Demystifying Article 6 of the Paris Agreement (with fun GIFs)
--
Learn how Article 6 of the Paris climate agreement will shape international carbon markets and raise the standards & confidence for the voluntary carbon market.
A revamped rulebook
The wild west of carbon credits might be coming to an end — and that’s not a bad thing.
Article 6 of the Paris climate agreement is a playbook for the international carbon market. Since 2015 this article has been a point of contention because it needs to solve some gnarly problems found in carbon credits: additionality, double counting, leakage, and permanence. The structure and writing of this article is one of those things that needs to be done right to have a positive impact.
Article 6 is meant to help guide countries in creating guidelines for cooperation in counting and exchanging carbon credits between countries.It provides an accounting framework internationally and offers the potential to structure those markets and increase trust in carbon trading as a whole.
It does not impose any requirements on the voluntary carbon market (where CarbonABLE operates). So why should we care?
Speaking to Greenbiz, Renat Heuberger, CEO of South Pole, said:
“This is the rulebook we’ve been waiting for. It creates the clarity that we need to really ramp up massive private sector investments into projects that really cut emissions at a big scale.”¹
The lack of regulation in the voluntary carbon market (VCM) is not a permanent thing. Eventually governments are going to catch up and set regulations for the VCM. It’s helpful for those working in the VCM to have roadmaps like the Article 6 to forecast how regulation will change their markets in the future.
Actors on the VCM who are mindful of regulations have a good adaptation strategy to follow if they want to develop what will be the future of premium carbon credits.
Two challenges: double counting and additionality
Article 6 covers intricate trading and accounting situations. But there are two interesting issues addressed that are frequent weaknesses in carbon credits: double counting and additionality.
Double counting
Double counting would occur if credits issued in Costa Rica were sold to and counted as compensation for a company in France AND still counted by a company in Costa Rica. This actually has the potential to increase global emissions rather than reduce them. For this reason, the accounting rules linked to Article 6 are very strict about avoiding double counting.
Premium carbon credit agencies (like Gold Standard or Wildsense) are already implementing similar regulations in their trading to avoid double-counting on the VCM.
Additionality
Additionality is the assurance that a project leads to emission reductions that would not have otherwise occurred. Article 6 includes provisions to address additionality. If carbon credit agencies on the VCM are inspired by Article 6, they will take action to better conduct additionality studies prior to financing a carbon credit project.
Article 6 for voluntary carbon markets
In an email to Greenbiz, Heuberger said:
“Article 6 is great for voluntary markets because it generally supports international cooperation and carbon credits, a key financial instrument. So I hope that Article 6 helps the markets to gain even more credibility.” ²
Easing the difficulty and transparency of investing in cross-border carbon credit projects might have a positive impact on private sector investment and engagement globally. This could increase investment in developing countries, because of the increased reliability and confidence. Overall, this is the type of political action that can be a force for good in the race to reduce and remove carbon emissions from the atmosphere and counteract global climate change.
Our methods of additionality and double counting at CarbonABLE adhere to the accounting guidelines set out by Article 6 . We are dedicated to improving the VCM by trading only the highest quality carbon credits. And this has a payout for our NFT holders: a higher quality carbon credit brings a higher yield on their NFT.
Sources
(1)https://www.greenbiz.com/article/what-passage-article-6-means-carbon-markets(2)https://www.wri.org/insights/what-you-need-know-about-article-6-paris-agreement
