy of opinion on whether this should happen, and what impact it would have on the voluntary carbon market. It remains to be seen how the voluntary market program operators react, although they have of course been hotly anticipating the outcome of the COP.
While Article 6 is expected to positively impact carbon markets, cost-effective emissions reductions and private-sector investment, we will now have to wait to see how national frameworks and carbon markets develop in response.