This document discusses options for transitioning units from the Clean Development Mechanism (CDM) into the new mechanism under Article 6.4 of the Paris Agreement. There are currently around 0.8 billion unused certified emission reduction (CER) units from the CDM that could potentially transition. However, allowing all of these CERs to transition could flood the new market and undermine its environmental integrity by far exceeding expected demand up to 2020. Not allowing any CERs to transition would help safeguard the new mechanism's integrity. More limited transition options could include restricting certain project types, regions, or vintage years of CERs. Further analysis is needed to understand the implications of different transition scenarios.

1. Climate Change Expert Group www.oecd.org/env/cc/ccxg.htm
Transition of units from the
Clean Development Mechanism
into the Article 6.4 mechanism
Luca Lo Re
Breakout Group 5
Based on:
Analysing key technical issues for markets negotiations under
Article 6 of the Paris Agreement, Lo Re and Vaidyula (2019, draft)
CCXG Global Forum on the Environment and Climate Change
27 March 2019

2. 2 Climate Change Expert Group
Outline
 Definition of the issue of the transition of units
 Discussed options
 Quantification of the impacts of the transition of units
 Implications
 Examples of options to limit the volume of transitioning
of units

3. 3 Climate Change Expert Group
Transition of Kyoto Protocol into the
Article 6.4 mechanism
Transition of activities Transition of units
Transition of
methodologies and
other rules
The possibility to migrate
units already issued from
existing activities under
Kyoto Protocol (KP)
mechanisms into the
Article 6.4 mechanism

4. 4 Climate Change Expert Group
What units might be transferred to
the new mechanism?
 Analysis focused on CDM because it is the most heavily
used among the three KP mechanisms (CDM, JI, IET)
 Available CERs: CDM units issued but not yet used (not
cancelled nor retired)
o Currently available CERs
o Potential CERs supply to 2020 (to 31 December
2020)

5. 5 Climate Change Expert Group
Discussed options for the
transition of available CERs
 “Full transition”
 Limited transition
 No transition
Important to quantify to draw implications

6. 6 Climate Change Expert Group
Methodology to estimate the
currently available CERs
Total CERs issued
CERs in holding accounts in CDM Registry
CERs in cancellation accounts in CDM Registry
CERs in holding accounts in Annex I registries
CERs in cancellation accounts in Annex I registries
CERs in retirement accounts in Annex I registries
CERs in replacement accounts in Annex I registries
Currently
available
CERs
UNFCCC
CDM
Registry
UNFCCC
Standard
Electronic
Format
(SEF)
tables

7. 7 Climate Change Expert Group
Quantification of currently available
CERs
Source: Authors. Data sources: UNFCCC Secretariat, Standard Electronic Format (SEF) tables. Data as at 31
December 2017.
42% of total CERs issued cumulatively
since the start of CDM
Total
CERs
issued
1.9
billion CERs
Used (cancelled or
retired) CERs
1.1
Available CERs
0.8
CERs in cancellation
accounts in the CDM registry
CERs in cancellation
accounts in Annex I national
registries
CERs in retirement accounts
in Annex I national registries
CERs in holding accounts in
Annex I registries
CERs in holding accounts in
the CDM registry

8. 8 Climate Change Expert Group
Potential CERs demand to 2020
Source: Authors.
Data sources: Available CERs: own calculation; Demand: (Fearnehough et al., 2018).
With only currently available CERs, the supply would be more
than 2.5 times higher than the estimated demand in 2020
Currently available CERs
(as at 31 Dec 2017)
Estimated potential
CERs demand to 2020
0 1 billion CERs
0.3
0.8

9. 9 Climate Change Expert Group
Quantification of potential supply and
the issue with “dormant” projects
Currently available CERs
Potential CERs supply to 2020

10. 10 Climate Change Expert Group
Quantification of potential supply and
the issue with “dormant” projects
 Current CDM rules: if projects continue to monitor
GHG abatement then they can request retroactive
issuance of CERs at any time within their crediting
period
 There are many “dormant” projects that are not
currently issuing CERs but could do so
immediately, e.g. if a market signal is given
An agreement on transitioning CERs might trigger the
“dormant” projects to issue a high volume of CERs in the
pre-2020 period

11. 11 Climate Change Expert Group
Potential CERs demand and supply
to 2020
Source: Authors.
Data sources: Available CERs: own calculation; Estimated potential CERs supply 2020: (Schneider et al., 2017);
Demand: (Fearnehough et al., 2018).
The volume of potentially available CERs in 2020 could be
several times higher compared to the demand up to 2020
billion CERs
0.3
0.8
Currently available CERs
(as at 31 Dec 2017)
Estimated potential
CERs demand to 2020
0 1 2 3 4 5
Estimated potential
CERs supply to 2020
4.7

12. 12 Climate Change Expert Group
Implications of a full transition
 Prominent difference between supply and demand:
o Credit prices could remain low;
o Decrease the private sector incentives to invest in new
Article 6.4 mechanism activities.
 The use of pre-2020 issued CERs to fulfil post-2020 mitigation
targets could undermine the environmental integrity of the
Article 6.4 mechanism
Not allowing any CERs to transition would provide a great
safeguard of environmental integrity for the Article 6.4 mechanism

13. 13 Climate Change Expert Group
Examples of options to limit the
volume of transitioning CERs
 Another option is for Parties to consider to limit the
eligibility of the transitioning CERs into the Article
6.4 mechanism.
 Many possible options: e.g. limiting the transition by
certain types of activities and/or specific regions and/or
specific vintages.

14. 14 Climate Change Expert Group
Examples of options to limit the
volume of transitioning CERs
Source: Authors. Data sources: Available CERs: own calculation; Estimated potential CERs supply 2020: (Schneider
et al., 2017); Demand: (Fearnehough et al., 2018).
Different implications are possible depending on the design of the
options. A possible combination of these and other restrictions
are also possible. Further analysis would be needed.
billion CERs
0.3
0.8
Currently available CERs
(as at 31 Dec 2017)
Estimated potential
CERs demand to 2020
0 1 2 3 4 5
Estimated potential
CERs supply to 2020 4.7
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Scenario 5
0.1
0.4
2.4
0.6
0.2

15. 15 Climate Change Expert Group
Conclusions
 Transition of units ≠ transition of activities
 A full transition of CERs could substantially dilute the market
of the Article 6.4 mechanism from the outset, implying low
credit prices, and less incentive for private sector investment
in new mechanism activities.
 A full transition could also undermine the environmental
integrity of the mechanism. Not allowing any CERs to
transition would provide a great safeguard of environmental
integrity for the new mechanism.
 Another option is for Parties to consider to limit the eligibility of
the transitioning CERs into the Article 6.4 mechanism.

16. Climate Change Expert Group www.oecd.org/env/cc/ccxg.htm
Thank you
luca.lore@iea.org
manasvini.vaidyula@oecd.org
www.oecd.org/env/cc/ccxg.htm