The pace and scale of our response to the climate crisis is mission-critical, as underscored by the most recent call to action by leading climate scientists. Climate action can and must become a powerful unifier on the international stage. But this requires governments, businesses and investors to forge new partnerships and agreements collaboratively, invest intentionally in testing innovative approaches in order to drive finance towards activities that deliver the highest level of emission reductions possible.
IETA estimates that carbon markets could halve the costs of countries reaching their emissions reductions targets by 2030. The new carbon market under Article 6 of the Paris Agreement has a central role to play here.
Article 6 is a clause in the Paris Agreement that sets the rules for international cooperation between countries to meet their emission reduction targets. Following the approval of this rulebook at COP26 in Glasgow, the Thai and Swiss governments have come together to authorise the first Article 6 programme in Asia: the Bangkok E-Bus Programme.
This trailblazing programme is one of the first under Article 6 and will introduce around 2,000 electric buses (e-buses) in the Bangkok Metropolitan Area – a move that will help avoid around 500,000 tonnes of CO2 by 2030 and significantly improve air quality in a congested megacity like Bangkok. It provides, in effect, a blueprint for what the effective implementation of Article 6 could look like both for countries and the global climate, and it highlights the benefits of international cooperation between governments and the private sector.
The authorisation of the Bangkok E-Bus Programme is the latest step forward following the signature of the cooperation agreement by the Ministers of Environment of both Thailand and Switzerland in June 2022. It represents the culmination of years of work from both Thai and Swiss governments, KliK Foundation, Energy Absolute, and South Pole – a true example of the transformational capacity of carbon markets to bring together a full ecosystem of partners and reduce carbon emissions cost-effectively.
Central to this agreement are Internationally Transferred Mitigation Outcomes, or ITMOs. ITMOs are the units of trade or international carbon credits under Article 6. Article 6 provides a framework whereby one country (Thailand, in this example) which requires financing for climate solutions is able to credibly and transparently cooperate with another country (here, Switzerland) which is seeking to achieve more cost-effective emission reductions.
Internationally Transferred Mitigation Outcomes (ITMOs) facilitate credible and transparent climate cooperation between governments and the private sector.
The transformational potential of this new mechanism is hard to overstate. In some parts of the world, financing emission reductions is more expensive than in others. Under Article 6, countries can enter into an agreement and finance emission reductions in other countries where the same amount of finance is able to achieve greater emission reductions.
The bottom line is that, for countries acquiring ITMOs, more carbon emissions are reduced or captured compared to the reductions that would be achieved domestically with the same investment. For countries transferring ITMOs, new low-carbon solutions receive financing they would otherwise not have been able to access. In turn, these financed solutions provide invaluable benefits to the 'host country', well beyond carbon. In Thailand's case, the new low-carbon transport infrastructure and cleaner air will improve quality of life and the quality of public transport for Bangkok residents who experience unhealthy levels of air pollution.
The Thai-Swiss bilateral agreement shows Article 6 in action. Alongside regulation and investment in domestic emission reductions, Switzerland has signalled its intention to make use of Article 6 more broadly.
On the other side of the world, Thailand is working hard to decarbonise its transport sector by promoting electric vehicles to displace petrol and diesel vehicles. In coming together under Article 6, Thailand and Switzerland are forging partnerships in both countries, among government agencies and in the private sector to unlock the benefits of low-carbon transport in Bangkok.
This creates a carbon emissions trading arrangement whereby KliK Foundation in Switzerland will purchase the carbon reductions generated by Energy Absolute in Thailand from the Bangkok E-Bus Programme. In agreeing to relinquish use of the emission reductions towards its national emission reduction targets (Nationally Determined Contributions, or Thailand’s climate commitments to the UN) as per Article 6 rules, the Thai government can unlock significant climate finance in order to replace around 2,000 diesel buses with e-buses, finance a city-wide network of electric charging infrastructure, and encourage passengers to shift their mode of transportation from private vehicles to e-buses. Together, these actions offer important building blocks to realise the vision of a low-carbon city.
It’s a win-win. Switzerland is able to finance emissions reductions more cost-effectively than it would be able to domestically. And Thailand is able to attract finance to transform its e-mobility sector – all the while improving its ambient air quality, protecting public health and improving the daily lives of Bangkok residents.
To avoid the risk of double counting, Article 6 established a mechanism known as a "corresponding adjustment". This means, in the Thai-Swiss agreement example, that the ITMOs transferred from Thailand to Switzerland go towards reducing Switzerland's emissions balance and help to meet Switzerland's emission reduction target under the Paris Agreement. Thailand, correspondingly, has to increase its emissions balance by the same quantity, thereby avoiding double counting.
There is a need to ensure additionality, i.e. that the Bangkok E-Bus Programme could not have been implemented without the revenue from ITMOs. The definition of this, plus the definition of the baseline scenario, are a critical premise which needed thorough consideration and robust justification.
Thailand looks set to benefit from a very active and effective carbon market. South Pole is honoured to have played a part, alongside our partners, in creating the conditions for this trailblazing cooperation and laying the groundwork for significant emission reductions. South Pole’s role has been to work hand in glove with all of the partners to drive the shared goal of catalysing cooperation and demonstrating what is possible under Article 6.
From the beginning of this programme, South Pole has worked with the two governments to enhance their readiness to participate in international carbon markets. While doing so, we co-initiated the Bangkok E-Bus Programme, provided technical support for its design while ensuring its alignment with the overarching Thai and Swiss regulatory frameworks. The mitigation outcomes from the Bangkok E-Bus Programme will be measured in accordance with the approved Mitigation Activity Design Document, whose baseline and monitoring methodologies are based on the Thailand Voluntary Emission Reduction Program, and this will then generate the domestic T-VER carbon credits.
Once this alignment was reached, we facilitated the mitigation activity registration and authorisation processes. These include support with the validation process and developing the project documents and other necessary documentation as per Thai and Swiss procedures.
Article 6 looks set to play a crucial role in reducing global emissions: the Bangkok E-Bus Programme demonstrates what is possible. Climate action like this can become a powerful unifier, forging new bilateral agreements between governments and effectively mobilising the private sector to deploy low-carbon technology at the pace and scale required. South Pole is supporting a number of governments and clients who are gearing up for similar Article 6 transactions, notably for an energy efficiency fund to generate ITMOs in Morocco. As the race to net zero picks up pace, we’re focused on ensuring the success of this new carbon market and spurring on more agreements, collaboration, and real world impact under Article 6.
