Article 6 of the Paris Agreement

Piloting for Enhanced Readiness

,

• Publisher: Asian Development Bank
• Year: 2018
• Print ISBN: 9789292614102
• eBook ISBN: 9789292614119
• Topic: Biological Sciences
• Subtopic: Environmental Economics
• Index: Biological Sciences

This publication outlines the rationale for and benefits of piloting activities for Article 6 of the Paris Agreement. It emphasizes the need for testing alternate approaches and sharing of experiences. Article 6 provides for voluntary international cooperation that may facilitate the use of market-based approaches to help countries achieve their nationally determined contributions and enable greater gains. Pilot activities in developing member countries of the Asian Development Bank can help Asia and the Pacific develop capacity, readiness, and awareness on using Article 6 and participating in international carbon markets.

1. The Paris Agreement and Nationally Determined Contributions

1.1 Introduction

The Asian Development Bank aims to contribute to the development of a framework for the operationalization of Article 6 of the Paris Agreement through this knowledge product. The objective is to assess and illustrate how pilot activities under Article 6 can benefit the future implementation of cooperative approaches, the new mechanism for mitigation and sustainable development, and help countries, through learning by doing, to prepare for the operationalization of post-2020 markets (or market mechanisms under Article 6 of the Paris Agreement).

This knowledge product provides an overview of the Paris Agreement and its ambition raising (ratcheting up) process, presents the basics of Article 6 and its role in the Paris Agreement. It then explores how pilot activities will benefit future implementation of upscaled mitigation activities under Article 6 and provide insights for negotiators tasked with the elaboration of the details of Article 6 as part of the Paris Agreement Rulebook and subsequent work programs under the United Nations Framework Convention on Climate Change (UNFCCC).

1.2 The Paris Agreement

In December 2015, at the 21st Conference of Parties (COP21) to the UNFCCC, Parties to the UNFCCC adopted the Paris Agreement, a global framework to tackle climate change.¹ Through the Paris Agreement, all Parties acknowledged the need to contribute to achieving ambitious and collective goals to fight climate change.² The Paris Agreement is the result of almost a decade of negotiations under the UNFCCC. A formal mandate was adopted in Durban in 2011 to “develop a protocol, another legal instrument or an agreed outcome with legal force under the Convention applicable to all Parties.”³

The Paris Agreement entered rapidly into force on 4 November 2016, within a year from its adoption in December 2015. This represents an unprecedented accomplishment for an international environmental agreement and marks a unique experience for UN treaties.⁴ It reinforces the renewed global commitment to addressing climate change and acknowledges the importance countries place on an international framework.

The mitigation goals of the Paris Agreement are set out in Article 2, to hold the increase in global average temperature to well below 2 degrees Celsius (°C) above pre-industrial levels and to pursue efforts to limit it to 1.5°C; and Article 4, to reach a balance between anthropogenic emissions by sources and removals of sinks of greenhouse gases (GHG) in the second half of the century, sometimes referred to as net zero emissions or carbon neutrality. The Paris Agreement also aims to increase Parties’ ability to adapt to the adverse impacts of climate change, foster climate resilience and low GHG emissions development, and make finance flows consistent with a pathway toward low GHG emissions and climate-resilient development.

1.3 Nationally Determined Contributions

In anticipation of reaching an agreement at COP21, Parties were invited to communicate their post-2020 climate change mitigation targets and commitments ahead of the conference through intended national determined contributions (INDCs).

This represented significant progress, as more than 190 developed and developing countries submitted emission reduction and adaptation commitments in the form of INDCs during 2015.⁵ For most countries, INDCs define GHG emission reduction targets in the energy, industry, agriculture, waste, land use and forestry, and transport sectors for 2020–2030, but the sectoral focus and time frames vary from country to country.⁶

When countries formally ratify the Paris Agreement,⁷ their INDCs are converted into their nationally determined contributions (NDC), unless the Party expressly states otherwise.⁸ As of October 2018, 177 NDCs have been submitted.⁹

The bottom–up characteristics of the NDCs, which reflect each country’s national circumstances and capabilities, may become a key strength of the Paris Agreement, as they respect national autonomy and thus may increase participation.¹⁰ Almost 80% of the Parties have presented a GHG-reduction target, and 25% of the Parties have also put forward a non-GHG target. Non-GHG targets include renewable energy targets, energy efficiency targets, and forestry targets.¹¹

Some NDCs list specific actions and/or policies rather than quantified targets. A small number of countries (small-island developing states and least developed countries), submitted policies and actions only. Most of the NDCs submitted (87%) also contain adaptation components, although this is not required by the Paris Agreement.¹² Most of the (I)NDCs (about 80%) include a conditional element, representing the mitigation potential that could be realized with international financial and technical support. ¹³

In Asia and the Pacific, many DMCs (68%) have indicated mitigation contributions in terms of GHG emission reductions. More than half of the INDCs indicated key measures on agriculture and natural resources, energy, and transport. About 76% of INDCs have indicated adaptation targets or measures, while only 42% have specified estimates on financing needs for the implementation of the INDCs. More than half of the DMC’s INDCs (55%) have provided combined conditional and unconditional targets.¹⁴

The combined national pledges made by the parties are unlikely to achieve the goals of the Paris Agreement. The UN Environment Emissions Gap Report estimates the gap between the emissions reductions needed to achieve the Paris Agreement targets, and the likely emissions reductions that will result from the implementation of the Parties’ NDCs.¹⁵ The report clearly shows that more ambitious NDCs are needed by 2020 to close the 2030 emissions gap. If fully implemented, NDCs will achieve only one-third of the emission reductions necessary by 2030 to meet the Paris Agreement goals, and the current pledges make a temperature increase of at least 3ºC by 2100 very likely.¹⁶ This highlights the absolute necessity for parties to increase their ambitions.

However, this does not imply that the NDCs, if fulfilled, will not make a difference. They represent significant potential for progress in that business-as-usual emissions would lead to a 4°C–5°C increase by 2100, while the current INDC emission reduction pledges would limit temperature rise to 2.7°C–3.7°C by 2100. The current commitments are enough to bend the curve of emissions growth but will not reverse it.¹⁷

1.4 The Ambition Cycle

The Paris Agreement contains provisions for Parties to submit updated NDCs in 2020. This system is referred to as the “ambition mechanism.”¹⁸ The global stocktake, which is a collective assessment of efforts so far, starting in 2023 and occurring every 5 years (Article 4.9), is another key element in the ambition mechanism. The “Talanoa Dialogue,” a facilitative dialogue launched at COP 23, has started the process, serving unofficially as the first global stocktake in which Parties assess their progress toward the achievement of the NDCs (Decision 1/CP.21, paragraph 20).¹⁹

There is also accountability built into the Paris Agreement at the Party level. Parties shall account for their NDCs and regularly provide information that helps to track individual progress toward achieving NDCs, as well as collective progress toward achieving the Paris Agreement’s purpose and goals. The information reported will undergo a technical expert review.

Reaching the NDCs and increasing the level of ambition after each global stocktake are critical for the credibility and the success of the Paris Agreement. To keep the Paris Agreement’s goals within reach, it is necessary for countries to enhance the ambition of their mitigation pledges by 2020. This is where Article 6 plays an important role.

1.5 Overview of International Cooperation in the Nationally Determined Contributions

1.5.1 Why Nationally Determined Contributions Include International Cooperation and Mechanisms

International market-based cooperation is key for promoting the cost-effectiveness and flexibility of mitigation action. The strong support for the use of international cooperation among Parties indicates that they believe it can bring many benefits.²⁰ The report, State and Trends of Carbon Pricing, states that by using international cooperation through carbon markets, the global cost of delivering the emission reductions identified in the current NDCs can be reduced by about 30% by 2030 and more than 50% by 2050. ²¹

International collaboration will make it easier for Parties to meet their current NDCs and allow them to consider increasing their level of ambition. Therefore, Article 6, as the section of the Paris Agreement that deals specifically with international cooperation, is a crucial toolbox to achieve cost-efficient emission reductions, and to deepen ambition levels.

There are also other potential benefits that are expected to emerge from Parties using international cooperation, and specifically carbon markets under Article 6.2 and Article 6.4. International cooperation through markets can generate carbon revenues for host countries as well as technology transfer, and deliver significant sustainable development (environmental and socioeconomic) co-benefits, for example, by reducing emissions of air pollutants such as sulfur oxides and nitrogen oxides and providing jobs. Such co-benefits would reduce transboundary environmental stresses and improve the economic and social systems between the Parties involved.²² Collaboration can also lead to the discovery of technology-specific mitigation costs, which provides a solid basis for target setting in the revision of NDCs, and facilitate regional economic integration, given the increasing importance of carbon-related issues. Several of these benefits were also present for the Kyoto Protocol mechanisms and we expect to see them continue in post-2020 markets.

A major difference with the use of market approaches under Article 6 is that all Parties, not least host countries, will be able to use Article 6 strategically to attract additional finance streams to achieve and enhance their NDCs. This means that the political commitment for participation in international cooperative approaches will potentially be stronger. It also means, in particular under Article 6.2, that mitigation activities could be tailored specifically to national needs and circumstances. This may impact on the design and type of mitigation activities that are pursued, for example, in terms of sector, country, or size.

There may also be more subtle differences that occur as Parties try to learn from the past and improve on certain aspects of previous market approaches. For example, there is an expectation that sustainable development will be more of a focus and that, as a minimum, there will be requirements to monitor and report on the sustainable development impacts of mitigation actions. The push for upscaled mitigation action may also result in more programmatic and sectoral mitigation actions and less of the project-by-project approach.

The linking of domestic carbon markets could also provide many benefits for Parties, including contributing to reducing the cost of reaching NDCs and incentivizing an increase in ambition.²³ The linking of carbon markets should enable the aggregate caps to be achieved at a lower cost, since the cheapest abatement actions would be carried out irrespective of the system in which they fall. This reduces compliance costs for participants.

Linking also enhances regional or international cooperation on climate change mitigation and by leveling carbon prices, helps to address competition and carbon leakage impacts between the systems (but not with regions outside the systems). Linking carbon markets should also increase liquidity, improve price discovery, and reduce volatility. This would be particularly beneficial to countries that are unlikely to have enough liquidity in their own market. Linking is also expected to increase efficiency, through a more diverse system, with greater abatement options.

1.5.2 Who Will Use Market Mechanisms

A total of 103 Parties have communicated in their NDCs that they are considering using market mechanisms under Article 6 to meet their targets. While most of these Parties are prospective sellers of units, at least a dozen countries are potential buyers that will rel...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Tables, Figure, and Boxes
• Foreword
• Preface
• Acknowledgments
• Abbreviations
• Executive Summary
• 1. The Paris Agreement and Nationally Determined Contributions
• 2. Rationale of Doing Pilot Activities
• 3. Pilot Activities in Asia and the Pacific
• References
• Footnotes
• Back Cover