Parties to the United Nations Framework Convention on Climate Change (UNFCCC) will meet in Madrid, Spain, in December 2019 to finalize the rule book for the Paris Agreement, among other tasks. An essential element of discussions concerns Article 6, which provides for international cooperation through carbon markets. This working paper provides an overview of the key remaining issues being negotiated under Article 6; it explains each issue, what Parties disagree on, and what is at stake.
The rules related to Article 6 can have a large impact on the ways in which countries’ climate commitments are achieved and the resulting emissions reductions. Strong rules are needed to ensure that double counting is avoided and that environmental integrity is preserved. With strong rules, Article 6 could also support higher ambition in mitigation and adaptation action. A failure to agree on effective Article 6 rules, in light of the number of countries that signaled the use of carbon markets in their nationally determined contributions (NDCs), will certainly weaken the achievement of Paris Agreement’s goals and compromise its ambition.
We find that the way in which each of the remaining issues is resolved will have important implications that affect the long-term effectiveness of the Paris Agreement, and on emissions reductions. These issues include:
Double counting: While the Paris Agreement is clear that double counting must be avoided in Article 6, the extent to which double counting is actually avoided depends on the way in which the accounting rules are operationalized. If emissions reductions are double counted, it will potentially result in an increase in global emissions and weaken the already inadequate NDCs.
Additionality: The way in which Article 6 is finalized will dictate whether emissions reductions under Article 6 will be additional to what would have occurred in the Article’s absence. If non-additional reduction units are used, the ambition of the NDCs will be further watered down.
Delivering increased ambition and progression: Article 6 can be designed in a way that supports increased ambition: for example, determining whether subsequent NDCs will be incentivized or disincentivized to increase coverage of GHGs and sectors and the extent to which Article 6 incentivizes enhanced ambition over time and results in an overall mitigation in global emissions. Article 6 can also drive more cost-effective emissions reductions.
Financing for Article 6 activities and adaptation: The agreed rules for Article 6 can either facilitate or hinder the flow of finance available for related activities because investor confidence depends on a credible carbon market. Barriers could introduce market distortion or make participation difficult. In addition, the rules can impact the finance available for adaptation, including through a share of proceeds levied to support the adaptation fund.
Accordingly, agreement on a strong Article 6 rule book can play a significant role in determining the environmental integrity of the Paris Agreement and its NDCs, the ambitiousness of Parties’ current and subsequent NDCs, and the strength of Article 6 in financing and incentivizing further climate action.