Article 6 Paris Agreement: expectations for COP25

The Paris Agreement foresees carbon markets as a fundamental tool to reduce greenhouse gas emissions, highlighting it as one of the essential means to meet the goals of controlling the temperature increase to less than 1.5°C and to achieve carbon-neutrality by 2050.

To this end, parties included Article 6 in the Agreement and defined it as an element that opens spaces for cooperation and that, through the transfer of mitigation outcomes (which could take the form of emission reductions, emission allowances, offsets or other types of certificates), will allow countries to reduce emissions more cost-effectively and to balance the global burden of reaching those mitigation levels by mid-century. 

Lower costs, higher ambitions

Article 6 has the potential to reduce the overall cost of implementing Nationally Determined Contributions (NDCs), the emissions reductions that each party to the Agreement has planned. According to the World Bank, climate finance and carbon markets could reduce this cost by $115 billion in 2030 and by $1.9 trillion in 2050, while increasing resource mobilisation, taking into account the experience with the CDM, where each $1 invested in mitigation projects is estimated to have leveraged between $5-10 of private investment in the lowcarbon transition.

An ongoing study by IETA – while estimating lower cost reductions ($350 billion by 2050 and $990 billion by 2100) – emphasises that these would be realised only if the parties apply cooperative approaches under Article 6, making it clear that all countries would achieve more for less if they act together. Similarly, this study indicates that Article 6 has the potential to further reduce 5 economy.

Chile and Article 6

The full functioning of Article 6 could actually accelerate the decarbonisation of Chile's energy matrix and reach Carbon Neutrality by 2050.

The measures that will have the greatest impact on the reduction of greenhouse gas emissions include the gradual elimination of coal-fired power plants (a concrete commitment has recently been adopted between the government and the main energy utilities); an increase in renewable energy production, energy efficiency and electric vehicles; and the electrification of energy-intensive sectors such as mining and cement.

If measures to maintain - or even increase - the absorption capacity of forests add to this strategy, the country would probably become carbon neutral by 2050 or earlier, becoming a world leader in tackling climate change according to scientific levels .

This scenario is not visible without Carbon Pricing: a means deemed indispensable to accelerate this transition; particularly in the energy sector, the country will require carbon pricing tools that lead to mitigation results. Therefore, the ITMOs, the compensations, the emission allowances or other forms of mitigation foreseen by Article 6 are necessary to facilitate an economic transition in Chile.

Article 6 could become an essential pillar for national decarbonisation, since the financial flow deriving from the transfer of certificates with other parties will facilitate investments in those technologies with high mitigation potential, which today are more expensive to implement within the country , such as energy storage, capture and use or storage of carbon, geothermal energy and electrification of transport and industrial processes. Likewise, it could also accelerate the increase in renewable energy, such as solar and wind energy, as well as the definitive closure of coal-fired power plants.

Article 6 in limbo

However, the rules of Article 6 were not adopted at last year's UN talks in Poland (COP24), as the parties needed more time to understand the technical and political implications. The negotiations have come up against several key issues of this article, in particular one that is transversal to the successful implementation of the Paris agreement in general and that is closely linked to the transparency system supported by this agreement: avoid double counting when the results of the mitigation or emission reductions are transferred between the parties towards or beyond the achievement of the NDCs.

Expectations for COP25

The parties must absolutely adopt the provisions of Article 6 at the COP25 of December in Chile. The completion of this last piece of the Paris Climate Agreement would ensure that the agreement is fully implemented from 1 January 2020.

There is a need to allow Article 6 to be used immediately by the countries, leaving some technical problems outstanding for a subsequent work program. The risk of not approving the rules in Santiago is a delay of two or four years in the full operation of the instrument, delaying the start of new efforts pursuant to Article 6.

SOURCE IETA INSIGHTS

Article 6 Paris Agreement: expectations for COP25