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What Everyone Needs to Know About Article 6 (Carbon Markets) Ahead of COP25

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Article 6 (carbon markets) will be a huge focus at COP25 in December. This webinar will explain the basics of Article 6, its importance, status of negotiations and more.

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What Everyone Needs to Know About Article 6 (Carbon Markets) Ahead of COP25

  1. 1. ARTICLE 6: WHAT’S AT STAKE KELLY LEVIN, KELLEY KIZZIER, MANDY RAMBHAROS, AND YAMIDE DAGNET
  2. 2. • Join audio: – Preferred method: through Computer Audio – Back-up: choose Telephone and dial- in using the phone numbers listed in the webinar confirmation email • Attendees remain in listen-only mode • Please select “Q&A” at the bottom of your screen for any questions or comments during the webinar • Today’s presentation will be recorded and made available in 24 hours Matt INTRODUCTION Attendee Participation If you experience technical problems during the webinar, please submit questions in the Q&A section or to Beth.Elliott@wri.org ARTICLE 6: WHAT’S AT STAKE
  3. 3. Today’s Speakers (in the order of presentation): • Yamide Dagnet, Senior Associate, WRI • Kelly Levin, Senior Associate, WRI • Kelley Kizzier, Associate VP for International Climate, EDF • Mandy Rambharos, Article 6 Negotiator, South Africa INTRODUCTION ARTICLE 6: WHAT’S AT STAKE
  4. 4. Kelly Levin Senior Associate, WRI ARTICLE 6: WHAT’S AT STAKE
  5. 5. THE POTENTIAL OF ARTICLE 6 • 51% of NDCs constituting 31% of GHG emissions include the use of carbon markets • Potential cost savings of $250 billion per year in 2030 • 50% more abatement by 2030 at no additional cost If these savings are translated into enhanced ambition (source: IETA) Climate Watch, IETA
  6. 6. BUT MANY ISSUES AT STAKE • Double counting • Additionality • Delivering increased ambition and progression • Financing for Article 6 activities and adaptation
  7. 7. RULEBOOK FOR ARTICLE 6 • For Article 6.2, Parties are requested to develop guidance for robust accounting to be applied where cooperative approaches involve the use of internationally transferred mitigation outcomes (ITMOs) towards achieving NDCs. • For Article 6, paragraph 4 (6.4), Parties are to adopt rules, modalities, and procedures for an Article 6.4 mechanism to contribute to GHG mitigation and to support sustainable development. • Parties are to undertake a work programme under the framework for non-market approaches defined in Article 6.8.
  8. 8. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  9. 9. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  10. 10. CORRESPONDING ADJUSTMENT • Double counting: when a carbon credit created in one country is transferred to another country and both count the results towards their NDCs – also called double claiming. • Expressly prohibited in Article 6.2 – leads to an increase in global emissions, – undermines the price signal – and can seriously weaken the integrity of the Paris Agreement. • Decision 1/CP.21 - double counting in Article 6.2 is avoided on the basis of a “corresponding adjustment.” • Both Parties to the cooperation make an adjustment (e.g. to their emissions totals derived from their GHG inventory) • Double counting is avoided because the adjustments correspond (one addition and one subtraction). • In practice, implementing these corresponding adjustments is more complicated.
  11. 11. 1. CORRESPONDING ADJUSTMENT TO AVOID DOUBLE COUNTING Schneider et al. 2017
  12. 12. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  13. 13. HOW TO MAKE A CORRESPONDING ADJUSTMENT FOR NON-GHG TARGETS • Many headline NDC or NDC components are framed in non-GHG terms(e.g. committing to install kwh of renewable electricity)? • Should these countries be limited in their access to Article 6? • Yet to be determined whether, and how, a country with a non-GHG NDC target would convert the mitigation outcome or the target itself into CO2e
  14. 14. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  15. 15. HOW TO MAKE A CORRESPONDING ADJUSTMENT FOR SINGLE- AND MULTI-YEAR TARGETS • Several approaches being considered to address this issue. • Should all Parties must pick the same approach or can they choose? • Single-year targets pose a particular challenge because buying Parties could count many years of accumulated mitigation outcomes towards target.
  16. 16. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  17. 17. ACCOUNTING FOR SECTORS AND GREENHOUSE GASES NOT COVERED BY THE NDC • Whether, and if so for how long, Parties can transfer emissions reductions that they achieve outside of sectors and gases covered in their NDCs. • Can be perverse incentive for countries to avoid expanding the scope of their NDCs • Subject to corresponding adjustment?
  18. 18. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  19. 19. ACCOUNTING FOR NON-UNFCCC COMPLIANCE SCHEMES The discussion to date has focused on CORSIA, an international agreement on reducing emissions from international aviation. Key remaining issue is whether non-NDC uses are covered by Article 6 rules and how in practice to avoid double, including how to apply a corresponding adjustments.
  20. 20. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  21. 21. Kelley Kizzier Associate Vice President for International Climate, Environmental Defense Fund ARTICLE 6: WHAT’S AT STAKE
  22. 22. AVOIDING DOUBLE USE OF EMISSIONS REDUCTIONS FROM THE ARTICLE 6.4 MECHANISMS • Double Counting is explicitly referenced for Article 6.2, but not in 6.4 • Parties can’t agree whether double counting apply to Article 6.4 credits when transferred internationally for use towards NDC or for other purposes • The vast majority of Parties believe that double counting needs to be avoided for Article 6.4 • a corresponding adjustment must be applied by the host Party to avoid double counting of the underlying emissions reduction. • the integrity of the Paris Agreement is significantly undermined if double counting is not prohibited for Article 6.4. • A few other Parties argue that double counting does not apply to Article 6.4: • the additionality requirement in Article 6.4; the activity is necessarily additional to what would have otherwise occurred so, there is no double counting; • The NDC is in essence the actions or activities included. If Article 6.4 activities are outside of this scope, they are additional to the NDC and the avoidance of double counting is unnecessary. • The fundamental question of double counting - are the emissions reductions counted twice ?
  23. 23. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  24. 24. 2. SETTING BASELINES AND AN APPROACH TO ADDITIONALITY IN ARTICLE 6.4 • The Paris Agreement, in which all Parties have NDCs, creates new challenges for the Article 6.4 mechanism related to: – the role of the host Party in the 6.4 mechanism including in the approach to determining baselines and additionality; – important that the mechanism does not put a host Party at risk of not achieving their NDC or of transferring their low cost emission reductions abroad. – Whether and how NDCs and related policies are taken into account
  25. 25. 2. SETTING BASELINES AND AN APPROACH TO ADDITIONALITY IN ARTICLE 6.4 (CONT.) • Many Parties support baselines – set conservatively and below business as usual emissions; – which are standardized by setting them according to benchmarks using regionally appropriate best available technology thresholds or similar; – which are dynamic – updated to reflect new policy or changes to underlying parameters;This Photo by Unknown Author is licensed under CC BY • Other Parties continue to support baselines -- Set at business-as-usual emissions levels or historical emission levels, as they were in the CDM -- Without the crediting constraints implied by other options
  26. 26. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  27. 27. 3. TRANSITION OF KYOTO PROTOCOL MECHANISMS AND THEIR METHODOLOGIES, ACTIVITIES AND UNITS Transition is about rules, activities and units • Methodologies and Rules: – some of the KP rules might be relevant for Article 6.4; 1/CP.21 explicitly calls for the rules, modalities and procedures to take into account the lessons learned under Kyoto; • Activities: – some Parties argue for automatic registration under Article 6.4 without constraint; – others argue for registration to the extent that activities meet or are updated to reflect the new context (incl for baselines and additionality); – Concern that this perpetuates regional distribution imbalances; • Units: – Potentially 4 billion tonnes of surplus; – Many worry that the use of these will significantly water down ambition of already insufficient NDCs and crowd out all demand for new and additional projects in CORSIA; – Many also point out that many of these credits were issued in the absence of a price signal – questions about their additionality.
  28. 28. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  29. 29. Mandy Rambharos Article 6 Negotiator, South Africa ARTICLE 6: WHAT’S AT STAKE
  30. 30. 4. SHARE OF PROCEEDS an amount levied on transactions and used towards a particular purpose. Article 6 paras. 4 and 6 state that a “share of proceeds” from the Article 6.4 mechanism is to cover administrative expenses as well as to assist vulnerable developing countries to meet the costs of adaptation. Parties have not come to an agreement on whether a share of proceeds should also apply to Article 6.2 activities.
  31. 31. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  32. 32. 5. OVERALL MITIGATION IN GLOBAL EMISSIONS • Article 6.4 stipulates that the Article 6.4 mechanism is to deliver an “overall mitigation in global emissions” (often referenced as OMGE). • The definition of OMGE is contested. • Art 6.2 has no reference to OMGE. • Yet to be determined how OMGE will be operationalized.
  33. 33. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  34. 34. 6. GOVERNANCE OF ARTICLE 6 • Parties still have yet to agree on the governance of Article 6.2. • Under 6.4 there are still issues left to negotiate, for example the composition of the supervisory body and its rules of procedure • In addition, Parties have not yet agreed on the role of the Article 6 review team vis-à-vis the Article 13 review team or the coordination between these teams, and the timing of reviews
  35. 35. 1. Avoiding Double Counting on the basis of Corresponding Adjustments • For non-GHG targets • For single- and multi-year targets • Accounting for sectors and GHGs not covered by the NDC • Accounting for non-UNFCCC compliance schemes (e.g., CORSIA) • Avoiding double use of emissions reductions from the Article 6.4 Mechanism 2. Baselines and additionality in Article 6.4 3. Transition of Kyoto Protocol Mechanisms and their methodologies, activities and units 4. Share of proceeds 5. Overall mitigation in global emissions 6. Governance of Article 6 7. Reporting of Article 6 and Link with Reporting under the Article 13
  36. 36. 7. REPORTING OF ARTICLE 6 AND LINKAGE TO ARTICLE 13 ENHANCED TRANSPARENCY FRAMEWORK • Para 77(d) of the Annex to 18/CMA.1: each Party must provide information in a structured summary including on the use of ITMOs. • The CMA noted that information provided in paragraph 77(d) is “without prejudice” to the outcomes on Article 6 matters. • Some say more info is needed; others say sufficient. • Question about applicability: specifically focuses on ITMOs. Apply to Art. 6.4? • Given the “without prejudice,” disagreement whether can be reopened and renegotiated.
  37. 37. “MAKING SENSE OF ARTICLE 6: KEY ISSUES AND WHAT’S AT STAKE” SOON TO BE PUBLISHED. STAY TUNED.
  38. 38. Any Questions? ARTICLE 6: WHAT’S AT STAKE
  39. 39. Thank you for your time. Contact Beth.Elliott@wri.org with any further questions ARTICLE 6: WHAT’S AT STAKE

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