Article 6 of the Paris Agreement and its impact on investments in clean cookstoves – Publications

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June 25, 2024

A “rulebook” for the technical and operational aspects of Article 6 of the Paris Agreement, which allows countries to engage in greenhouse gas emission reduction programs and sell associated carbon credits to other countries, is expected to be finalized at COP 29 in Baku. November. Potential changes made by such a rulebook could impact many areas, including clean cooking programs.

The Paris Agreement, adopted by 196 countries at the 2015 UN Climate Change Conference, is the main international agreement that established a global framework for combating climate change. Article 6 of the Paris Agreement, which governs the development and use of carbon markets to encourage countries to trade carbon credits created through the reduction or reduction of greenhouse gases (GHG), is designed to enable international cooperation between countries to achieve national emission reductions. Essential goals to limit global warming while simultaneously unlocking financial support for developing countries through carbon credit trading.

Dynamics of Carbon Trading

Under Article 6, countries can engage in projects that reduce GHG emissions (such as reforestation or switching to renewable energy) and sell the associated carbon credits to other countries. This arrangement enables the host country to fund its climate initiatives while allowing the receiving country to meet its climate goals.

Broadly, a company that implements a government-approved program to reduce emissions in one country (the host country) can sell the credits associated with those reductions to a company in another country (the receiving country). That is, the receiving country can transfer or sell to the receiving country excess carbon credits associated with efforts to reduce emissions, such as restoring forests or switching from fossil fuel power generation to renewable energy sources. It creates an incentive for the recipient country to use the credits to meet its climate targets, thereby raising additional financing for such investments and helping the host country raise the necessary financial resources for such emission reduction projects.

Framework and Challenges

Although a procedural framework for the delivery of Article 6 principles was adopted at COP 26 in Glasgow in 2021, a comprehensive “rulebook” agreeing on the technical and operational aspects of the Article 6 rulebook is still under development. It was reached this year at COP 29, to be held in Baku in November 2024.

For Article 6 to be effective, three key challenges must be addressed: (1) ensuring that emission reductions are not counted twice, ie, both by the host country and the recipient country; (2) ensuring that emissions reductions are verifiable, reliably measured, and verifiable; and (3) develop an accounting certification system that can administer the standards applicable to the voluntary carbon market in a consistent and standardized manner.

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KEY TERMS USED IN ARTICLE 6

Article 6 A glossary of key terms used in the Regulations is set out below.

Nationally Determined Contributions A National Climate Action Plan prepared by each country that signed the Paris Agreement. It sets the GHG emission reduction targets/mitigation measures that a country wants to take to address the impact of climate change on their country. Nationally Determined Contributions (NDCs) must be updated and submitted to the United Nations Framework Convention on Climate Change (UNFCCC) every five years.

Mitigation results GHG emission reductions are measured in metric tons of carbon dioxide equivalent (t CO2-eq) calculated towards the achievement of a country’s NDCs. The term „mitigation effects” is used in Article 6 of the Code to refer to most forms of international carbon credits.

Internationally modified mitigation decisions Trade mitigation results that one country (ie, the host country) has approved for use in another country’s NDCs and/or for other international mitigation purposes. Internationally Transferred Mitigation Outcomes (ITMOs) must be authentic, verified and complementary and may be traded bilaterally between countries under the Article 6.2 mechanism or through a centralized mechanism under Article 6.4 monitored by the Article 6.4 Oversight Committee. The corresponding adjustment should be applied during the first transfer of all ITMOs.

Article 6.4 Reduction of Emissions Article 6.4 Tradeable carbon credits under specific conditions set by the mechanism. Two types of carbon credits can be recorded and exchanged through the Article 6.4 mechanism: (1) mitigation effect Article 6.4 emission reductions (A6.4ERs), which are essentially ITMOs but are traded under Article 6.4 and subject to the application of related adjustments, and (2) mitigation contribution A6. .4ERs are GHG emission reductions that are not recognized for achieving nationally determined outcomes and/or for use for other international mitigation purposes, but which may be used, inter alia, for decision-based climate. Financial, domestic mitigation pricing schemes or domestic price-based measures aimed at contributing to the reduction of emission levels in the host country. The host country is under no obligation to apply the corresponding adjustment to the mitigation contribution A6.4ERs.

Corresponding adjustment A national account is required designed to prevent double counting of GHG emission reductions, i.e., to ensure that emission reductions are not counted twice. Corresponding adjustments must be applied to the first exchange of ITMOs traded under the Article 6.2 mechanism or under the Article 6.4 mechanism (corresponding adjustments are not required for exchanges of mitigation contribution A6.4ERs). The host country exchanging ITMOs must record a reduction in emission reduction balances at its NDC, while the country receiving ITMOs must record an equivalent increase in emission reduction balances at its NDC emissions target level.

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Article 6 Instructions

Article 6 The rulebook sets out the mechanical framework for a bilateral market for carbon credits under Article 6.2, a centralized market for carbon credits under Article 6.4 and a voluntary support mechanism under Article 6.8.

Article 6.2 Facilitates bilateral trade of ITMOs between countries. Subject to the application of relevant adjustments, a country that cannot achieve its NDC climate reduction targets may reach an agreement with another country or countries whose emission reductions exceed their NDC climate reduction targets. Own NDC reduction targets. The framework of Article 6.2 provides flexibility to design rules for specific framework and implementation of emission reduction measures/projects. Article 6.2 of the Directive establishes an international registry to record activities related to ITMOs, issue accreditation reports, monitor and verify emission reduction plans, apply relevant adjustments and comply with UNFCCC reporting requirements.

Article 6.4 Establishes a multilateral international carbon crediting mechanism (referred to as the Paris Agreement Crediting Mechanism) for the verification, validation and issuance of carbon credits. The Paris Agreement Credit Mechanism will be overseen by an Article 6.4 Oversight Committee, which is tasked with developing and overseeing the requirements and processes necessary to implement the Article 6.4 Mechanism, including developing and/or adopting procedures, recording activities, and third-party verification authorization. bodies, and managing mechanism registry for A6.4ERs. When operational, the Paris Agreement credit mechanism will allow countries/public entities and private sector organizations to develop and finance climate mitigation measures that create A6.4ERs. A6.4ERs traded under the Article 6.4 mechanism may be used not only to comply with emission reduction obligations, but also for results-based climate finance, domestic mitigation pricing schemes or domestic price-based measures for the purpose of contributing to emissions reductions. positions.

Article 6.8 Supports non-market approaches to climate mitigation, including facilitating collaboration between the public and private sector and civil society organizations through technology transfer, capacity building or financial assistance.

Voluntary Carbon Markets

Unlike Article 6 mechanisms, voluntary markets do not involve any direct government oversight or involvement. As the name suggests, these are voluntary and governed by private and independent standards. Companies that cannot meet their emissions targets can buy carbon offset credits from cleaner projects that reduce or eliminate carbon emissions and are motivated by reputational or financial benefits. Projects typically sell their carbon credits directly to a specific private company.

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Impact of Article 6 on Clean Cooking Programs

Clean cooking programs aimed at reducing emissions from traditional cooking methods in developing countries, using cleaner sources of cooking fuel such as wood, charcoal and kerosene, can play a significant role in mitigating climate change landscape. Such traditional cooking methods are prevalent in developing countries, especially in Africa. Privately developed clean cooking programs can generate carbon credits by reducing GHG emissions. These credits are currently traded in voluntary carbon markets and not under Section 6.

Through verification, recording and verification, emission reductions generated from such clean cooking projects are certified as carbon credits according to the carbon standard, tracked in a registry maintained by that carbon standard, and traded in the voluntary carbon market. The Gold Standard is currently the carbon standard for clean cooking operations.

While these programs currently operate in a voluntary carbon market, it remains to be seen whether such carbon credits can be „nationalized” as emission reduction units directly linked to NDCs. Considered as emission reduction units, these are not approved for use for NDCs and/or other international mitigation purposes, but nevertheless contribute to reductions in emission levels, otherwise mitigation contributions.

If, as a result of national legislation implementing Article 6, emissions reductions generated from such projects are legally required to meet the NDC emission reduction targets of the countries where such projects are located, carbon credits previously traded only on a voluntary basis are brought into the scope of the Article 6 carbon market and traded under the Article 6.2 or 6.4 mechanisms as ITMOs. Subject to authorization to do, and consequently, subject to relevant changes.

In anticipation of such a decision, Gold Standard has announced that it is taking steps to introduce new requirements for tracking carbon credits that are recognized by their host country for use as ITMOs. Adjustments are applied in respect of such carbon credits. However, as most countries with clean cooking programs in place are in the early stages of developing national legislation to implement Article 6, it remains to be seen whether appropriate changes will be required for all carbon credits generated from clean cooking. Whether carbon credits generated from cooking programs or privately developed clean cooking programs in their country are considered abatement contributions and therefore require no adjustment.

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