What does the COP26 outcome on Article 6 mean for non-Party stakeholders?

It’s been a long road for Article 6, but after years of negotiations, COP26 delivered guidance on how to fully implement and operationalize the Paris Agreement’s provisions on carbon markets.

These crucial developments in Glasgow on Article 6, and what it means for non-Party stakeholders and the voluntary carbon market, are detailed in the latest C2ES paper.

As a member of the Chilean Presidency team at COP25, I felt pressure to make progress on this issue in Madrid in 2019, but despite four years of negotiation following adoption of the Paris Agreement, technical complexities and political sensitivities meant no agreement. Then COVID hit. The pandemic further underlined that collaboration is the only way we are going to solve the global and interlinked crises humanity faces.

Two years later, the international community woke up with a new level of awareness and honesty. Nature (the virus) was tragically useful to us. Because regardless of countless reports, meetings, summits, sit-ins and protests, we have not been listening to nature. COVID was a wake up call.

Another has been the increasing frequency and severity of climate impacts. It was against this backdrop that the world came together in Glasgow to tackle the existential threat of our time. And the pressure to deliver was great. One of the results was reflected in a finalized Paris Agreement rulebook at COP26 that included the implementing guidance for Article 6. The C2ES team worked hard to support and bring about that outcome, but it really has been a collective effort of all negotiators, government representatives and civil society involved in the process.

What does the COP26 outcome regarding Article 6 mean for non-Party stakeholders, that is, civil society intended as businesses, NGOs, academia and other stakeholders that are not signatory countries or Parties to the Paris Agreement? In particular, how does Article 6 link to the voluntary carbon market (VCM), intended as the private-led, non-centralized market unregulated by jurisdictions or international institutions that has evolved over the last 15 years or so, as a complement to the Kyoto Protocol’s Clean Development Mechanism?

The answer is, Article 6 rules developed in Glasgow are relevant to non-Party stakeholders and do have implications for the VCM. Not only does Article 6 create a framework for countries to trade to achieve their Nationally Determined Contributions (NDCs), including by using market mechanisms to create incentives for other stakeholders to reduce their greenhouse gas emissions or finance reductions elsewhere; it now also explicitly allows Parties to authorize the use of emissions reductions in the voluntary carbon market. By allowing Parties to choose whether or not to authorize emissions reductions in the VCM, the new guidance provides clarity on two pathways for non-Party stakeholders to engage: either by funding emissions reductions that contribute to the host country’s fulfillment of its NDC (i.e., without authorization and a corresponding adjustment), or by funding additional emissions reductions that achieve abatement over and above a country’s NDC (with authorization and a corresponding adjustment).

Indeed, Article 6 of the Paris Agreement is arguably the most important and useful article for non-Party stakeholders to participate in its long term goals. That is, keep the planet’s temperature at safe levels for people and nature to thrive, increase adaptation capacity to the adverse impacts of climate change, and provide finance for low greenhouse gas and climate resilient development. But let’s take a step back.

Carbon markets exist with the premise that we share one atmosphere, a common gaseous carbon reservoir, so it does not matter where in the world a ton of carbon is avoided, reduced or removed, as long as it is really done. The magic of the market is that, if well designed, it allows for demand (needs) and supply (solutions) to meet faster and more efficiently because anyone can participate, provided they follow the rules. The result is finance flowing effectively to greenhouse gas mitigation projects at the lowest cost for society, taking into account all economic, environmental and social factors, as it should.

When the Paris Agreement was born, Parties were required to set and put in place policies to try to achieve their NDCs, targets representing national efforts to reduce greenhouse gas emissions. But it would be unfeasible for countries to pay for the whole effort on their own from public finance. This is especially true for developing countries. That is part of the reason why a market provision was defined in Article 6. Article 6 allows Parties to cooperate among themselves by trading mitigation efforts as quantifiable greenhouse gas emission reductions. The goal is to accelerate the pace and diminish the financial burden of a just transition toward a net-zero future.

Now that Article 6 rules are established, what is the business case for good world citizenship, that is, for Parties and non-Party stakeholders to contribute to the long term goals of the Paris Agreement? As we point to international carbon markets in the Article 6 and VCM space, C2ES’s role moving forward is to highlight the importance of ensuring those markets are high quality, environmentally and socially speaking, and to make the best use of our involvement in the Integrity Council for the Voluntary Carbon Market (but this may be the object of another blog).

“Leaders must lead, but all of us can do our part”, said Antonio Guterres, commenting at the IPCC Sixth Assessment Working Group III report release on April 4, adding that “we need to create a grassroots movement that cannot be ignored” to make things happen on the ground to limit temperature rise to 1.5 degrees C at the end of the century.

How do leaders build grassroots support and spur high quality solutions to climate change mitigation? The answer may elucidate why Article 6 has gotten special attention among the 29 articles that comprise the Paris Agreement, why it has fascinated many, and why it has the seeds to become, along with a high integrity VCM, a powerful, complementary tool for moving toward stabilizing world temperatures and mitigating climate change impacts.