Decoding Article 6 of the Paris Agreement Version II

More than 2 decades ago, the public debate focused largely on how to design a single global market for trading carbon units as the key instrument for addressing global climate change. The argument emphasized that since 1 ton of a greenhouse gas emitted anywhere in the world has the same climate change consequences for everyone, a single global market would be an economically desirable outcome, equalizing incentives to reduce emissions everywhere. Today, this late-1990s dream of a top-down global design seems far away, if not impossible. Instead, we see a multiplicity of regional, national, and even subnational markets emerging.

This trend of multiplicity and fragmentation is reflected in the bottom-up architecture of the Paris Agreement. The decentralized approach under Article 6.2 offers countries flexibility and a choice in their approach. While such an approach opens for innovation and national adaptation of carbon market instruments, the lack of a centralized approach and harmonized standards for monitoring, reporting, and verification means that comparability could be difficult to attain.

The emerging complexity is also reflected in the ongoing Article 6 negotiations. The continuing struggle to come to an agreement over guidance and rules for Article 6 has created uncertainty over when the rules for international carbon markets under the Paris Agreement will be set, and what the implications for participants will be.

At the same time, since many elements in the Paris Agreement are new, it should not be surprising that the process will take time. The Kyoto Protocol was established in 1997, yet it took 4 years to agree on the detailed rules for carbon market mechanisms, and these mechanisms were further developed and tested well in advance of the start of first commitment period of the Kyoto Protocol in 2008. In this perspective, seeing Article 6 mechanisms in operation within 10 years from the adoption of the Paris Agreement is perhaps realistic.

Article 6 of the Paris Agreement provides for developing and using mechanisms designed by countries or using the Article 6.4 mechanism that is subject to centralized oversight by the United Nations Framework Convention on Climate Change (UNFCCC). The latter is likely to be attractive for countries with limited capacity or will to develop and design mechanisms on their own, or those that prefer to have an UN-quality stamp on the mitigation outcomes achieved.

Report Cover