I am grateful to have had the opportunity to speak with Alex Hanafi to gain insight into the ongoing conversations around Article 6 of the Paris Climate Agreement. We discussed two of the overarching market mechanisms being negotiated and why there is still hope in Paris’s capabilities even if a rulebook for Article 6 cannot be finalized at the next Conference of the Parties (COP) in November 2021.

Alex is the Director for Multilateral Climate Strategy and Lead Counsel at the Environmental Defense Fund and has engaged in many past international climate change negotiations.

What you need to know about Article 6 is that it is the carbon market section of the Paris Climate Agreement, even though you will not find that term used. As Alex articulated, “Words matter in negotiations. Which is why ‘markets’ is not used. There were a few countries who are politically or ideologically opposed to the word ‘markets.’ One example is Bolivia. Markets are in the Paris agreement, but the words are not.”

As Alex described it, “There are three groups: 1. Groups that want market-based tools for countries to use voluntarily. 2. Countries that are ambivalent. 3. Countries opposed to market-based tools in agreement and wanted to focus on non-market-based approaches.” What Article 6 has been able to do is appeal to all groups by having a platter of options that allowed agreement by Parties. Non-market mechanism are also included in Article 6.8, but we focused our conversation around Article’s 6.2 and 6.4.

Article 6.2 is the voluntary cooperation portion which gives freedom for countries to act bilaterally or multilaterally in setting up the two major forms of carbon markets: emissions trading systems (ETS) or offsetting projects. There is nothing in 6.2 that prevents countries from cooperating with each other right now. Finalizing 6.2 just solidifies the responsibilities which will fall more on the countries themselves. It will be up to them to act consistently with those agreements, with or without 6.2.

The advantage of 6.2 is that it can occur without the rulebook finalized. “Cooperative climate actions (voluntary cooperation i.e. carbon markets), can exist without centralization (UN run mechanisms and UN consensus). They can be more nimble and develop faster.” Said Alex.

Unlike with 6.2, for countries to use Article 6.4 an agreement does need to be met at the next COP. 6.4 is the centralized mechanism for carbon markets under Paris. Centralization means that countries cannot do anything until there is a UN body established for reporting and verification and a framework established for consistency and transparency. The centralized mechanism in 6.4 will be the biggest opportunity loss for international carbon markets if the Article 6 rulebook isn’t agreed upon. Those who hope to rely on a centralized system, primarily small developing countries with limited resources and capacity, will lose out.

Despite the frustrations around continued negotiations of Article 6, hope should not be lost that the Paris Agreement will be held up by decisions or lack thereof in Article 6. Alex emphasized, “Paris goes on whether Article 6 gets agreed upon or not. Countries have committed to Nationally Determined Contributions (NDCs). Article 6 is a tool in the toolbox to meet their NDCs. They are still obligated to meet NDCs in whatever way they can. Article 6 could simply be a driver of ambition, because it can help them go faster and further than doing it alone.” In other words, it would benefit all parties to Paris to come together in agreement on the opportunities for carbon markets in Article 6. However, we should not expect the system to fall apart even if Article 6 is not hashed out.

The Paris Climate Agreement may not be able to deploy as rapidly without all the mechanisms finalized from Article 6, but it will continue to be the backbone of global climate action for the next few decades.