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Discussing private finance through Article 6 at Bonn Climate Change Conference

The University of Zurich and the Swedish government jointly organized a side event on the opportunities to mobilize private finance through Article 6.

Attended by over 50 participants despite Article 6 informal negotiations being held in parallel, the event presented the outcomes of a study commissioned by the Swedish Energy Agency and executed by a group of authors of Perspectives Climate Group, Frankfurt School of Finance and Management and Climate Focus.

Lead author and moderator of the event, Dr. Axel Michaelowa from Perspectives and University of Zurich, introduced the context of the study that applies a multi-level analysis to the question how Article 6 mechanisms can mobilize private finance. The mechanisms can play an important role to help achieve the long term goal to make finance flows consistent with low carbon and resilient development, enshrined in Article 2.1c of the Paris Agreement. Subsequently, he discussed how national level policy instruments such as regulation, fiscal instruments or market mechanisms can be designed to drive private sector demand for emission reductions achieved through Article 6 mechanisms. Co-author Prof. Dr. Ulf Moslener focused on the incentivising the private sector to scale up the supply of emission reductions through Article 6 mechanisms and particular on the necessary emergence of a careful blending of carbon and climate revenues to incentivise investments. Lieke ‘t Gilde from Climate Focus presented key lessons from a virtual Article 6 pilot in Nigeria, where concepts on mobilizing investments and blending of different finance sources were applied to a real-case scenario, including a green bond with a blend of a low interest rate and carbon credit generation.

Simon Henry from the International Emissions Trading Association (IETA) commented on the key messages of the study, underscoring the importance for the private sector of long-term stability of policy instruments and carbon markets to undertake significant investments. In light of the ongoing negotiations of the Article 6 ruleset in Bonn, he highlighted the necessity to finalize negotiations on a robust and integer set of rules at the upcoming COP25. Sara Sundberg, Head of the Climate Initiatives Unit at the Swedish Energy Agency and co-host of the event, provided insights into the programmes and preparations the Swedish Energy Agency is undertaking to prepare for the implementation of the Article 6 market-based mechanisms of international cooperation. She highlighted several key lessons learned from the process of virtual piloting, including on the links between international cooperation and NDC implementation of cooperating countries and the engagement of the private sector in the context of multi-layered forms of cooperation.

Subsequent discussions with the audience focused on the challenges of setting crediting baselines and determining additionality in the context of the Paris regime with countries’ NDCs as well as the different ways to determine the price of emission reductions achieved in international cooperation.  

Further reading: Perspectives Climate Group, Frankfurt School, Climate Focus (2019): Opportunities for mobilizing private climate finance through Article 6, Freiburg