COP26: Article 6 talks grind forward as countries seek common ground

Discussions on the rules for international trading of emissions reduction units ground forward at the UN Climate Change Conference in Glasgow, with a cluster of political issues still holding up agreement, ministers said Nov. 10.

Several officials involved in the discussions reported back to a plenary session at the COP26 summit Nov. 10, saying that the negotiations were proceeding in a positive spirit.

The discussions around Article 6 of the Paris Agreement matter for the voluntary carbon market because clarity on the rules is likely to boost demand for carbon credits as countries seek to achieve their emissions reduction targets in a flexible way.

CORSIA-eligible carbon credit prices have increased by 906% this year, with prices assessed at $8.05/mt CO2e at the close Nov. 9, compared with 80 cents/mt CO2 on Jan. 4, 2021, according to S&P Global Platts assessments.

The Article 6 negotiations have been led by Norway's environment minister Espen Barth Eide and his counterpart from Singapore, Grace Fu.

"I am pleased to report back on the Article 6 facilitation. Minister Grace Fu of Singapore and myself have been working now with all Parties over the last days in trying to agree on what are the key issues to be settled politically," Eide said in the plenary session.

Bilateral meetings

Technical discussions on the rules took place in the first week of COP26, running Nov. 1-5, and the talks were passed up to ministerial level in the second week.

In that context, around 15 rounds of bilateral meetings have taken place in a bid to find enough alignment between countries to agree on a common text, Eide said.

"The conversations are taking place in a good spirit. There seemed to be a universal agreement that it would be good to conclude on this COP before six o'clock on Friday. So we are working with that plan," said Eide.

"The key issues that we are now dealing with are adaptation finance in Articles 6.2 and 6.4 or Share of Proceeds. It's on accounting for units generated outside of the scope of NDCs [Nationally Determined Contributions] or so-called Corresponding Adjustments, and the use of pre-2020 units against NDCs – or so-called carryover."

The Share of Proceeds refers to a proposed percentage tariff on trading emissions reductions that will create funding for the poorest countries to adapt to climate change. A higher tariff suggests a higher level of funding could be achieved but would also reduce margins for emissions trading deals between companies or governments.

Corresponding adjustments relate to the suggestion that a country transferring emissions reductions abroad would need to make an upward adjustment to its domestic emissions tally to avoid both countries claiming the reduction.

The so-called carryover of pre-2020 emissions involves the possible use of older carbon credits from the UN's Clean Development Mechanism into the Paris Agreement. Any recognition of CDM credits could increase supply in the market, presenting a bearish element for carbon credit prices in general.

"Everyone seems to agree that those are the three key themes that require political agreement. We're not done; we will continue to work, but I want to report back -- and I want to thank everyone involved -- that there seems to be a spirit of looking for solutions," Eide said in the plenary session.

Article 6 is the one element of the Paris Agreement that has remained unresolved in the six years since the historic agreement in France in 2015.

If countries are not able to resolve political issues linked to Article 6, this section could be removed from any final agreed text, to avoid it derailing the wider COP26 outcome, according to some observers.

However, "punting" Article 6 for another year would be seen as a major failure of the two-week summit, a source close to the negotiations said on the sidelines of COP26.

COP26 President Alok Sharma said he hoped the issues could be resolved this week.

"We have all shifted gear this week as we seek to accelerate the pace. And I still have the intention for us to be able to close COP26 at the end of Friday," Sharma said in the plenary session Nov. 10.