· 8 min read
Introduction
Article 6 of the Paris Agreement permits the treaty’s Parties to voluntarily cooperate to achieve the emission reduction targets set out in their Nationally Determined Contributions (NDCs) under Article 4(2). It is also the only portion of the Paris Agreement that can facilitate direct involvement of the business and private investment sectors in implementable activities under the treaty. In recent years, the carbon dioxide removal community, which focuses on approaches to combat climate change that remove carbon dioxide from the atmosphere, has expressed hope that this provision can help jump-start the industry. This article will focus on the prospects for Article 6 mechanisms to achieve this purpose.
Overview of Article 6 provisions and pertinent to carbon dioxide removal
In the broadest sense, the purpose of Article 6 of the Paris Agreement is to facilitate voluntary cooperation between Parties to help them implement treaty commitments. Several of Article 6’s provisions are structured to provide a framework for transferring greenhouse gas reduction credits from one Party to another.
Article 6.2 of Paris enables Parties to establish bilateral or multilateral cooperative agreements to effectuate the trading of emissions reductions. It is a decentralized, country-led approach that accords States a great deal of independence in the design of such deals. The emission reduction credits are denominated as “internationally transferred mitigation outcomes,” or ITMOs. For example, in January of 2024, Switzerland’s Klik Foundation purchased 1916 ITMOs from a Thai-based company engaged in the electrification of Bangkok’s private bus system. The Swiss government ultimately contemplates applying these ITMOs toward its nationally determined contributions under Article 4(2) of Paris. There are an estimated 140 government-to-government Article 6 deals in the advanced planning stage or underway.
Article 6.4 establishes a framework for a centralized international carbon market also known as the Paris Agreement Crediting Mechanism. The mechanism is overseen by a Supervisory Body, established by the Parties to the Paris Agreement under Decision 3/CMA.3 in 2021. The Supervisory Body is comprised of 12 members representing Parties to the Agreement.
The Supervisory Body is charged with establishing standards and oversight for the validation, verification and issuance of so-called A6.4ER credits for public or private projects that achieve emissions mitigation. An Article 6.4 emission reduction credit is measured in carbon dioxide equivalent and is equal to one ton of carbon dioxide equivalent. There have been more than 700 notifications of carbon credit activities under Article 6.4 to date.
It’s been projected that the mechanisms under Article 6 could reduce the abatement costs of meeting Paris climate targets by $250 billion, and nearly double the emission reduction ambitions of the Parties. Moreover, these provisions could facilitate substantial financial flows to developing countries, which may create ancillary sustainability benefits.
However, one of the most contentious issues faced by the Parties to the Paris Agreement in recent years has been how to operationalize the provisions of Article 6, especially Articles 6.2 and 6.4. At the recently concluded COP29 in Baku, Azerbaijan, the Parties focused on implementing Article 6.4.
In October of last year, the Article 6(4) Supervisory Body adopted two standards to facilitate implementation of Article 6(4): Application of the requirements of Chapter V.B (Methodologies) for the development and assessment of Article 6.4 mechanism methodologies (Methodologies Standard) and Standard: Requirements for activities involving removals under the Article 6.4 mechanism (Removals Standards). Both of these standards, especially, the latter, are pertinent to the potential trading of carbon dioxide removal ITMOS.
The Methodologies Standard sets forth an array of requirements for development of Article 6.4 mechanism methodologies and their assessment to facilitate “creditable emission reductions or removals…” Methodologies establish critical parameters for certification of projects or activities, including considerations such as system boundaries, formulas for calculations of emissions reductions or removals, and environmental safeguards. This includes an emphasis on approaches that enhance mitigation ambition over time, a focus on ensuring transparency and robustness in mechanism methodologies, as well as detailed standards to ensure project additionality and avoidance of emissions leakage.
Most pertinent in the context of carbon dioxide removal approaches, the Removals Standard focuses on “[a]nthropogenic removals as the withdrawal of greenhouse gases (GHGs) from the atmosphere as a result of deliberate human activities,” including “carbon dioxide removal as anthropogenic activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products.” The Standard calls for “robust and statistically representative” sources for monitoring data, “calculated in a conservative manner.”
In the context of carbon dioxide removal approaches, one primary concern is the potential for “reversals,” i.e., the re-release of stored carbon into the atmosphere, which can negate mitigation benefits. The Removals Standard adopted by the Supervisory Body outlines an extensive set of rules to address this risk, especially for nature-based options. These provisions include risk-rating tools, remediation rules, and the establishment of a Reversal Risk Buffer Pool Account to ensure system integrity. There is also an emphasis on avoidance of potential adverse environmental and social impacts. This includes provisions to protect the interests of indigenous peoples and to recognize the role of human rights in protecting vulnerable populations. These protections are to be facilitated by application of a sustainable development tool, activity standards and life cycle procedures for removal projects, as well as an appeal and grievance procedure.
At COP29, the Parties to the Paris Agreement noted the adoption of the two standards by the Article 6.4 Supervisory Body, and the COP29 Presidency announced the full operationalization of Article 6. It also called on the SB to “expeditiously” develop and implement these standards and to report on progress in its annual report to the Parties.
Will Article 6.4 help bolster the carbon dioxide removal sector?
The U.S. National Academy of Sciences has projected that we may need to remove a whopping ten gigatons of carbon dioxide annually from the atmosphere by 2050, and up to 20 billion per year by 2100, to hold temperatures to 1.5 degrees C by 2100. This would require scaling up the CDR industry by a factor of more than 1000 to even meet 2050 targets. However, there is currently an extremely limited numbers of corporate purchasers of carbon dioxide removal , and purchases have been trending downward recently. Thus, there is increasing concern that carbon removal demand in the next few decades may be far below what’s required to meet the temperature objectives of the Paris Agreement. Some commentators have speculated that the standing up of Article 6 might now help to drive demand for carbon dioxide removal. Conversely, in the longer term, there is a concern that there may be a shortage of durable carbon removal, absent adequate private and public market signals over the next decade. In theory, demand driven by Article 6 agreements could provide a powerful market signal for CDR. However, the role of Article 6 in addressing these concerns may prove to be chimerical, at least in the shorter term.
The development of Article 6 standards and methodologies may give a slight reputational boost to CDR purchases in the voluntary carbon market (VCM) because issuers of CDR credits in the VCM are likely to embrace the standards set forth by Paris’s Article 6.4 Supervisory Body. As such, “responsible corporates can buy and retire those credits, safe in the knowledge that they’re retiring the most highly-regulated carbon credits around.”
However, the primary constraint on corporate purchases of durable carbon dioxide removal remains cost, and the development of Article 6 markets isn’t really going to change the reality that other projects, such as many in the renewable energy sector, will remain far cheaper. This probably ensures the predominance of renewable energy projects for the immediate to intermediate future in Article 6 markets.
Moreover, approval of carbon dioxide removal methodologies by the Article 6.4 Supervisory Committee is not likely to be a high priority compared to other kinds of mitigation projects. A member of the Article 6.4 Supervisory Body concluded recently that carbon removal methodologies may not be approved for years.
Finally, it should be emphasized that the performance of the predecessor to the market-based mechanisms of Article 6, the Kyoto Protocol’s “flexible mechanisms,” proved extremely disappointing in terms of generating substantial demand for mitigation credits. As the World Bank recently reported, low demand “blighted” the Kyoto Protocol’s market-focused provisions, denuding incentives for project development and emissions trading. It is unclear if market conditions have changed in any substantive ways in the interim that will produce a different result in terms of Article 6 mechanisms. Moreover, the imminent (re)withdrawal of the United States from the Paris Agreement by the incoming Trump administration may prove to be yet another headwind, as it may result in a diminution in the demand for carbon credits.
Overall, while compliance markets such as the Paris Agreement may ultimately prove critical for driving scale-up of carbon dioxide removal, recent Article 6 developments are likely to only have a modest impact on the sector. In the shorter term, perhaps the most salutary aspect of incorporation of removals into Article 6 mechanisms may be to legitimate this approach as a climate response mechanism and to bolster carbon removal in voluntary carbon markets.
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