Relevance of Carbon Market for Ethiopia and Article 6 Negotiations in SBESTA 58

Relevance of Carbon Market for Ethiopia and Article 6 Negotiations in SBESTA 58

By Mr. Eyob Tenkir, CVF Capacity-Building Fellow

Relevance of Carbon Market 

Reports indicated that carbon markets are gradually becoming significant sources of climate financing in Africa. The establishment of the Africa Carbon Markets Initiative (ACMI) at COP27 last year encouraged African nations to engage in the carbon market. The goal of the initiative is in generating 300 million carbon credits yearly. By 2030, the plan hopes to generate $6 billion in income and 30 million new jobs.

In February 2023, Ethiopia signed the Emission Reductions Purchase Agreement (ERPA), committing up to $40 million available to communities, the government, and other stakeholders to help them cut carbon emissions and improve carbon sequestration. It is the first ERPA of its kind for ISFL, which will honor efforts to cut about 4 million efforts to cut about 4 million metric tons of CO2e [Carbon Dioxide equivalent] emissions by 2030. 

For the updated NDCs to be implemented, carbon financing will be essential, and Article 6 of the Paris Agreement enables an environment to generate finance and use it to implement the ambitious NDC goal.

Article 6 Negotiation in SB58

Progress has been made in the Article 6 negotiating process during SB58, in determining the procedures and methodology that nations must adhere to to enter the carbon markets.

According to Article 6, a country (or countries) may transfer carbon credits gained through lowering GHG emissions to help one or more other nations achieve their climate goals. The three sub paragraphs (Articles 6.2, 6.4, and 6.8) have been the subject of negotiations on their substance, structure, and implementation during the SB58.  

The foundation for selling “mitigation outcomes” reductions in GHG emissions on a global scale is set forth in Article 6.2 of Article 6.   

Article 6.4 is similar to the Kyoto Protocol’s Clean Development Mechanism. It establishes a framework for international trade in GHG emission reductions, which will be overseen by the Conference of Parties, the organization charged with making decisions in accordance with the UN Framework Convention on Climate Change. 

A non-market strategy for fostering mitigation and adaptation is Article 6.8. It introduces cooperation through investment, technology transfer, and capacity building as opposed to trading carbon reductions.

Negotiation on Article 6 Market Approach in SB58

During SB58, under each sub Articles (6.2, and 6.4) different negotiations were discussed on various issues.

The first agenda and negotiating item is on Sub Article 6.2 focused on clarifying the necessary data, activity types, impacted industries, and stage of authorization before submitting the agreed electronic format (AEF). There were also negotiations on the sequencing and timing of initial reports and importance to consult on the process for approving internationally transferred mitigation outcomes (ITMOs).

Sub-article 6.4 is the second item on the agenda. Four significant concerns were negotiated under this agenda item. The first key issue was matters related to timing of authorization and who is going to issue authorization. The second issue was the importance of linking the Article 6.4 registry and the Article 6.2 international registry to ensure information on Article 6.4 emissions reductions is centralized. The inclusion of emission avoidance and conservation enhancement activities in Article 6.4 was another issue raised and the fourth key issue was international registry, including its interoperability with national registries, functionality and procedures, and guidance on internationally transferred mitigation outcomes (ITMOs).

Progress on Carbon marketing Negotiation in SB58

Progress on Sub Article 6.2 

Developing countries stressed the need for rapid capacity building in order to take part in the technical discussions on the creation of the authorized electronic format (AEF) for submitting annual information. The parties agreed that a manual should be developed to assist in the creation of the AEF, however, some groups argued for the inclusion of instances to serve as illustrations, such as those on assumptions and leaking data, while others stressed the non-binding character of the handbook.

Progress on Sub Article 6.4 Market Approach 

Parties debated whether to include emission avoidance and conservation enhancement initiatives under Article 6.4 Several stated this would create a new workstream for the CMA and requested additional direction and explanation on the present activities covered by the provision. Parties further stressed the significance of connecting the Article 6.4 registry with the Article 6.2 international registry in order to ensure that data on Article 6.4 emissions reductions is centrally collected. According to a number of developed countries, the units from the Article 6.4 register should be transferable to the Article 6.2 international registry and national registries under Article 6.2, as these two systems can coexist and be accommodated.

Conclusion

In its updated NDC, Ethiopia expressed a strong desire to participate in market-based mechanisms and stated that it intended to sell ITMOs to obtain finance for the conditional mitigation targets. It is essential to start the capacity-building process as soon as possible in order to prepare for entry into the carbon market, especially when it comes to implementing Article 6 and utilizing the carbon market.