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Climate Change Conference in Katowice

Market mechanisms outcomes from COP 24

(Photo: ENB/Kiara Worth)
(Photo: ENB/Kiara Worth)

December 2018 – In its Article 6, the Paris Agreement contains various cooperative approaches which Parties can use to raise climate ambition – for example to reduce emissions. The cooperative approaches addressed below must thus be seen in conjunction with countries’ nationally determined contributions (NDCs) and demonstrate how they raise climate policy ambition in those NDCs. The environmental integrity of the new mechanisms, avoidance of double counting of emissions certificates and increased national contributions should all be verifiable on the basis of robust accounting and transparency rules. Article 6 is closely linked, among other things, to Articles 4 and 13.

Outcomes from Katowice

For the market mechanisms, a robust framework for use in implementing the double counting ban was created in that market transactions are to be depicted by means of corresponding adjustments under the transparency rules and in NDC accounting. This means that the robust accounting for market mechanisms which the EU has been calling for the past decade or so has finally become an integral component of the Paris Agreement rule book. This was achieved thanks to a broad alliance of developing and industrialised countries to which the US was party at a technical level. The embittered resistance put up by Brazil was only overcome thanks to last-minute interventions at the highest level. 

This meant that the associated detailed rules for market mechanisms under Article 6 of the Paris Agreement could not be finalised, although promising draft texts with great consensus potential have been prepared. The negotiations will continue on the basis of the texts agreed in Katowice and should, if possible, be finalised at the next COP in Chile.

Rules on cooperative approaches under Article 6.2

The cooperative approaches contained in Article 6.2 offer Parties self-determined ways to cooperate in achieving emission reductions without the need for an international supervisory body to oversee the mitigation activities. There is thus a need to establish a system of reliable rules which should be agreed in the form of guidance. 

Outcome from Katowice

Article 6 merely refers to approaches which involve the transfer of jointly-achieved emission reductions for the purpose of meeting NDC goals. The environmental integrity of these approaches must be ensured. The transferred emission reductions must be comparable as a result. This is problematical given the differing contents of countries’ NDCs (e.g. emission targets versus energy efficiency/renewable energy expansion goals, comparison of differing target years and target periods (say between point targets such as those in the EU’s NDC), and budget targets like the ones New Zealand and Switzerland have set). 

In addition, transferred emission reductions must not undermine the transferring Party’s nationally determined contribution. The mitigation activities must also support sustainable development. Implementation of overall mitigation using market mechanisms is to be solved by policy means.

Rules and processes for the mechanism under Article 6.4

The Paris Agreement’s Article 6.4 allows the introduction of a mechanism under UNFCCC supervision. This is a similar approach to the Kyoto Protocol’s CDM, although under Article 6.4, focus is placed on the design of a new market mechanism.

Outcome from Katowice

The mechanism should not only enable implementation of individual projects and programmes, but also more complex emission reduction schemes. It will thus be important to establish a link to host countries’ national policies in order to demonstrate where use of Article 6.4 raises national ambition. This is why many Parties have stated in their NDCs that they can only achieve certain goals with the help of market mechanisms. What this means is that, prior to using Article 6.4, host countries must know if they are willing to transfer emission certificates to another country or want to use a portion of the certificates to achieve their own NDC goals. For this reason, robust accounting rules and the avoidance of double counting of emission certificates are an absolute must. The inclusion of avoidance of deforestation in the mechanism under Article 6.4, as implicitly preferred by many industrialised countries, has so far been rejected by Brazil as counterproductive because it creates legalised incentives for what is currently illegal deforestation. By way of contrast, there appears to be general agreement regarding the inclusion of increased carbon sequestration although, both on this issue and on that of avoided deforestation, the draft text calls for offsetting measures to compensate for sequestered carbon emissions that are released or leaked back into the atmosphere.      

Work programme within the framework for non-market-based approaches (Paris Agreement Article 6.8)

Article 6.8 aims at new cooperative approaches, but does not enable the transfer of emission reductions or emissions certificates.

Outcome from Katowice

One of the challenges faced in the negotiations is to ensure that there is no duplication of activities that have already become institutionalised under the international climate change regime. Promotion of dual structures and processes, and the associated dual finance sources, must be ruled out. For this reason, a work programme is to be developed for Article 6.8 under which the initial task will be to evaluate suitable new measures.