Lessons from the First Applications of the Article 6.4 SD Tool

With the Baku decisions on operationalising Article 6, the Paris Agreement Crediting Mechanism (PACM) has made a decisive step towards implementation. The development is accompanied by the growing policy attention being given by major global economies to international market mechanisms. As of late, the European Union (EU) has announced in its latest 2040 target that it intends to utilise markets to reach its ambitious goals, emphasising that these must adhere to strict standards. Specifically, the EU has articulated its NDC target for 2035 to include "an adequate contribution of high-quality international credits under Article 6 of the Paris Agreement in a way that is both ambitious and cost-effective" to deliver the 2040 target (EU 2025).

High-quality credits are crucial for the use of such certificates, including ensuring increased ambition, robust accounting and the promotion of sustainable development. The Sustainable Development Tool (SD Tool) in Article 6.4 of the Paris Agreement is intended to ensure that the project activities underlying the certificates contribute to sustainable development.

The report summarises initial findings from the application of the SD Tool under Article 6.4 of the Paris Agreement. The aim of the tool is, first, to verify whether the emission reduction activities under Article 6.4 pose potential risks to people or the environment and to develop measures to minimise these risks. Secondly, it requires project developers to systematically record the positive and negative impacts of the project on sustainable development, specifically on the 17 Sustainable Development Goals (SDGs). The authors analysed three initial use cases of the SD tool and systematically recorded initial findings. The cases include an emission reduction activity under Article 6 in Zambia, as well as activities that were previously registered under the Clean Development Mechanism (CDM) and are now to take place under the new Paris Agreement Crediting Mechanism (PACM). The authors Christof Arens and Juliane Schell from the Global Climate Governance Research Unit at the Wuppertal Institute and Karen Holm Olsen, Senior Researcher at UNEP Copenhagen Climate Center, identify key challenges in applying the tool, including resource-intensive data collection, the development of sustainable development indicators at the project level, the low level of digitalisation of the tool, and other technical challenges. Based on experience gained from the first applications of the SD Tool, the report also identifies practical changes to the SD Tool that are needed for decision-makers.