Financing the Energy Transition through Cross-Border Investment

Abstract

Article 6 of the Paris Agreement, finalized at COP26 in 2021, was meant as a key tool for financing the energy transition. Through Article 6, emissions reductions in one country count for the climate targets of another. Developed countries receive credit for emission reductions they finance outside their borders, allowing these states to reach ambitious targets they would otherwise miss. Creating avenues for developed states to achieve cost-effective net emissions reductions, wherever in the world, is especially important in light of growing fears around energy security and affordability. On the other side of Article 6, developing nations host infrastructure projects and receive low-cost funding. As access to capital becomes more constrained globally, Article 6 offers a win-win: lowered net emissions for developed states alongside new capital for sustainable development in emerging markets.