Article 6 Paris Agreement: Talks Continue At Bonn Climate Change Conference

The 60th sessions of the United Nations Framework Convention on Climate Change Subsidiary Body for Implementation and Subsidiary Body for Scientific and Technological Advice from 3 to 13 June 2024 in Bonn, Germany (the “Bonn Climate Change Conference”) will be the focal point for continuing negotiations on Article 6 of the Paris Agreement. While it appears divergent views persist on market mechanisms under Articles 6.2 and 6.4, negotiations on non-market based mechanisms under Article 6.8 are likely to take centre stage in Bonn.

Article 6.8 of the Paris Agreement

Despite being the least explored pillar of Article 6, Article 6.8 is gaining attention for its potential to drive significant international cooperation in strengthening the global response to the threat of climate change.

The concept of “non-market approaches” (“NMAs”) emerged in 2010 during the 16th session of the Conference of the Parties (“COP”) to the United Nations Framework Convention on Climate Change (“UNFCCC”) in Cancun.1 NMAs were proposed as a comprehensive method to integrate adaptation and mitigation efforts while addressing sustainable development and poverty concerns.2

Subsequent to the 21st session of the COP in Paris, NMAs gained recognition under Article 6.8 of the Paris Agreement, alongside with Articles 6.2 and 6.4 (market-based approaches). Article 6.8 of the Paris Agreement offers avenues for Parties to cooperate in implementing their nationally determined contributions (“NDCs”), including with respect to mitigation, adaptation, finance, technology transfer, and capacity building.3

The recently released schedule4 for the Bonn Climate Change Conference underscores the relevance of Article 6.8 negotiations. Some likely topics of discussion at the two dedicated sessions are touched upon below.

Debt-for-climate swaps and climate finance

Debt-for-climate swaps have emerged as a topic in relation to Article 6.8 negotiations, as a tool to help vulnerable countries access more affordable financing to address their climate risks and actively mitigate them through an alignment of public financing with climate goals.5

Debt-for-climate swaps are financial agreements designed to restructure countries’ debt burdens to produce savings or free up funds that will be redeployed and invested directly in climate change adaptation and mitigation projects. These swaps are designed to ensure that highly indebted countries can channel the funds obtained from this form of debt relief into projects which address the climate challenges that country is facing without accumulating more debt or undermining their credit rating. Essentially, under debt-for-climate swaps, countries negotiate new agreements with multilateral or bilateral partners on better terms and reallocate the savings from those better terms to fund investments that directly address climate issues at the local level.

There are several recent examples of these initiatives. For instance, on 17 November 2023, the World Bank Board of Directors approved a $350 million loan for Uruguay where the interest rate payments are reduced if the livestock sector decreases its methane gas emissions, surpassing those outlined in Uruguay’s NDC for greenhouse reduction by an additional 1%.6 On 9 May 2023, a consortium of international organisations, led by Oceans Finance Company, facilitated a $656 million loan to Ecuador aimed at protecting the wildlife and habitats of the Galapagos islands in what became the world’s largest debt-for-climate swap.7 Discussions have now surfaced on the potential of Article 6.8 to enhance this type of financing.8

NMA web-based platform

Following decisions made during the 26th session of the COP in Glasgow and the 27th session of the COP in Sharm El-Sheikh, it was agreed that Article 6.8 would manifest as an online capacity building platform: “a UNFCCC web-based platform for recording and exchanging information on NMAs, including information identified through the work programme, and supporting the identification of opportunities for participating Parties to identify, develop and implement NMAs”.9

The subsequent 28th session of the COP in Dubai saw ongoing efforts to establish the specifics of this platform,10 with debates arising over whether the guidance should outline NMAs, including carbon pricing measures.11 Parties drafted a decision text for Article 6.8, focusing on finalising the web-based platform for recording NMAs and facilitating shared experiences in implementation.12 This will be further discussed in Bonn.

Articles 6.2 and 6.4 of the Paris

During the 28th session of the COP, while consensus was reached on the texts concerning NMAs under Article 6.8, disagreements persisted regarding the carbon market mechanisms outlined in Article 6.2 and Article 6.4.13

Article 6.2 of the Paris Agreement provides a framework for countries that are Parties to the Paris Agreement to enter into agreements to facilitate the transfer of one country’s greenhouse gas emissions reductions to another country seeking to use those reductions to achieve their NDCs via “Internationally Transferred Mitigation Outcomes” (“ITMOs”). During the 28th session of the COP, concerns were raised regarding the definition, timing, content, registration, reliability, verification, additionality, revision and revocation of ITMOs. These concerns led to postponing further discussion to the Bonn Climate Change Conference.14

Article 6.4 of the Paris Agreement provides a framework for a multilateral carbon credit market that would be overseen by a body designated by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement. The oversight body is referred to as the “Supervisory Body”. During the 28th session of the COP, disagreements arose concerning the eligibility of emission avoidance projects, social and environmental safeguards associated with projects, methodologies, and authorisation procedures. Disagreement also centred on the linking of registries for ITMOs under Article 6.2 and carbon credits under Article 6.4, often referred to as “Article 6.4ERs”. The rejection of the final presidency text further complicates matters, and even though negotiations are set to resume in Bonn in June 2024 and at the 29th session of the COP in Baku in November 2024,15 from the agenda for the Bonn conference, there is currently no dedicated session to carbon market approaches.16

As stakeholders scrutinise the quality of projects generating tradable units, the memorandum of understanding on international transfer of industrial carbon removals between the Swedish and Swiss Governments announced at the 28th session of the COP17 underscores the importance of ensuring robust mechanisms under Articles 6.2 and 6.4.

Looking ahead, 2024 will be pivotal for market approaches under Article 6.18 The 29th session of the COP in Baku will provide an opportunity for Parties to finalise further guidance related to Article 6, which may be important for raising global mitigation ambition and ensuring environmental integrity across the Paris Agreement’s carbon markets.