Thoughts on Article 6, Coal and China-US Joint Declaration from COP26

By Qi Qi, Predoctoral Research Fellow, The Fletcher School

It is a great privilege to attend COP26 with the Climate Policy Lab of the Fletcher School as an observer to witness the difficult process that nations with diverse conditions and interests work together for a consensus on the critical details in our fight against climate crisis. On the afternoon of the planned closure of the conference, parties were still expressing concerns particularly about the text on adaptation finance, loss and damage, coal and fossil fuel subsidies as well as the rulebook for Article 6 in the Paris agreement. The conference concluded with compromises, but at least keeping the 1.5-degree goal alive though “at weak pulse”. While COP26 is a step in the right direction, real collaborative actions over the next decade will determine our chance to avoid climate catastrophe.

One of the crucial wins of the Glasgow package is the finalization of the rules for the cooperative approaches under Article 6 six years on from its inception under the Paris Agreement. Operational global carbon markets enabled by these rules can help close the ambition and financial gaps, lowering the marginal cost and incentivizing private sector investments for countries to achieve and exceed their NDCs. However, great potential of markets cannot be realized without well-designed rules. Restrictive rules will be contradictory to the bottom-up approach of the Paris Agreement, thus discouraging linkages between national carbon markets and broad market participation. On the other hand, lax rules will induce dilution of NDCs, leading us further away from the 1.5-degree goal.

The requirement of corresponding adjustment under both 6.2 and 6.4 for all internationally transferred mitigation outcomes (ITMOs) authorized for use toward NDCs helps assure integrity in the market accounting system. For the next step, scrutiny will be required to ensure quality of the infrastructure to be set up for recording and reporting ITMOs of different countries. Disappointments have been expressed about the low cancellation rate for each credit traded under the new international carbon market proposed by Article 6.4, and the fact  emission reductions and removals traded under Article 6.2 are completely exempt from mandatory partial cancellation, both of which may increase the risk of carbon offsetting. Another contentious point was on how to use the proceeds of carbon trading. Countries agreed to channel 5% of proceeds from new credits issued under Article 6.4 emissions into an "adaptation fund" for developing countries, while there is no such requirement for exchanges under Article 6.2.

While rules for Article 6 may look more technical and complex in nature, what I see is how provisions under Article 6 are deeply entwined with provisions under other articles of the Paris Agreement, all of which depend on a stronger political will of all parties to cooperate for our common destiny. The rulebook of Article 6 may be further improved to narrow down potential loopholes. However, the incentive for a country to participate in any form of carbon market will still very much depend on the strength of its own NDC, its country-specific cost of emission reductions and financial resources available to its clean energy transition, which is particularly true for poorer countries.

 Among the compromises made in the final deal of COP26, media attention was overwhelmingly on the last-minute change proposed by India and backed by China and some other developing countries on the phasing down instead of phasing out of unabated coal power. Several countries, including small island states, were deeply disappointed by this change. It is understandable that without a proven alternative model of development in sight and given the urgent need of poverty eradication and stable electricity access, agreeing to the “phasing out of coal” is more likely to be an empty promise for a country like India. Even for China, who is determined for a sooner carbon peak and carbon neutrality targets and have issued multiple policies over the past few months to coordinate efforts by different economic sectors and government agencies for the reduction of reliance on coal, the recent power crisis still left China with little choice but to increase coal consumption in the short term to meet power demand.

“The incentive for a country to participate in any form of carbon market will still very much depend on the strength of its own NDC, its country-specific cost of emission reductions and financial resources available to its clean energy transition.”

Despite these realities, there have been positive signs for the world’s commitment to steer away from coal. During the first week of COP26, more than 40 countries, including some major coal-using economies, agreed to phase out coal for electricity generation by 2030s or 2040s. South Africa, whose energy mix is dominated by coal-fired power (about 80% in 2020), also plans to speed up the transition away from coal with a $8.5 billion funding jointly pledged by the United States, Britain, France, Germany and the European Union. I hope this multilateral effort could work out successfully and serve as a template for other developing nations’ effort to shift away from coal. On the part of China, amid the recent power shortages, Chinese leaders warned against a “one-size-fits-all” approach taken by some local provincial governments to cut off power for meeting carbon-reduction targets. However, since coal is deeply embedded in China's energy system and its economy, more multilateral cooperation and exchanges of expertise will be needed to assist China in efforts to embark on a not easy but sustainable roadmap for coal phaseout.

Last, I want to mention the surprise announcement of China-U.S. declaration on climate two days before the closing of COP26. Though surprising to the world, as China’s climate envoy Xie Zhenhua disclosed at the press conference, this cooperative initiative had been developed in more than 30 meetings over the last 10 months. The world’s two biggest emitters agreed in the declaration to take joint actions on a range of issues including methane emissions, the transition to clean energy, and de-carbonization. While the content of the announcement has been seen by experts as symbolic but not sufficient, the emphasis of the two countries on “respective accelerated actions in the critical decade of the 2020s” in the declaration truly reflects urgency for such kind of exemplary bilateral cooperation. For most signatories to the Paris Agreement, their NDCs commit to a 2030 emissions reduction target. How much each country achieves over the next 10 years will very much determine the range of temperature rise we can expect in a longer term. I want to conclude with the comment of John Kerry, the US climate envoy, at the press conference for the joint declaration - The US and China "have no shortage of differences, but on climate, co-operation is the only way to get this job done".