As global efforts towards emission reduction targets, Article 6 of the Paris Agreement (which has a legally binding commitment at the international level towards climate change) opens additional benefits for countries to cooperate and utilise furthers both carbon market and non-carbon market mechanisms in meeting their national determined contributions (NDCs) targets. Particularly this will help countries in meeting their conditional commitments of NDC targets. The further utilisation of carbon market mechanisms is on the right momentum due to the growing interest of countries in further setting their carbon pricing mechanism into domestic markets. Article 6 regulates the utilisation of carbon market mechanisms through Article 6.2 and Article 6.4 which require bilateral agreement and establishing the measurement, verification, and verification (MRV) of carbon credit among countries set under the United Nations Framework Convention on Climate Change (UNFCCC) mechanism, respectively. Article 6.2 also brings additional opportunities for new funding sources that can be used by countries through bilaterally carbon credit trading. However, its utilisation needs some preparatory setting to enable policies, regulations, pricing, and technical adjustments on emissions and its potential carbon accounting mechanism.

On the other hand, most of the ASEAN countries had updated their NDC commitments and the regional targets towards carbon neutrality or net zero including the long-term strategies for emission reduction targets. Moreover, ASEAN at the regional level also aims to achieve a carbon neutrality target by 2050 with emissions from energy sector accounting for the largest one. With stronger regional commitments towards emissions reduction, the region is projected to need around USD 3.7-6.7 trillion by 2050 to fund carbon neutrality. The region would also need nearly USD 212 billion USD to fund one of its priority agenda, the power grid interconnection during the period 2018-2040. The region relied significantly on public financial sources (including domestic and international financial sources) for 87% in 2019, with the remaining share being sourced from private ones. Among the international public financial sources, bilateral partners provided around 70% of the total amount in 2019, and around 95% of the total international bilateral fund is in grant form. With still a limited share of market-based financial sources in the region, Article 6 provides another window to scaling up the market-based financial instruments while also optimising the bilateral partners’ window to bring additional financial source for climate change efforts in ASEAN.

The next important questions are what is the preparedness status of ASEAN in participation of Article 6 Cooperation and how should ASEAN enhance the preparation to further utilise Article 6 (particularly 6.2 and 6.4) into its climate financial landscape? While Article 6 brings additional financial opportunity, it also requires several key homework to be met by the region which covers governance structure, mechanism, and technical validation related to emission accounting, corresponding adjustments (CA), and internationally transfer mitigation outcomes (ITMOs), and public registration. Considering the preparedness level of most AMS on Article 6 participation is still at early stage, the significant amount of infrastructures need to be prepared by ASEAN Member States (AMS) to ensure the scheme and mechanisms are aligned within the existing climate change governance structure. The cost efficiency and effectiveness would need to be also considered in designing the Article 6 infrastructure in the region.

Although Article 6.2 allows the involved parties to design their agreement, project, and carbon trading scheme, it also indicates the involved parties need to have sufficient capacity to handle registration and technical aspects of Article 6. Moreover, the design of the Article 6 infrastructure or scheme should also consider the need for capacity building on knowledge or to be familiar with the public registration system of Article 6 and technical aspects of carbon emission including emission accounting method, CA, and ITMOs. Taking the right momentum of carbon pricing discussion in the region, the preparation of the necessary infrastructure (governance structure, scheme, mechanism, and technical aspects) of Article 6 can be also included in the carbon pricing designing process. Additionally, the measurement, registration, and verification (MRV) required by the Article 6 process, can be also linked to the existing ones under the national system of each AMS. The MRV is important not only for the basis of emission accounting but also for ensuring the environmental integrity aspect of Article 6. The environmental integrity aspect of Article 6 requires the monitoring of the progress of emission reduction and ensuring there is no increase in emissions due to emission trading. It requires a lot of technical work to set baseline, robust emission accounting, and ensure the long-term emission reduction benefits with a lower risk of emission rise.  

Considering the preparedness level and the complexity of the requirements that need to be fulfilled by ASEAN to participate in Article 6, the first step that needs to be conducted is raising awareness of the key parties or stakeholders involved in ASEAN carbon neutrality target on designing scheme, mechanism, governance, and technicality of Article 6. This can be also aligned with any existing regional initiatives (including the ASEAN Working Group on Climate Change or AWGC Action Plan, ASEAN Plan of Action for Energy Cooperation, ASEAN Taxonomy for Sustainable Finance Version 3, ASEAN Climate Change and Energy Project, and others), national initiatives of AMS under existing international bilateral cooperation, and global level such as Carbon Transaction Facility, Carbon Pricing Leadership Coalition, and others. The second step is measuring and enhancing the preparedness level of each AMS in participating in Article 6 by looking at its key requirements such as Thailand. The third is strengthening the human resources capacity on technical matters related to Article 6, which can be included in the existing ASEAN working group on Climate Change and Carbon Neutrality, and national working groups on NDC and LETS in ASEAN. Finally, is developing the enabling policies and enhancing mechanism of carbon pricing aligned with Article 6.