Learn how the World Bank Group is helping countries with COVID-19 (coronavirus). Find Out

BRIEF September 28, 2018

MDB Working Group on Article 6 of The Paris Agreement

The MDB Vice-Presidents and Senior Directors agreed to establish a MDB Working Group (WG) to support the design and operationalization of Article 6 during the IMF-WBG Annual Meetings in October 2017.

The WG’s goal is to position Article 6 as a high strategic priority in climate negotiations, and encourage Parties to leverage market/priced-based mechanisms as an important tool to deliver NDC commitments cost-effectively.

 

Given the limited public and concessional finance available, countries are increasingly exploring the use of market/price-based mechanisms to reach targets cost efficiently and to leverage private capital intelligently. For example, more than eighty parties indicated in their NDCs that they are planning or considering the use of market/ or price-based mechanisms to drive GHG mitigation. The Paris Agreement also gives climate markets a much needed, renewed basis for support by enabling Parties to voluntarily cooperate in achieving their NDCs through internationally transferred mitigation outcomes (ITMOs) under Article 6.

Recent estimates suggest that comprehensive linking arrangements could reduce the global costs of implementing NDCs by a third in 2030, and halve the costs of the world’s decarbonization efforts by 2050. Unfortunately, there is little time to incubate an international market: 20 years after Kyoto, there is greater urgency and the Guidance and Rule for Article 6 are expected to be developed under the “Paris Rulebook”. There are also challenges to creating an international market under Paris, despite the global momentum. First, the creation of these international climate markets has not featured heavily in climate negotiations to date, partly due to the emergence of other issues and priorities in climate diplomacy. Further, while carbon pricing approaches continue to gain traction globally, policymakers need to overcome certain common challenges associated with implementing market/price-based mechanisms, such as overcoming competitive concerns, building stakeholder acceptance, and developing the required infrastructure and legal framework.

Against this backdrop, the meeting of MDB Vice-Presidents and Senior Directors during the IMF-WBG Annual Meetings (October 13, 2017) agreed to establish a MDB Working Group (WG) to support the design and operationalization of Article 6.

The ultimate goal of the WG is to position Article 6 as a high strategic priority in climate negotiations and encourage Parties to leverage market/priced-based mechanisms as an important tool to deliver NDC commitments cost-effectively, drive increased ambition and support sustainable development.

The MDB WG has a unique role to play. For example, the WG can facilitate learning-by-doing and knowledge sharing based on MDB’s extensive experience in supporting the development of climate market/price-based mechanisms at both the domestic and international levels.  Furthermore, the WG could explore synergies between Article 6 and MDB’s broader activities on climate finance and sustainable development, and help ensure a holistic approach in the implementation of these international agendas.