The “rulebook” for the technical and operational aspects of Article 6 of the Paris Agreement, which facilitates countries engaging in projects that reduce greenhouse gas emissions and selling the associated carbon credits to other nations, is expected to be finalised at COP 29 in Baku this November. Potential changes made by such rulebook could have an impact in many areas, including clean cooking projects.

The Paris Agreement, adopted by 196 countries at the 2015 UN Climate Change Conference, is the landmark international treaty that established a global framework for combating climate change. Article 6 of the Paris Agreement, which governs the development and use of carbon markets to incentivise countries to trade carbon credits generated by the reduction or abatement of greenhouse gases (GHG), was designed to enable international collaboration between countries to achieve the national emissions reduction targets that are necessary to limit global warming whilst simultaneously unlocking financial support for developing countries through carbon credit trading.

MECHANICS OF CARBON TRADING

Under Article 6, countries can engage in projects that reduce GHG emissions (such as reforestation or transitioning to renewable energy) and sell the associated carbon credits to other nations. This arrangement helps the host country fund its climate initiatives while allowing the receiving country to meet its climate targets.

Broadly, a company carrying out a government-authorised project to reduce emissions in one country (the host country) can then sell the credits associated with that reduction to a company in another country (the receiving country). That is, the host country receiving investment in, for example, restoration of forests or switching from fossil fuel power generation to renewable sources of power could transfer or sell the excess carbon credits associated with such emissions reduction efforts to the receiving country, which needs such credits to meet its climate targets, thereby raising additional funds for such investments and creating the incentive for the receiving country to help the host country mobilise the financial resources needed for such emissions reduction projects.

FRAMEWORK AND CHALLENGES

While the practical framework for delivery of the principles of Article 6 was adopted at COP 26, held in Glasgow in 2021, the detailed “rulebook” is still under development, with agreement on the technical and operational aspects of the Article 6 rulebook expected to be reached this year at COP 29, scheduled to take place in Baku in November 2024.

For Article 6 to be effective, three key challenges must be addressed: (1) ensuring that emission reductions are not counted twice, i.e., by both the host country and the receiving country; (2) ensuring that emissions reductions are verifiable, reliably measured, and certifiable; and (3) developing an accounting certification body that can manage standards applicable to the voluntary carbon market in a consistent and standardised manner.

KEY TERMS USED IN ARTICLE 6

Set out below is a glossary of the key terminology used in the Article 6 rulebook.

Nationally determined contributions A national climate action plan prepared by each country that is a signatory to the Paris Agreement. It sets out the intended GHG emissions reduction targets/mitigation measures that a nation intends to adopt to address the impact of climate change in their country. Nationally determined contributions (NDCs) must be updated and submitted to the United Nations Framework Convention on Climate Change (UNFCCC) Secretariat every five years.

Mitigation outcomes GHG emissions reductions measured in metric tonnes of carbon dioxide equivalent (t CO2-eq) that count towards the achievement of a country’s NDCs. The term “mitigation outcomes” is used in the Article 6 rulebook to refer to most forms of international carbon credits.

Internationally transferred mitigation outcomes Tradable mitigation outcomes that have been authorised by one country (i.e., the host country) for use to meet another country’s NDCs and/or towards other international mitigation purposes. Internationally transferred mitigation outcomes (ITMOs) must be real, verified, and additional and can be traded bilaterally between countries under the Article 6.2 mechanism or via a centralised mechanism under Article 6.4, overseen by the Article 6.4 Supervisory Body. A corresponding adjustment must be applied on the first transfer of all ITMOs.

Article 6.4 emissions reductions Carbon credits that can be traded under specific conditions set by the Article 6.4 mechanism. Two forms of carbon credits can be registered and exchanged via the Article 6.4 mechanism: (1) mitigation outcome Article 6.4 emissions reductions (A6.4ERs), which are essentially ITMOs but are traded under Article 6.4 and subject to the application of corresponding adjustments, and (2) mitigation contribution A6.4ERs, which are GHG emissions reductions that have not been authorised for use towards achieving nationally determined outcomes and/or for other international mitigation purposes but which may be used for, amongst other things, results-based climate finance, domestic mitigation pricing schemes, or domestic price-based measures for the purpose of contributing to the reduction of emission levels in the host country. A host country is not under any obligation to apply a corresponding adjustment to mitigation contribution A6.4ERs.

Corresponding adjustment A national bookkeeping requirement designed to prevent the double counting of GHG emissions reductions, i.e., to ensure that emission reductions are not counted twice. A corresponding adjustment must be applied on the first transfer of ITMOs traded under the Article 6.2 mechanism or under the Article 6.4 mechanism (corresponding adjustments are not required for transfers of mitigation contribution A6.4ERs). The host country transferring the ITMOs must record a reduction in the emissions reduction balance in its NDC, whilst the country receiving the ITMOs must record an equivalent increase in the emissions reduction balance in its NDC emissions target level.

ARTICLE 6 MECHANISMS

The Article 6 rulebook sets out the mechanical framework for a bilateral market for carbon credits under Article 6.2, a centralised market for carbon credits under Article 6.4, and a voluntary support mechanism under Article 6.8.

Article 6.2 enables the bilateral trading of ITMOs between countries. Subject to the application of corresponding adjustments, a country that is unable to achieve its NDC climate reduction targets can reach agreement with another country or countries whose emissions reductions exceed their NDC climate reduction targets so that that the receiving country can apply the ITMOs towards meeting its own NDC reduction targets. The framework of Article 6.2 gives countries the flexibility to design the specific architecture and rules for implementing the emissions reduction activities/projects to be involved in the generation of mitigation outcomes and the arrangements for the authorisation and transfer of ITMOs, provided that such rules comply with the Article 6.2 guidance, such as the establishment of an international registry to record actions related to ITMOs, issuance of authorisation statements, monitoring and verification of emissions reduction projects, application of corresponding adjustments, and compliance with the UNFCCC reporting requirements.

Article 6.4 establishes a multilateral international carbon crediting mechanism (referred to as the Paris Agreement Crediting Mechanism) for the validation, verification, and issuance of carbon credits. The Paris Agreement Crediting Mechanism will be overseen by the Article 6.4 Supervisory Body, which is tasked with developing and supervising the requirements and processes needed to operationalise the Article 6.4 mechanism, including developing and/or adopting methodologies, registering activities, accrediting third-party verification bodies, and managing the mechanism registry for A6.4ERs. When operational, the Paris Agreement Crediting Mechanism will allow countries/public entities and private sector entities to develop and fund climate mitigation activities that generate A6.4ERs. A6.4ERs traded under the Article 6.4 mechanism may be used not only to comply with emissions reduction obligations but also for results-based climate finance, domestic mitigation pricing schemes, or domestic price-based measures for the purpose of contributing to the reduction of emission levels. 

Article 6.8 supports non-market approaches to climate mitigation, including by facilitating cooperation between public and private sector and civil society organisations through technology transfer, capacity building, or financial assistance.

VOLUNTARY CARBON MARKETS

Unlike Article 6 mechanisms, voluntary markets do not involve any direct government oversight or involvement. As the name suggests, these are voluntary and are governed by private and independent standards. Companies that are unable to achieve their emissions targets can purchase carbon offset credits from clean projects that reduce or remove carbon emissions and are incentivised by reputational or financial benefits. Projects usually sell their carbon credits directly to a specific private entity.

IMPACT OF ARTICLE 6 ON CLEAN COOKING PROJECTS

Clean cooking projects, which aim to reduce emissions from traditional cooking methods in developing countries by replacing cookstoves using dirty sources of cooking fuel, such as firewood, charcoal, and kerosene, with clean cookstoves, can play a significant role in the climate change mitigation landscape given the extent to which such traditional cooking methods are prevalent in developing countries, in particular in Africa. Privately developed clean cooking projects can also generate carbon credits by reducing GHG emissions that would otherwise be emitted in the ordinary course of cooking with dirty fuel sources. These credits are currently traded in the voluntary carbon markets rather than under Article 6.

Through a process of validation, registration, and verification, emissions reductions generated from such clean cooking projects are certified as carbon credits in accordance with a carbon standard, tracked within the registry maintained by that carbon standard, and traded in the voluntary carbon market. The Gold Standard is currently the carbon standard of choice for clean cooking activities.

While these projects currently operate in the voluntary carbon market, it remains to be seen whether such carbon credits will be “nationalised” as emission reduction units that are directly linked to NDCs and thereby become subject to corresponding adjustments to national emissions reduction targets or instead will be treated as emission reduction units, which are not authorised for use towards NDCs and/or for other international mitigation purposes but nevertheless contribute to the reduction of emissions levels, otherwise known as mitigation contributions.

If, as a result of national legislation implementing Article 6, the emissions reductions generated from such projects are legally required to count towards the NDC emissions reduction targets of the countries in which such projects are situated, carbon credits that had previously only traded in the voluntary carbon market will be brought within the scope of Article 6 and become subject to authorisation as ITMOs to be traded under either the Article 6.2 or Article 6.4 mechanisms and, consequently, subject to corresponding adjustments.

In anticipation of such an outcome, the Gold Standard has announced that it is taking steps to introduce new requirements for the tracking of carbon credits that have been authorised by their host country for use as ITMOs, including by modifying its registry to identify when a corresponding adjustment has been applied in respect of such carbon credits. However, because most of the countries where clean cooking projects are prevalent are still in the early stages of developing national legislation to implement Article 6, it remains to be seen whether such host countries will require that corresponding adjustments apply to all carbon credits generated from clean cooking projects in their country or whether carbon credits generated from privately developed clean cooking projects will be considered as mitigation contributions and therefore not require any adjustment.

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