Modelling Article 6 – The Importance

of International Cooperation

Stefano De Clara – International Policy Director, IETA

12 May 2020

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▪ Collective voice of business on carbon pricing, markets and finance

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About IETA

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NDCs should extend economy-wide and decline

to net zero

Some emissions will likely remain – so removals

are key (natural + technological)

Opportunities for removals are not equal around

the world

Article 6 transfer system needs to support large

scale reductions and removals

Article 6 is essential part of Paris Agreement for

private sector

What is Article 6 worth in meeting Paris goals?4

Vision of Net-zero Towards 1.5 ° C

DRAFT PRESENTATION—DO NOT QUOTE, SUBJECT TO CHANGE

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Two questions

What is the POTENTIAL economic

value of Article 6?

How much could costs be reduced?

Who benefits?

What is the potential size of the carbon

market?

Who are the buyers and sellers?

How much additional ambition could

be enabled?

How big is the potential?

Who increases their ambition?Source: https://unfccc.int/files/focus/long-term_strategies/application/pdf/mid_century_strategy_report-

final_red.pdf

Source: “The Economic Potential of Article 6 of the Paris Agreement and Implementation Challenges,” IETA /World Bank CPLC / UMD September 2019; https://www.ieta.org/resources/International_WG/Article6/CLPC_A6%20report_no%20crops.pdf

6

0

5

10

15

20

25

30

35

40

4520

1520

2020

2520

3020

3520

40

204

520

5020

5520

60

206

520

7020

7520

80

208

520

90

209

521

00

Gt

CO

2/yr

Global I-NDC Scenario CO2 Emissions

South America_Southern

South America_Northern

Colombia

Central America and Caribbean

Brazil

Argentina

South Africa

Africa_Western

Africa_Southern

Africa_Northern

Africa_Eastern

Middle East

Pakistan

India

Indonesia

Southeast Asia

South Asia

Central Asia

Taiwan

China

Russia

Europe_Eastern

Europe_Non_EU

European Free Trade Association

EU-15

EU-12

South Korea

Japan

Australia_NZ

Mexico

Canada

USA

Approach

Africa

India

Middle

East

Southe

ast AsiaChina

LAC

Europe

U.S.

UMD runs of Global Change Assessment Model (GCAM)

• A state of the art integrated assessment model of economy, energy, land, water and climate

• Used by the IPCC to develop scenarios

Nationally Determined Contributions (NDCs)

• Taken from country submissions

• Post-2030 projections extend trends

• Used the same method as in the Fawcett, et al. (2015) Science paper

Source: IETA /World Bank CPLC / UMD September 2019

$0

$50

$100

$150

$200

$250

2020 2070

Shadow Price of CO2EU-12

EU-15

European Free Trade Association

Europe_Non_EU

Europe_Eastern

Colombia

Canada

South Korea

Taiwan

Brazil

Central Asia

Japan

USA

Australia_NZ

China

Argentina

Russia

Mexico

South America_Northern

Indonesia

Africa_Northern

South Africa

South America_Southern

Central America and Caribbean

India

Middle East

Africa_Western

Southeast Asia

Africa_Southern

Africa_Eastern

South Asia

Pakistan

Global CO2 Shadow Price

NDC Shadow Prices: Independent vs. Cooperative Implementation

EU-15$209/tonCO2• I-NDCs show wide range in shadow prices

• Cooperative NDC implementation cuts costs in half

$0/tonCO2

2030 2050 2100

I-NDC Range$0 to

$101/tonCO2

$0 to$111/tonCO2

$16 to$209/tonCO2

J-NDC $38/tonCO2 $52/tonCO2 $107/tonCO2

Source: IETA /World Bank CPLC / UMD September 2019

8 0

5

10

15

20

25

30

35

40

45

2015

2020

2025

2030

2035

204

020

45

2050

2055

206

020

65

2070

2075

208

020

85

209

020

95

210

0

Gt

CO

2/yr

Global J-NDC Scenario CO2 EmissionsSouth America_SouthernSouth America_NorthernColombiaCentral America and CaribbeanBrazilArgentinaSouth AfricaAfrica_WesternAfrica_SouthernAfrica_NorthernAfrica_EasternMiddle EastPakistanIndiaIndonesiaSoutheast AsiaSouth AsiaCentral AsiaTaiwanChinaRussiaEurope_EasternEurope_Non_EUEuropean Free Trade AssociationEU-15EU-12South KoreaJapanAustralia_NZMexicoCanadaUSA0

5

10

15

20

25

30

35

40

45

2015

2020

2025

2030

2035

204

020

45

2050

2055

206

020

65

2070

2075

208

020

85

209

020

95

210

0

Gt

CO

2/yr

Global I-NDC Scenario CO2 EmissionsSouth America_SouthernSouth America_NorthernColombiaCentral America and CaribbeanBrazilArgentinaSouth AfricaAfrica_WesternAfrica_SouthernAfrica_NorthernAfrica_EasternMiddle EastPakistanIndiaIndonesiaSoutheast AsiaSouth AsiaCentral AsiaTaiwanChinaRussiaEurope_EasternEurope_Non_EUEuropean Free Trade AssociationEU-15EU-12South KoreaJapanAustralia_NZMexicoCanadaUSA

NDC Emissions: Independent vs. Joint Implementation

U.S

.

Europe

Africa

India

Middle

East

Southeast

AsiaChina

LAC

China

India

Africa

LAC

Middle

East

SOURCE: Forthcoming JGCRP & IETA Workshop on Value of Article 6 (2019) – DRAFT –SUBJECT TO CHANGE

9-15

-10

-5

0

5

10

15

202020302040205020602070208020902100

Gt

CO

2/y

r

Potential Emissions Trading under Perfect Article 6

South America_Southern

South America_Northern

Colombia

Central America and Caribbean

Brazil

Argentina

South Africa

Africa_Western

Africa_Southern

Africa_Northern

Africa_Eastern

Middle East

Pakistan

India

Indonesia

Southeast Asia

South Asia

Central Asia

Taiwan

China

Russia

Europe_Eastern

Europe_Non_EU

European Free Trade Association

EU-15

EU-12

South Korea

Japan

Australia_NZ

Mexico

Canada

USA

Sellers

Buyers

Potential changes in emissions—CO2

• Seller (11 regions)

• Buyer (4 regions)

• Seller to buyer (15 regions)

• Buyer to seller (2 regions)

U.S.

Europe

India

Southeast

Asia

China

China

SOURCE: Forthcoming JGCRP & IETA Workshop on Value of Article 6 (2019) – DRAFT – SUBJECT TO CHANGE

DRAFT PRESENTATION—DO NOT QUOTE, SUBJECT TO CHANGE

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How Valuable is Article 6 to global GDP?

Article 6 holds significant

potential to reduce cost and

enhance ambition

2030 ~$250 billion 2015 US$

Some countries would benefit

more, but everyone could be

better off through

collaboration.

Source: IETA /World Bank CPLC / UMD September 2019

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2015

2020

2025

2030

2035

204

0

204

5

2050

2055

206

0

206

5

2070

2075

208

0

208

5

209

0

209

5

210

0

Emissions Mitigation Cost (billion 2015$/yr)

I-NDC J-NDC

$988

$345

$249

DRAFT PRESENTATION—DO NOT QUOTE, SUBJECT TO CHANGE

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How Valuable is Article 6 for Ambition?

If we interpret the cost of achieving each

country’s NDC independently as a

willingness to pay, 5 GtCO2/year

additional mitigation could be

enabled in 2030.

Source: IETA /World Bank CPLC / UMD September 2019

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Land-based Mitigation Potential of Article 6

The economic potential available

through Article 6 from extension to

include land use change is significant.

Utilizing the economic efficiency gains

to enhance ambition offers additional

potential benefits

Realizing this potential is a major real-

world challenge

2030 Potential Article 6 Reduction in Cost

(Billions 2015 USD/year)

Reduction in Cost

IncreasedAmbition

Fossil Fuels Only

~$250 billion

5 GtCO2

per year

Land Use Only~$70

billion4 GtCO2

per year

Combined~$320 billion

9 GtCO2

per year

Forthcoming IETA-UMD Workshop Report 2019 - DRAFT PRESENTATION—RESULTS MAY CHANGE - COMMENTS WELCOME

DRAFT PRESENTATION—DO NOT QUOTE, SUBJECT TO CHANGE

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Potential Changes in CO2 Emissions

Sellers

Buyers

Fossil Fuel and Industry Land Use Change and Forestry

= +

Buyers and Sellers under Article 6

Forthcoming IETA-UMD Workshop Report 2019 - DRAFT PRESENTATION—RESULTS MAY CHANGE - COMMENTS WELCOME

DRAFT PRESENTATION—DO NOT QUOTE, SUBJECT TO CHANGE

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How Valuable is Article 6?

Article 6 holds significant potential to

reduce cost and enhance ambition

Everyone could be better off through

collaboration

Mitigation cost could be reduced by

$320 billion in 2030.

Mitigation could be enhanced by 9

GtCO2/year in 2030

Source: https://www.carbonbrief.org/look-

beyond-emissions-gap-to-see-full-force-of-

climate-pledges-says-unep-report

Enhanced

Ambition

42.4

GtCO2e in

2030

Consistent

with 2 °C

Source: Forthcoming IETA-UMD Workshop Report 2019 - DRAFT PRESENTATION—RESULTS MAY CHANGE - COMMENTS WELCOME

This is just the theoretical potential…

… but there are always real-world challenges.

Clearly the rules matter—need to develop sound rules at COP26

Key to environmental integrity is avoiding double counting

Need to avoid restrictions or loopholes that could limit this potential

Next, Parties need to establish plans for using Article 6

Translate heterogeneous NDCs into Article 6 approaches

Future calls for ‘Article 6 ready’ NDCs

What incentives would increase ambition in future NDCs?

How do we get these benefits?

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Thanks!

Thank you!

The full report is available at: https://www.ieta.org/resources/International_WG/Article6/CLPC_A6%20report_

no%20crops.pdf

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