This article was originally written for the Wuppertal Institute's Carbon Mechanism Review. Below is a condensed version of the original piece, which you can read here.
Article 6 unlocks a multitude of opportunities for countries to work together and enhance ambition for climate action under the Paris Agreement. It builds on the lessons learned from the flexibility mechanisms of the Kyoto Protocol (CDM, JI, IET), and provides unique pathways for the private sector to directly engage in the achievement of targets set under Paris. Since the adoption of the Paris Agreement in 2016, Article 6 negotiators at the UNFCCC have faced tremendous pressure to design an Article 6 rulebook that will create the most environmentally robust and cost-effective outcomes. Their job is not an easy one: Article 6 has three distinct components and many different interpretations and suggestions for its effective design.
South Pole's response to the challenge facing Article 6 negotiators is to show how these policy concepts could be applied in a real world policy setting. This is why we have teamed up with the Climate Cent Foundation and the Swedish Energy Agency to develop two Article 6 pilots in Thailand and Colombia respectively. With these pilots we aim to formulate learnings, best practices and incubate ideas that can help inform the framework design and implementation. Our Climate Policy and Carbon Pricing practice collaborates with governments, partner organisations and businesses to deliver innovative climate projects. Through our work on Article 6 we firmly believe that capturing the perspectives of the private sector, including investors, operators and project developers, is vital to designing the operational framework that will help us achieve the targets of the Paris Agreement.
The Swedish Energy Agency (SEA) gave South Pole a mandate to begin exploring opportunities for the implementation of Virtual Pilots under the framework of Article of 6 in early 2018. This was in order to provide SEA with real-world options for mitigation pilot activities or "virtual pilots" that would produce internationally transferred mitigation outcomes (ITMO) or other bilateral investment activities that may fall under Article 6 of the Paris Agreement. The idea of developing virtual pilots was to explore, with real examples, the activities that host countries and buyers must develop in order to carry out the emission transactions successfully.
South Pole began the project discussing Colombia's sustainable development priorities and activities for this NDC period with the Colombian Ministry of Environment to ensure that the virtual pilots were aligned with their interests and that we had full understanding of the specific in-country challenges of implementing Article 6. The energy and agriculture sectors have consistently been Colombia's largest GHG emitters and offer scope for sustainable development gains. Therefore, the 2 projects were designed to find emission reductions in these sectors:
Switzerland has announced its intention to make extensive use of Article 6 of the Paris Agreement; between 2021 to 2030, an average 10% of Swiss GHG emissions are to be offset abroad. The details will be specified by the Swiss CO2 Law, but this decision follows a long precedent of the country using foreign credits under the Paris predecessor's Kyoto Protocol to help meet its climate targets. This is because it has few remaining cheap abatement options given its virtually fossil-free power sector.
Through an agreement with the Climate Cent Foundation, Switzerland has committed at least CHF 20 million to funding pilot activities that investigate and implement opportunities under Article 6 of the Paris Agreement. The SHIFT Project was selected by Climate Cent Foundation following a call for pilot project proposals in late 2017. The SHIFT project is a pilot between Switzerland and Thailand to pilot an Electric Vehicle (EV) Fleet. South Pole was tasked with delivering the overall project activity design document (PA-DD).
The main objectives of the SHIFT project are:
The mitigation potential from the transport sector according to the "Thailand's Nationally Determined Contribution Roadmap on Mitigation 2021-2030" is 41 MtCO2e: 31 MtCO2e will come from efficiency improvement and modal shift initiatives and 10 MtCO2e from the use of biofuels for transport. Electric vehicles are an emerging technology that provide an important link with the power system when coupled with variable renewables such as solar PV or wind. EVs also help drive down levels of air pollution in dense urban areas such as Bangkok.
A first stakeholder consultation was organised in early August 2019, bringing together 55 private sector representatives (EV manufacturers, fleet owners, charge point operators, among others). The stakeholder consultation confirmed to us that:
South Pole is now moving ahead to engage with potential implementation partners. Together with the Thai Government we are diving deeper into the design of the SHIFT pilot activity and identifying activities that could be part of the project. Further meetings between Thai and Swiss Government Departments are planned to continue conversations on the proposed design of the activity under Article 6.2, how to scale-up the SHIFT project and to identify further bilateral topics the two governments should consider cooperating under Article 6 of the Paris Agreement.
Article 6 provides the foundation for the Paris Agreement to be stronger in terms of climate ambition and enhancing the involvement of the private sector. The Colombian and Thai Article 6 pilots described in this article have shown it is vital the Article 6 Rulebook solves: NDC achievement risk, institutional frameworks between both buyer and host country, and corresponding adjustment governance arrangements. We are in strong agreement with others urging for clarity on the Article 6 rulebook: this is crucial for engagement. To redirect the flow of global finance into climate activities the private sector also must clearly understand the opportunities open to them. When corporates fully understand how they can use this fast-growing mechanism for international cooperation to source public finance and partners for projects that add business value, significant gains will be made towards achieving the emission reduction goals set out by national governments under the Paris Agreement.
Want to know more about the outcomes and lessons learnt from these pilot projects? Get in touch with our Climate Policy and Carbon Pricing Team.
Are you interested in how the Article 6 negotiations are developing? Find South Pole at the COP where we are discussing these topics and much more!