What the operationalisation of Article 6 could mean for Southeast Asia

With key developments taking shape in the global carbon credit trade just a few weeks from COP29, experts say consensus will be crucial to helping Asian nations achieve their national determined contributions.

PH-SG carbon credis
Singapore environment and minister-in-charge of trade relations Grace Fu (left) and Philippine environment secretary Antonia Yulo-Loyzaga (right) sign a memorandum of understanding on 15 August towards a legally binding implementation for cross-border carbon credit transfers. Image: Presidential Communications Office

There is a prospect of breakthrough in the global carbon credit trade at COP29 in Baku, Azerbaijan, with key developments taking shape in one of the most long-standing disputes among climate negotiators less than a month away from the conference.

In a pre-COP meeting in October, the supervisory body responsible for creating the United Nations carbon market under the Paris Agreement adopted mandatory safeguards that are applicable for activities under Article 6 – a section in the treaty which lays out the rules for countries to trade carbon credits to meet their national climate targets. 

The standards include requirements for developing and assessing projects that allow countries to trade reductions in carbon emissions, as well as projects that remove greenhouse gases from the atmosphere under Article 6.4. Such benchmarks needed direct approval from COP in the past, but this time, the body finalised and adopted the standards under its own supervision. 

The full implementation of Article 6 is seen as “crucial” for Southeast Asian countries to achieve their low-carbon pledges, said climate negotiation experts at a virtual forum held in 28 October.

Countries seeking to “offset” their climate footprint will help pay for the development of projects that sequester or prevent greenhouse gas emissions like planting trees and protecting forests which generate exchangeable “credits” representing one metric tonne of greenhouse gas emissions each.

If we rely on current policies and measures to meet our nationally determined contributions, then we will only achieve our reduction or avoidance of emissions target halfway to 75 per cent.

Albert Magalang, Philippines chief of climate change service, department of environment and natural resources 

Developing states use the funds earned from the sale of carbon credits towards mitigation measures such as renewable energy projects. 

“If we rely on current policies and measures to meet our nationally determined contributions, then we will only achieve our reduction or avoidance of emissions target halfway to 75 per cent,” said Albert Magalang, Philippines chief of climate change service of the environment and natural resources department.

“We need other market mechanisms that can give us innovative finance to transfer carbon from the avoidance or reduction of greenhouse gas emissions to help meet our climate targets.”

The Philippines aims to cut its greenhouse gas emissions by 75 per cent from 2020 to 2030, but the target is conditional, and will only be met through foreign aid. The government has pledged to use its own resources to meet the remaining 2.71 per cent.  

Current policies and measures under the Southeast Asian country’s nationally determined contributions (NDCs) include boosting energy efficiency and improving the grid.

PH NDC

The delivery of the Philippine NDC targets will only be achieved halfway under a busiiness as usual scenario, according to Albert Magalang, Philippine chief of climate change service of the environment and natural resources department. Image: DENR 

In August, the Philippines signed a memorandum of understanding with Singapore towards a legally binding implementation agreement for cross-border carbon credit trading.

The Philippines has strong potential to tap carbon credits to unlock financing, such as through the carbon dioxide captured by its forests and oceans, along with transition credits, which arise from the emissions reduced through a coal plant’s early retirement and replacement with cleaner energy sources.

Nearly four-fifths of all countries have signaled their interest to use Article 6 to meet their emissions reduction targets, as of end 2023. Countries are able to do so under Article 6.2, which covers government-to-government carbon credit deals.

Early this year, Thailand sold the first carbon offsets under the Paris Agreement to a Swiss fossil fuel group. But Singapore leads Southeast Asia in its participation in international carbon markets. Before signing with the Philippines, it has had similar agreements with Laos, Cambodia, Indonesia, Papua New Guinea and Ghana.

Mechanisms under Article 6 would be needed to fulfill Singapore’s NDCs because it is considered a small island state with very few domestic decarbonisation options, said Yi Jun Mock, senior manager of global partnerships, national climate change secretariat strategy group, prime minister’s office Singapore. 

The city state is considered an “alternative energy disadvantaged country” which lacks wind, tidal, hydro potential with only solar energy as the only viable energy resource, Mock said at the forum.

“We see carbon markets and carbon credits as a way to help make up for the shortfall, but also as a way to work in a win-win position with our partners internationally to mobilise private capital that would not otherwise have gone to mitigation,” he said.

Carbon markets: not a silver bullet to reach NDCs

Proponents of the voluntary carbon market say it is a mechanism not only to advance sustainability goals, but to funnel billions of dollars into emissions-cutting projects in developing countries.

But offsetting is not always a clear-cut way for countries to reach their climate goals, Jonathan Crook, a global carbon markets expert at non-profit Carbon Market Watch, told Eco-Business. 

“Countries that sell credits, like most of those in Southeast Asia, cannot count the carbon stored to reduce their own emissions, which could make it harder for those countries to reach their NDCs,” said Crooke, whose work focuses on Article 6.

There are many nations that want to sell credits but they want a framework that’s up and running.

Jonathan Crook, global carbon markets policy expert, Carbon Market Watch

Under the mechanism, host countries earn from marketing carbon credits, but seller countries cannot claim the benefit to avoid “double-counting” or having the benefits counted twice.

Double-counting is one of the issues that will be tackled at the November negotiations under Article 6.2. Despite being operational since COP26, the mechanism is lacking detail on how countries can ensure there is no double counting of emissions reductions through corresponding adjustments.

“There are many nations that want to sell credits but they want a framework that’s up and running. If the framework is very loose, it could create a lot of room for interpretation around the rules, which could have unintended consequences,” he said.

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