The years leading up to COP26 has seen a strengthening of global climate ambition, but also a growing urgency for decisive action. Key to achieving this is the implementation of the Paris Agreement and the finalization of rules, modalities, and procedures pertaining to Article 6.
What is Article 6 and it’s Market Mechanism
Article 6 of the Paris Agreement permits voluntary cooperation between Parties through cooperative approaches that involve the transfer of mitigation outcomes, a market mechanism for mitigation, and non-market approaches for mitigation, adaptation, and sustainable development. The market mechanism under Article 6.4 has become a critical issue in ongoing climate negotiations. It permits the transfer of emissions mitigation units between countries.
Clean Development Mechanism
One of the outstanding issues has been the finalization of the market mechanism under Article 6.4 and the potential carry-over of the Clean Development Mechanism (CDM) to the Paris Agreement. The CDM was one of the three market mechanisms provided by the Kyoto Protocol to enable Annex B countries to offset their domestic emissions through the transfer of emissions mitigation units between countries.
Deadlock due to transaction between CDM to Article 6.4
The possible transition of CDM activities, credits, methodologies for setting baselines and monitoring emissions, and infrastructure and institutional arrangements to the Article 6.4 mechanism has become part of ongoing climate negotiations, particularly with regard to the large quantities of unutilized Certified Emission Reductions (CERs) in emerging economies.
Statistics on CER’s price
Deadlock of 3.91 Billion CER’s
Many developed as well as developing countries have clearly voiced their opposition to allowing the utilisation of carried over pre2020 CERs towards the attainment of NDCs.
Concerns and Limitations in the Transition of Pre-2020 CERs to Post-2020 Climate Actions
The transition of CERs remains contentious, with concerns raised about the environmental integrity of mitigation actions and the double counting of emission reductions.
Pre-2020 CERs face opposition towards their use in NDCs, limiting potential demand
Sources outside of Paris Agreement have limited capacity to absorb pre-2020 units
Without additional sources of demand, pre-2020 units are unlikely to find buyers
Vintage restrictions on CER eligibility in CORSIA pilot phase limit its potential as a source of demand for CERs
Many developed and developing countries oppose the use of carried-over pre-2020 CERs for NDCs
Some propose limited CERs transition with restrictions on eligibility, but these may undermine investor confidence in UNFCCC market mechanisms if fair compensation is not offered to CDM activity developers.