Article 6 Can Generate up to $1 Trillion a Year of Financial Flows to Achieve Paris Goals, Study Shows

GENEVA (October 26) – Robust international emissions markets developed by Parties to the UNFCCC could stimulate up to $1 trillion of new capital investment toward developing countries, improve local sustainability results, and provide incentives for further technological innovation, according to a new report by the International Emissions Trading Association and the University of Maryland.

The Potential Role of Article 6 Compatible Carbon Markets in Reaching Net-Zero studies how a strong global network of linked carbon markets can drive down the cost of cutting emissions and generate savings that can be reinvested into abatement that will help nations achieve the main goal of the Paris Agreement – keeping global temperature increases to well below 2 degrees Celsius.

“This new round of modelling work re-emphasises the immense value of cooperative mechanisms and explores pathways to achieve global net-zero in a more fair and equitable manner,” said Dirk Forrister, CEO of IETA.

“In addition to lowering mitigation costs, Article 6 could stimulate new investment in selling regions, improve local sustainability results, and present incentives for further technological innovation.”

Among the chief findings of the study is that the market value of financial flows between countries could exceed $1 trillion per year by 2050. Much of this flow would go to developing economies in the form of clean technology investment, assisting them to reach sustainable development goals.

IETA and University of Maryland first carried out modelling on the potential impact of Article 6 in 2019, and the new report highlights updated findings based on adjusted research.

University of Maryland researchers studied a variety of scenarios for countries’ implementation of net zero policies, including a “staggered net-zero” option in which countries reached net zero at different times.

This scenario brought the deadline for net zero emissions forward by five years for countries that already have a target and pushed back the target date to after 2050 for some developing regions, according to their economic development. The modelling showed that countries responsible for 97% of 2020 emissions would reach net-zero by 2060.

While this delay in achieving global net-zero emissions would lead to higher short-term temperature increases, the study found, it is still consistent with the Paris goal of limiting climate change to “well below” 2°C because of the increase in ambition by capable Parties, the report says.

“The urgency of the climate change challenge calls for a truly cooperative global response, but it has to be fair. We can generate real benefits and development investment through cooperation in global carbon markets under Article 6,” said Ieva Steponaviciute, Policy Research Analyst at IETA and co-author of the working paper.

“Exploring staggered net-zero timelines for developed and developing regions in our research showed us that we can address equity concerns and still achieve mitigation objectives compatible with the Paris Agreement temperature goals if capable countries increase ambition.”

With Article 6 rules in place and an operational global marketplace, the staggered net-zero scenario would see financial flows rise to $1 trillion a year by 2050 from $300 billion per year in 2030.

The delayed net-zero target dates under the staggered net-zero scenarios also substantially change the buyer and seller dynamics in the lead-up to 2050, the study found.

For example, China and India shift from being buyers to sellers, while the US becomes a large buyer to achieve its increased ambition. Latin America and the Caribbean become sellers along with most of Africa. On the other hand, Canadian, Russian, and Brazilian sales are greatly diminished before 2050.

Moreover, cooperative implementation of staggered net-zero targets could yield significant financial savings, reducing mitigation costs by $21 trillion between 2020 and 2050.

The full report can be found on the IETA website here, together with an executive brief here.