The Role of Carbon Markets & Article 6 in Tackling Climate Change

Rohit Garg is a well-known energy and climate change expert with 10+ years of experience in developing climate change mitigation projects. In a recent conversation with Industry Outlook, Rohit shared his insights on various aspects pertaining to carbon markets and Article 6 in the context of the rapid environmental changes happening today.

Tell us about Article 6 and other key trends that will significantly shape the future of sustainability.

As the world faces the climate crisis, governments are considering a range of solutions and actions to reduce their emissions in line with the Paris Agreement. Article 6 is a clause in the Paris Agreement that sets the rules for carbon markets, governing international cooperation between countries to meet their emission reduction targets. It provides a framework whereby one country that requires financing for climate solutions is able to credibly and transparently cooperate with another country that is seeking to achieve more cost-effective emission reductions. A great example of Article 6 in practice is the Bangkok E-Bus Program, which involved the Swiss and Thai governments collaborating to finance decarbonizing the Bangkok transport system. India is also looking at Article 6 opportunities through negotiations with South Korea, Singapore, and Japan. The government recently published a list of emission reduction activities it is considering to facilitate the adoption of emerging technologies and mobilize international financing in India.

The international Voluntary Carbon Market (VCM) is helping to pave the way for compliance markets, such as the one under Article 6. Governments who are looking to develop compliance markets will naturally look to the VCM for guidance, especially at VCM standards and registry bodies. While Article 6 will create new opportunities, the VCM today still presents significant opportunities for the private sector companies wanting to contribute to global emission reduction by purchasing carbon credits or for those with the assets or funds to develop projects.

Suggest a few strategies to maintain the integrity and effectiveness of the carbon market.

Carbon markets are constantly evolving to adapt to learning new technologies and improving best practices. An integral part of ensuring the integrity and effectiveness of both Article 6 markets and the VCM is avoiding double counting of emission reductions and ensuring additionality by proving that emission reductions would not have occurred without the project. To prevent the risk of double counting, Article 6 established a mechanism known as a ‘corresponding adjustment.’ For instance, the Thai-Swiss agreement through which the ITMOs (Internationally Transferred Mitigation Outcomes) transferred from one country to another (Thailand to Switzerland) will go towards reducing Switzerland’ emissions balance and help to meet its emission reduction target under the Paris Agreement. Thailand correspondingly has to increase its emissions balance by the same quantity, thereby avoiding double counting.

Double counting and additionality are just two of the many considerations for carbon project quality. It is a complex topic, and the conversation is moving quickly, especially as different countries weigh in with their criteria to support domestic carbon schemes. The industry continues to adapt, with new frameworks such as the Integrity Council for Voluntary Carbon Markets’ Core Carbon Principles and the Voluntary Carbon Markets Integrity Initiative’s Claims Code of Practice launched earlier this year. This shared understanding is crucial in providing more predictability on the expectations regarding the rules governing the voluntary carbon market and more confidence to clients and buyers.

How will Article 6 implementation impact international collaboration and emission reduction strategies among participating countries?

Article 6 is set to play a crucial role in reducing global emissions. This type of climate action can become a powerful unifier, forging new bilateral agreements between governments and effectively mobilizing the private sector to deploy low-carbon technology at the pace and scale required. It also increases ambition and impact by making emission reductions cheaper. Countries are able to leverage the VCM to help finance reductions in parts of their economies, especially hard-to-abate industries such as manufacturing, mining, minerals and many others, which desperately need technological innovations in order to shift towards net zero emissions and clean energy. Countries like Sri Lanka and Pakistan, which are facing financial crises, will also benefit from funding through the private sector for new projects and technologies for VCM or Article 6 transactions.

What is the role of private sector companies in supporting and engaging with the carbon market?

At present, progress on climate policy is time-consuming, and country pledges are not yet enough to effectively mitigate the impacts of climate change. For this reason, private sector leadership and action are very much essential. Tools available to the private sector, such as the VCM, can help address gaps in early national climate regulation. Also, private companies can fund projects that are critical for tackling global emissions, protecting biodiversity and supporting communities – projects that otherwise would not receive funding. Support for VCM projects also ensures the ongoing development of frameworks, organizations and technologies that will be critical infrastructure for future carbon markets that evolve under Article 6. In addition, engaging in carbon markets not only prepares them with knowledge and skills for future compliance markets they may be subject to, but it also supports their decarbonization activities. Studies have shown that companies that buy carbon credits decarbonize faster.