Non-market approaches as critical drivers of climate ambition

Briefing note for negotiators, observers, and relevant institutional arrangements at SB58 and on the way to COP28

The Importance of Article 6.8 of the Paris Agreement

Article 6, paragraph 8 of the Paris Agreement aims to accelerate overall mitigation of global emissions (OMGE), by supporting national governments’ efforts to work together for mutual benefit and to produce wider benefits to climate, nature, and resilience. Article 6.8 calls for cooperative “non-market approaches” to support enhanced ambition and action. (‘Non-market’ means ‘not emissions trading’.) It also calls for cooperative non-market approaches to support sustainable development, eradicate poverty, and work in an integrated and holistic way.

Three additional points specify the intended wider reach of Article 6.8:

(a) Promote mitigation and adaptation ambition;

(b) Enhance public and private sector participation in the implementation of nationally determined contributions; and

(c) Enable opportunities for coordination across instruments and relevant institutional arrangements.

These three points make clear: multilateral cooperative non-market approaches should raise ambition and accelerate action, foster economy-wide transformation, and support action across areas of international commitment—on climate, but also across conventions. Climate, nature, food, and development priorities should align with success on climate. Trade should become increasingly climate-smart and oriented toward successful climate-resilient development, for all.

Situation Review

The Intergovernmental Panel on Climate Change has found, in its 6th Assessment Report that the window for successful climate-resilient development is rapidly closing. In the AR6 Synthesis Report, the IPCC finds that overshooting 1.5ºC by 2040 is likely, and that overshooting could lead to the loss of key regulating structures in the climate system. That could, in turn, render the Convention mandate of preventing “dangerous anthropogenic interference with the climate system” unachievable.

The U.S. Financial Stability Oversight Council finds unchecked climate change could collapse the financial system and ruin its ability to support the wider economy. Deloitte estimates the cost of unchecked climate disruption at $178 trillion by 2070. In the U.S. and elsewhere, insurers are refusing to provide insurance in high risk geographies. Dozens of countries with high climate vulnerability are already facing debt distress.

Our ability to supply sufficient food and nutrition for all human beings in all nations, the solvency of the overall economy, and the fiscal stability of nations, are all now at risk. It is expected food systems, and nations, will fail in some regions in the coming 10 to 20 years. Trade, technology, industry, banking, finance, and cooperative institutional arrangements, including those that respond to climate-related loss and damage, need to evolve to align with the standards laid out in Article 6.8.

Rationalizing Ambition

It has long been considered practical to treat future costs as inherently more affordable than present-day costs. This has led to a dangerous underestimation of the rational level of climate ambition, and a dangerous delay in economy-wide action to avert dangerous climate disruption.

Low ambition is irrational. High ambition is rational. Only active climate leadership makes sense. This is true for all nations. Those that delay action not only work against global success; they are working to marginalize their economies from the most valuable and viable opportunities in the emerging climate-smart economy.

Market approaches, grounded in Article 6.2 and 6.4 of the Paris Agreement, provide meaningful incentives for decarbonization in some sectors, and useful pressure-relief mechanisms for industries that might otherwise go into shock failure. Market approaches do not, however, on their own provide enough economy-wide structural change to support successful climate-resilient development, on the 2040 timeline.

Non-market approaches are the space where nations have the opportunity to rationalize ambition to the level of urgency required to initiate, accelerate, and sustain that economy-wide transformational action. Ambition that rises to the level of real-world climate response, in line with the gravity of the worsening crisis, needs to recognize cascading and compounding interconnections.

As UNFCCC Executive Secretary Simon Stiell wrote last month:

“The relationship is cyclical: a stable climate is the foundation for healthy and thriving biodiversity, which is critical to stabilize the climate system and ensure the long-term wellbeing of all, including nature and future generations.

Nature, agriculture and human development and society – all linked, all at risk, all part of a self-reinforcing cycle.”

Non-market cooperative approaches can support climate goals while also protecting biodiversity on land and in the ocean. NMAs can optimize national and international action to support implementation of the Global Biodiversity Framework and the new High Seas Treaty, supporting conservation of biodiversity beyond national jurisdiction (BBNJ), without which natural climate resilience will be unachievable.

Complexity is Opportunity

Last year, ahead of the SB56 round of negotiations, Parties and observers detailed a long list of areas of work that can support activation of multilateral cooperative non-market approaches.

After the COP27, we detailed the following possible examples of NMA leadership. Each of the areas of non-market cooperation laid out below holds potential to significantly improve the overall value-creation potential of and mutual gains delivered by trade, finance, innovation, and through climate-related policy and investment.

1) Policy, Pricing & Incentives

Standards and regulations – Financial regulations, trade-related conditionalities, and border adjustments and related negotiations, that allow nations to cooperate to secure a faster pace of decarbonization;
Climate income policies, which create an economically efficient, fast-moving decarbonization pathway, and foster green recovery by setting strong, steadily rising carbon prices, with revenues returned to households and communities, to ensure price pressures fall on polluters;
Carbon-related border adjustments – Domestic and cooperative mechanisms that support carbon border adjustments, to ensure climate leaders don’t lose trade to pollution offshoring;
‘Floor price’ measures – Diplomatic, fiscal, and policy action toward an effective international “floor price” for carbon pollution.

2) Prioritization & Performance

Accounting and avoidance – Regulatory measures that mandate accounting, disclosure, and avoidance of carbon-related liabilities;
‘Labeling’ and tracking – Labeling, accounting, data-sharing, impact tracking, and transparency practices that expand opportunity for mainstreaming of climate-smart finance—noting labeling of ‘green’, ‘blue’, and ‘pink’ finance (fostering human capital benefits across health and other SDGs);
Data integration – Policies, institutional arrangements, and business model innovation incentives that support integration of Earth science data platforms into financial decision-making information flows;
Multilateral coherence – Action by existing international institutions (and central banks, through cooperative frameworks) to become engines for climate action incentives and enforcement, connecting climate action aims, impacts, and metrics, to their respective decision-making, financing, and multilateral policy intervention capabilities.

3) Operational Support

Investing in nature – Enabling policies that create conditions for climate-smart, nature-positive financial instruments, support for regenerative agriculture, and other forms of green finance—not linked to emissions trading markets;
Fiscal rescue funding – Linking Special Drawing Rights (SDR) to Paris Agreement action and funding, given the urgency of scaling up mainstream finance for climate mitigation, adaptation, and resilience, from the public, private, and multilateral sectors;
Food systems innovation measures, supported by policies, financial instruments, consumer health and safety regulations, and the linking of multifocal science insights to impact investment strategies by public, private, and multilateral institutions.
Transition assistance – Direct and indirect incentives and blended financing strategies that support accelerated transition of emissions-dependent local and regional economies to climate-smart low-emissions standards and practices.

4) Vulnerability-Responsive Measures

Vulnerability response resourcing, linked to Loss and Damage, but applying to a broader range of climate resilient development imperatives, including adaptation, nature-restoration, and sustainable economic transformation;
Climate-responsive debt relief – Leveraging more integrated, just, and inclusive value accounting, in line with the Bridgetown Initiative, to structurally reduce sovereign debt burdens, recalculate interest rates, and deliver targeted assistance;
Early warning-related co-investment strategies, facilitating wider flows of finance—across public, private, multilateral, and philanthropic sources of capital—to support countries’ expansion of early warning systems and integration of relevant planning and response at local and provincial levels;
Insurance for livability – Expanding on the work of InsuResilience, the Global Shield, and the Resilience and Sustainability Trust, to provide targeted expanded flows of capital to support ongoing livability before, during, and after major climate-related shocks.

Prototypes

The following is a short, non-exhaustive list of sample NMA packages, to get a sense of what it might look like for real-world mobilization of cooperative mainstreaming.

Hypothetical

A Climate Income Cooperative – A hypothetical climate income cooperative could include (for example) 10 nations—8 low and middle income countries (LMIC) in one region, plus two high-income countries—agree to establish national carbon pricing plans, using a climate income system, in which revenues are assessed on the carbon emissions potential of extracted fuel stock (coal, oil, or gas) and revenues are returned to households and vulnerable communities. Border adjustments are put in place for non-compliant nations, but waived for the 10 members of the cooperative. The two wealthy country partners provide targeted conditional finance, vulnerability-responsive debt relief, and other measures to support cooperative expansion of overall climate resilient development.
A Green Nutrition Security Pact – In this example, one large high-income food importer establishes a food and agriculture-focused trade agreement with 5 low- and middle-income countries (LMIC) that export food, from their neighboring region. One goal for the wealth country is to expand flows of healthy, sustainably produced food (green, blue, and/or pink-labeled), to improve health and environmental sustainability for its population. The Pact includes provisions to diversify and expand rural community economies in the LMIC, and to provide similar environment, health and wellbeing benefits to people in those countries. Enabling policies, including transparency incentives, investment in relevant data systems and services, and climate resilience measures, are implemented in a cooperative fashion to ensure coherence across the participating countries.
A Climate Banking Partnership – In this example, 30 countries, including all eurozone countries and 10 or more climate vulnerable countries, agree to align banking industry standards to enhance the climate resilience of front-line communities across the 30 countries, to significantly reduce costs of climate shocks to coastal regions and food growing regions, and to provide measurable and specially funded guarantees to keep the trade in goods and services for basic needs moving, even amid extreme events or times of ongoing crisis. The banking sector improves its accounting standards to clearly show the difference in long-term development value for destructive/polluting activities as compared to sustainability-focused or resilience-building activities, unlocking major new flows of finance that attract more countries to join.

In Progress

Africa Adaptation Acceleration Program – International and multistakeholder partnerships to accelerate climate-related adaptation (including efforts toward a global goal of materially reducing future climate risk and harm) can connect to and draw on many of the areas of work listed above. The Africa Adaptation Acceleration Program led by the African Development Bank and the Global Center on Adaptation is a leading example of this kind of effort, including leadership from multilateral and non-governmental entities. This collaboration was supported by more than 30 global leaders in a 2021 Leaders Dialogue and focuses on four core transformational areas of work:
AIM for Climate – The Agriculture Innovation Mission for Climate (AIM4C) was launched by the United States and the United Arab Emirates (which will host the COP28 later this year) “to address climate change and global hunger by uniting participants to significantly increase investment in, and other support for, climate-smart agriculture and food systems innovation”. It has so far raised or identified $13 billion in increased investments through 2025. An already extensive list of innovation sprints to drive innovation and investment into:
1. Smallholder Farmers in Low- and Middle-Income Countries;
2. Methane Reduction;
3. Emerging Technologies and Agroecological Research.
Co-Investment Platform for Food Systems Transformation – This first-of-its-kind Co-Investment Platform aims to fill critical gaps in the global realignment of finance into food systems. This global good food finance facility will crowd in finance from public, private, multilateral, and philanthropic sources. A first group of countries is moving to build capacity to mobilize new flows of climate-aligned food finance, even in the currently ongoing design phase. The Platform will support accelerated mobilization with:
1. Managed funds;
2. Instrumentation;
3. Facilitated investment partnerships;
4. Mutual accountability systems.

Enhancing Engagement to Accelerate Action

As the need for more effective engagement of stakeholders at all levels becomes apparent—and in light of the Global Stocktake process requiring input from affected parties, advocates, watchdogs, and communities, to provide the integrated and holistic picture of real-world progress toward the Convention mandate of preventing dangerous anthropogenic interference with the climate system—CCI put forward a Capital to Communities standard in the 2022 Reinventing Prosperity Report. The core of that standard is direct, ongoing engagement of citizens and stakeholders in the design and implementation of policies that deliver:

Funding to overcome loss and damage (FOLD);
Finance for adaptation and resilience measures (FARM).

In both cases, the idea is that engaging not only leaders and institutions but local observers, affected parties, including the most marginal and vulnerable, can create the root structure needed to infuse policy, investment, trade, and everyday practice with the ingredients of successful climate-resilient development. Local engagement can be sustained through intentional, contextual application of the Engage4Climate model for local stakeholder meetings, outlined in this Toolkit.

A recent technical paper outlines existing and potential modes of enhanced engagement for non-Party stakeholders across the public and private sectors in proceedings of the Glasgow Committee on Non-Market Approaches (GCNMA):

Action for Climate Empowerment (ACE), outlined by Article 6 of the Convention and Article 12 of the Paris Agreement includes public participation as a core priority.
Efforts under the Marrakech Partnership for Global Climate Action to mobilize and align non-Party stakeholders and support systems transformation could engage non-Party stakeholders in NMA-related activities, including the GCNMA process.
Spin-off groups established to allow more in-depth discussion among interested Parties on specific topics identified by the GCNMA, which could include participation of stakeholders.
Engagement through Regional Collaboration Centers (RCCs) is an opportunity for the GCNMA to welcome perspectives and guidance from regional and local stakeholders.
Connecting the broader Article 6 capacity-building programme to the RCCs could support enhanced engagement, capacity development, and implementation.
Interaction between the UNFCCC web-based platform outlining NMAs could encourage stakeholders to become involved in the work programme activities.

Non-market approaches to international cooperative climate action present an unprecedented opportunity to raise ambition and support the institutional transformation required to achieve successful climate-resilient development for all. The cost-savings to nations inherent in meeting that highest ambition standard—which is also the Convention mandate and a guiding legal standard for all nations, under the Paris Agreement—far outweigh the investments needed to mobilize these powerful cooperative arrangements.

By enhancing engagement, nations can accelerate action toward climate goals, while fostering sustainable development and poverty eradication across borders. NMAs are inherently high-level activities, because they are intergovernmental and multilateral in nature, but they also require grounding in the everyday experience of people in community. NMAs will be most successful when they support the health and resilience of the everyday economy.

No Excuses

Non-market approaches are a natural extension of relations between countries. That such arrangements are urgently needed, overtly called for in agreed international law, capable of supporting much-needed reform of international financial arrangements, and applicable to local, national, and international imperatives, means there are no excuses for not moving to create the best-case NMAs.

Those best-case NMAs should support:

rapid and accelerating decarbonization (OMGE),
contextual and evolving adaptation and resilience measures,
active reduction of vulnerability, especially for the most vulnerable, and
the steady and increasing mainstreaming of climate-related activities across the whole economy, including through improved trade relations and international finance.

Key Messages

Non-market approaches (NMAs) in line with Article 6.8 of the Paris Agreement are cooperative best-future strategies.
Complexity is opportunity – NMAs need roots in everyday life and should interact and compound each other’s positive effects; engage stakeholders to accelerate action.
‘Integrated and holistic’ means working across conventions and across the whole economy to achieve multidimensional sustainability. Act in more places to make more good happen.
No excuses – Low ambition is irrational and unaffordable; design NMAs to be engines of ambition, mobilization, and wellbeing.

Resources

For more information about Article 6.8 non-market approaches, please refer to the CCI-curated Article 6.8 Reading List: https://good.ctzn.works/a68
For the long list of existing and prospective non-market approaches outlined ahead of the SB56, please refer to the May 2022 Synthesis Report on paragraph 6 of decision 4/CMA.3, prepared by the Secretariat. (PDF download)
For information about the Glasgow Committee on Non-Market Approaches, the Work Programme, other aspects of Article 6.8 implementation, please visit the UNFCCC Cooperative Implementation page.
For information about Article 6.8 meetings during the SB58, please refer to Item 15 on the SBSTA 58 provisional agenda.
For possible emerging modalities for international non-market cooperative approaches to agriculture and food security, please refer to Item 10 on the SBI 58 provisional agenda.
For Article 6.8 connections to cooperative financing for food systems transformation and related data systems integration efforts, read this Good Food Finance brief.
For information about the overall aims and expectations for the SB58 conference, read the Joint Scenario Note from the SBI and SBSTA Chairs.
For more detailed information about the Capital to Communities approach, engaging stakeholders in design and delivery of climate-related financial resources, please refer to the 2022 Reinventing Prosperity Report.