Analysis: The economic impact of Article 6 on Political Economy
The international climate governance of the Paris Agreement’s Article 6 represents a pivotal moment in the fight against climate change, offering a collaborative framework to address this global challenge. At COP-29, significant progress was made in implementing Article 6, paving the way for the creation of effective carbon markets that can drive cost-efficient emissions reductions. For countries like Pakistan, which face both climate vulnerabilities and economic constraints, the implications of Article 6 are of paramount importance. However, the complexity of this provision, coupled with unresolved issues and the imperative of equitable implementation based on climate justice, present significant hurdles.
Article 6 comprises two key components aimed at leveraging market-based solutions to combat climate change. Internationally transferred mitigation outcomes (ITMOs) under Article 6.2 enable countries to collaborate by transferring emissions reductions across borders to meet their nationally determined contributions (NDCs). This approach provides flexibility and relieves the economic burden of mitigation efforts. However, the effectiveness of ITMOs lies in the meticulous accounting to prevent double counting. Challenges such as differing accounting methodologies for single- and multi-year NDCs complicate the application of corresponding adjustments, posing risks to the credibility of emissions reductions.
On the other hand, the Paris Agreement Crediting Mechanism (PACM) established under Article 6.4 provides a regulated marketplace for carbon credits, ensuring that mitigation activities yield tangible, measurable, and long-term climate benefits. The recent decisions taken at COP-29 underscored the importance of robust verification and compliance mechanisms to uphold the integrity of these credits. While progress has been made in adopting standards and methodologies, governance gaps and enforcement limitations continue to impede the transformative potential of the PACM.
A noteworthy provision of Article 6 is the allocation of proceeds from carbon market activities to adaptation financing through a levy. Article 6.6 mandates that a portion of revenues generated under the PACM be directed to the Adaptation Fund, benefiting vulnerable nations facing the impacts of climate change. For Pakistan, this presents an opportunity to enhance its adaptation capacity, investing in climate-resilient infrastructure and disaster management systems. However, the effective utilisation of these funds necessitates a coherent integration of Article 6 mechanisms into the national climate and development agenda.
Despite its potential, the operationalisation of Article 6 faces challenges that could compromise its environmental integrity and efficacy. Issues such as governance gaps and the weak linkage with the Enhanced Transparency Framework pose obstacles to comprehensive tracking of mitigation outcomes. To address these concerns, experts at COP-29 highlighted the urgency of enhanced technical guidance, independent audits, and centralised registries for ITMOs to ensure transparency and accountability.
For Pakistan, successful engagement with Article 6 is crucial in achieving its climate goals, given its limited resources and significant climate risks. Establishing a dedicated hub within the National Climate Change Authority to oversee ITMOs and PACM activities could streamline monitoring, verification, and reporting processes, fostering stakeholder trust. Furthermore, incentivising renewable energy and reforestation projects can generate carbon credits that not only reduce emissions but also stimulate economic growth and enhance energy security.
To mitigate the risks of market manipulation and greenwashing, Pakistan must establish an Independent Compliance Monitoring and Oversight Authority (ICMOA) to conduct regular audits and reviews, ensuring adherence to Article 6 principles. By integrating Article 6 activities into the Global Stock Take, Pakistan can enhance transparency and accountability in its climate action efforts, further advancing its sustainable development goals.
