Sliced: Article 6.2 – Buckle Up, It’s Showtime

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In late September we wrote an in-depth analysis of Article 6.2 of the Paris Agreement and how it could impact host countries, buyer countries, and carbon credits.

Brief reminder – Article 6.2 sets the stage for a decentralized framework for carbon emissions trading between countries, allowing one country (the “host”) to transfer emission reductions or removals achieved through approved carbon credit projects to another (the “buyer”), helping the buyer meet its emissions reduction goals.

In the seven weeks since publishing that article, there has been a steady flow of activity related to Article 6.2, prompting the need for a brief reevaluation of the topic.

Norway signed two separate memorandums of understanding (MoU) with Indonesia and Senegal, respectively. In both situations, the Global Green Growth Institute (GGGI), via their Designing Article 6 Policy Approaches (DAPA) program, helped facilitate the agreements. DAPA is also assisting Morocco and Vietnam with pilot policy approaches.

Senegal has also been preparing a national legislative package for engagement in Article 6.2 and has signed additional MOUs with Japan and Switzerland. Currently, it has two Article 6.2 projects moving forward.

In Paraguay, President Santiago Peña enacted a carbon credit bill. The new law establishes a carbon credit registry and addresses concerns related to corresponding adjustments for credits sold abroad, preventing double counting of emissions reductions as outlined in Article 6.

Argentina approved the National Strategy for Carbon Market Utilization (ENUMeC) which sets up a framework to encourage the adoption of carbon markets as a key tool, paving the way for potential Article 6.2 implementation.

Zambia, guided by the Ministry of Green Economy and Environment (MGEE), has introduced enhanced guidelines for the efficient approval of government-backed carbon credits trading under Article 6. Since December 2022, MGEE has processed 39 applications for Article 6 carbon credit projects, reviewed 30 of them, released 10 letters of no objections, and issued one approval letter.

The one approval letter is for the Consolidated Farming Kafue Sugar project, focused on generating renewable electricity from sugar bagasse. The project is receiving support from the German government’s SPAR6C program, which also aids stakeholders in Colombia, Pakistan, and Thailand in preparing for carbon transactions under Article 6. Aside from this project, SPAR6C has received 26 project proposals spanning sectors like renewable energy, energy efficiency, waste management, forestry, and agriculture.

And just last week, carbon standard and registry, Gold Standard announced a significant move, designating carbon credits from a Rwandan biomass-fired cookstove project as good-to-go for Article 6 use. The Government of Rwanda issued a Letter of Authorization, marking the first public recognition of Article 6 approval for credits issued to an independent standard. The Rwandan government has pledged to implement a ‘corresponding adjustment,’ indicating that the emission reductions will no longer be considered in fulfilling the country’s obligations in its Nationally Determined Contributions under the Paris Agreement.

Well, that is a lot of action in just seven weeks!

So, what does all of this mean?

First, the effective global collaboration promoted by the Paris Agreement is working. If pursued independently without such collaboration, achieving our global net-zero emissions target by 2050 is an unattainable feat. Just ask Dr. William Nordhaus, champion of “Climate Clubs.”

Second, capable and knowledgeable groups such as the Integrity Council for the Voluntary Carbon Market (ICVCM), the Voluntary Carbon Markets Integrity Initiative (VCMI), GGGI, and the SPAR6C program are available and eager to assist countries requiring expertise and guidance in navigating the complex arenas of the carbon market, project development, and carbon trading – all while safeguarding national goals and interests.

Third, Article 6.2 is steadily becoming a reality. While the UN Article 6.4 Supervisory Body works on refining the global Article 6 carbon market details (anticipated readiness in 2025 or 2026), a coalition of proactive nations, project developers, and financiers are seizing the opportunity and making progress.

As champions of smart climate finance, we welcome all of this activity. Projects generating carbon credits, constructed with integrity by experienced project developers boasting successful track records, approved and traded by well-prepared governments, and supported by market experts with positive intentions, serve as a powerful tool for moving finance, reducing greenhouse gas emissions, strengthening local communities, and restoring and protecting precious ecosystems.

The U.S. Endowment for Forestry and Communities has just announced an RFP for their new Impact Investing Program.

The program seeks to deploy up to $5 million in 2024 for impact investments in companies, funds, or projects that advance systemic, transformative, and sustainable benefits for the health and vitality of working forests and forest-reliant communities in the United States.

Gordian Knot Strategies is supporting the development of the Impact Investing program. We encourage you to read the Endowment’s press release here, review the RFP materials here, and share with your network. This is a great opportunity for companies and project developers seeking capital on reasonable investment terms.

Please note: this is not a grant making endeavor.

There will be an informational webinar about the opportunity in early December; registration information is provided in the RFP materials here.

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