1. Andrei Marcu, Senior Fellow ICTSD, Director ERCST
A. Marcu
December 13, 2017 | Bangkok
Article 6 of Paris Agreement – what does it mean for Asia
Andrei Marcu, Senior Fellow ICTSD, Director ERCST

2. Article 6 – how does it profile
Articles 6.2 & 6.4 provide the opportunity for cooperation through transfers of mitigation outcomes (e.g. credits and allowances)
Articles 6.2 & 6.4 are the key “market” parts of Art 6
Their profile will have strong influence to the degree they will be used & for what purpose
Art 6.2 & 6.4 can play an important role to meet NDCs and that using international cooperation. It can
Mitigate competitive issues
Ensure liquidity
Lower compliance costs
Participate in regional cooperation & integration
Provide a window & a voice in a strategic commodity

3. Article 6: Should it be used ?
Currently carbon pricing and carbon cost is nota significant international competitive issue
Climate change, expressed in its most visible way through carbon markets, is likely to become a much more significant factor through
Increased level of ambition - new NDCs
Carbon neutrality by the 2nd half of the century (PA)

4. Article 6: How can Art 6 be used?
Art 6 can be used in a number of ways:
Art 6.2: Linking national ETS regionally through Article 6.2
Art 6.2: Linking national ETS, or a regional ETS, to other regional or national markets e.g. EU ETS
Art 6.2: bilateral/multilateral cooperation initiated and executed national
e.g. JCM
Art 6.2: multilateral through international institutions; e.g. GGGI, ADB, WB
Art 6.4: international credits through UN crediting mechanism
Art 6.4:achive UN recognition of an international crediting mechanism

5. Article 6 : usable and used ?
Art 6.2 and Art 6.4 were meant to provide alternative governance
Art 6.4: Multilateral
Art 6.2: Non multilateral
Scope of art 6.2 & Art 6.4 should also be different
Art 6.2 provides for all types of cooperation – crediting project based, REDD+, linking ETS, etc. – no
Art 6.4 provides for creation and transfer of mitigation outcomes
Will Art 6.2 and 6.4 be used ? What will determine level of usage
Need – demand/supply balance(i.e. prices/costs/competitive pressures)
Ease of use
Level of interference in internal CC policies

6. Article 6 : usable and used ?
11/15/201811/15/2018
Sector
Indicator
2008
2010
2012
2013
2014
2015
Ceramic Tiles
Indirect costs (€/m2)
0,04
0,03
0,02
0,01
% of production costs
0,7%
0,5%
0,3%
0,1%
0,2%
N/A
Bricks and roof tiles
1,03
0,64
0,35
0,21
0,28
0,38
1,2%
0,9%
0,4%
Refineries
Indirect costs (€/ton)
0,77
0,49
0,29
0,16
0,22
% of energy component
31,2%
20,3%
11,6%
6,4%
9,1%
11,8%
Steel - BOF
7,34
2,94
1,5
0,93
1,16
2,58
2,6%
Steel -EAF
9,77
5,78
3,08
1,86
2,42
3,09
1,8%
0,8%
1,0%
Primary Aluminium
245,67
152,49
78,09
46,19
61,38
80,23
14,0%
9,0%
3,6%
2,4%
3,3%
Downstream and recylcers
6,11
4,05
2,01
1,48
1,96
ERCST/ICTSD

7. Potential outcomes for Article 6.2
Scenario 1
Bilateral governance
Accounting guidance multilateral to avoid double counting
ITMOs qualitative issues; international guidance
All transparency issues addressed under Article 13
Quality of mitigation outcomes a Party-to-Party agreement
ITMOs denominated only in CO2e
in any metrics Parties want

8. Potential outcomes for Article 6.2
Scenario 2
Bilateral governance but not very……
Accounting guidance multilateral to avoid double counting
International guidance for quality of ITMOs: international evaluation/appraisal/opinion of NDC/mitigation outcomes
Transparency guidance for quality of ITMOs as an additional layer on Art 13
Potential peer review of quality
ITMOs in CO2e only: implies potential involvement in CO2 quantification
NDCs to be quantified in CO2e budgets: implies potential involvement in CO2 quantification
Extreme outcome: UN body overseeing Art 6.2 regulation

9. Potential outcomes for Article 6.4
Multilateral governance – but more balanced than CDM
Secondary market behaviour same as ITMOs in Art 6.2
Multiple windows
CDM+
Validation of other protocols ?
Additionality – as complex and capricious as CDM ?
No big surprises – only level of complexity to be determined
Overall mitigation can create problems, may deter use
Will it really have competition from Art 6.2 or will Art 6.2 be as complex?
Inside/outside NDC another unknown that can influence level of usage

10. Article 6.2 : usable?
Art 6.4 is unlikely to become more complicated and demanding from a regulatory point of view than the CDM. Possible, but unlikely. In the end, it comes from someone’s account unless it can be created outside NDCs
Art 6.2 was meant as an alternative. Use will be limited by:
Limitation in scope
Interference in NDC
Interference in quality of mitigation outcomes
Complexity of regulation
Ability to judge quality of ITMOs

11. Carbon Markets – challenges ahead
Capacity to develop and operate markets
Carbon pricing will make industries less competitive unless applied by trade partners
Ability to put in place measures to manage the socio economic impact of carbon pricing
Capacity to understand a multitude of new carbon trading/pricing schemes emerging
Market not deep and liquid enough to operate independently
Reluctance to trade until impact of NDCs is well understood
Clarity emerging from the PA rules & progress
Not being left outside emerging “carbon clubs” which may have trade implications
Economic benefits
- Increased efficiency of de carbonization
- Better use of regional resources. Given carbon neutrality by the 2nd half of this century forestry, through REDD+ can become a major resource for the region.
- Increase in investment in Asia for carbon related assets. Redirect international carbon flows in areas that they may not traditionally have gone
- Help facilitate economic integration. Given the increasing importance of carbon-related issues a carbon market can be expected to facilitate integration, development of FTA and participation in international trade negotiations.
- Help avoid carbon leakage and competitive concerns.
- Technology transfer and diffusion