Case Study

Concept note defines roadmap for Kuwait Fund engagement in Article 6

In designing a roadmap for Article 6.2 engagement under the Paris Agreement, we advised Kuwait’s finance institution on how to develop a strategy for utilizing carbon markets to support the achievement of Kuwait’s 2050 carbon neutral target.

The Story

Set out the strategy for participation as an investor

The Kuwait Fund needed to fully understand Article 6 and be able to assess a host country’s readiness for participation, what the capacity needs are for engaging in Article 6 as an investor, and what strategy for engagement could be used to achieve this.

Provide the necessary guidance to develop a strategy and make investment decisions

We presented the client with a framework which was built on tools published by UNDP and other international institutions, which the would allow the client to develop its own strategy for integrating carbon markets in its investment decisions. We provided an overview of Article 6 and how it works, as well as outlining the risks host countries face such as over-transferring – which may limit their propensity to transfer carbon credits under Article 6.. We also provided steps that the client could follow on how to effectively engage in Article 6.

Assess host country readiness

The Fund would be able use the Mitigation Action Assessment Protocol for International Transfer Readiness (MAAP-ITR) to assess a host country’s readiness to participate in Article 6. The host country’s readiness, the robustness and transparency of its processes, and its policy for authorization of ITMOs (i.e., from what sectors and what type of mitigation activities it may want to export carbon credits) are essential for understanding the risks and terms of a business case. Another important area is the commercial terms in the context of carbon markets.

The client also needed to understand the role of the Mitigation Outcome Purchase Agreements (MOPAs) The client needed to understand the role of the mitigation outcome purchase agreements (MOPAs) which defines the commercial terms such as volumes, price, and delivery schedule.

A MOPA includes obligations and the consequences for the contracting partners if these obligations are not respected.

Define an ideal portfolio

It was also recommended that the client define what an “ideal” portfolio should look like for their investment strategies, basing this on their objectives, risks-rewards strategies, and financing structure, among other things. In addition to this there are existing platforms that the client can use such as UNDP’s Carbon Payments for Development Facility (CPDF) which has a Digital Article 6.2 Platform that supports host countries and entities like the Kuwait Fund to engage in Article 6.

Build capacity

Lastly, the client would need to conduct capacity-building and train staff on the framework, involve stakeholders such as project developers and the government counterparts, and screen their portfolio to identify pilot projects.

Drivers of change

Invest with confidence and generate revenue for host countries

Through the implementation of this framework, the Kuwait Fund would be able to gain the necessary authorization to claim Internationally Transferable Mitigation Outcomes (ITMOs) as a return on their investment. Thus, they would be supporting the financing of low-carbon technologies while generating revenue for participating host countries.