Brazil is querying whether, for the purpose of Article 6 Paris Agreement, policies and measures implemented at domestic level are to be treated as outside the scope of its (economy wide) NDC and therefore corresponding adjustments do not apply to them. It argues that each party should be able to specify which policies, programs or reductions are inside and outside its NDC.
Do they have a valid (legal) argument to support this position or is there a legal argument that can be put forward to refute this position?
Our view is that it would not be possible for Brazil to substantiate a claim or argue that (i) policies and/or measures implemented at domestic level are outside the scope of its economy-wide nationally determined contribution (NDC), and (ii) where such policies or measures promote or result in the sale or transfer of an internationally transferred mitigation outcome (ITMO) under Article 6, Paris Agreement to another Party or a private entity outside of Brazil, a corresponding adjustment to Brazil’s NDC would not be required. We have set out our rationale for this point of view below.
Assumption: our advice below assumes that Brazil accepts that the market mechanisms in Article 6 (i.e. those contemplated in Article 6.2 and 6.4) are designed exclusively for the purpose of enhancing Parties’ NDC ambitions and facilitating cooperation in the implementation and achievement of the goals and targets set out in Parties’ NDCs. If, however, Brazil’s point of view is based on the premise that Article 6.4 (in particular) is intended to relate to additional emissions reductions and removals (i.e. emissions reductions and removals that are separate and additional to the emissions reductions and removals contemplated by Parties’ NDCs) then our advice below would need to be supplemented by an assessment of the rules or framework that is published in connection with the market mechanism contemplated by Article 6.4 (currently subject to discussion at COP 26).
- Economy-wide absolute targets
Article 4.4 encourages “developed country Parties” to continue taking the lead by undertaking economy-wide absolute emission reduction targets.
Brazil’s updated NDC (submitted by it on 9 December 2020) commits Brazil to reducing its greenhouse gas (GHG) emissions in (i) 2025 by 37%, compared with 2005, and (ii) 2030 by 43%, compared with 2005. This actually weakened Brazil’s original NDC submission because, even though on paper Brazil’s targets are the same in the original and updated version of the NDC, the latter included an increase in the base year emissions (the base year being 2005) meaning that Brazil can continue to increase its emissions and still meet the targets under the updated NDC. We note that Brazil’s updated submission may have been made in potential contravention of Article 6.11 which requires any adjustments to an existing NDC by a Party to be made solely with a view to enhancing its level of ambition.
In paragraph 3(a) of the Annex to its NDC, Brazil provides a more detailed description of the target: “Economy-wide absolute targets, consistent with the sectors present in the National Inventory of Greenhouse Gas Emissions for 2025 and 2030, always compared to 2005”.
In paragraph 6(d) of the Annex to its NDC, Brazil acknowledges that “despite being a developing country, Brazil has already adopted an absolute, economy-wide target since it presented its iNDC”.
Our conclusion from the above is that, in line with Article 4.4, Brazil’s own NDC is based on total emissions removals across its entire economy. Therefore, logically, this does not allow for domestic measures and/or policies to legislate for emissions removals that can exist and be additional to or outside the scope of the target in Brazil’s NDC.
In simple terms, because of how it is phrased, Brazil’s NDC contemplates an assessment of economy-wide anthropogenic emissions and removals based on a single pool of emissions (or a single, economy-wide, GHG budget). As such, a sale or transfer of ITMOs under Article 6 would directly affect this single pool of emissions resulting in a need to increase the volume of emissions reductions or removals in the pool in order to compensate for the sale or transfer of the ITMOs outside of Brazil.
In addition to the foregoing, a similar conclusion can be arrived at with respect to Brazil’s argument that each party should be able to specify which policies, programs or reductions are inside and outside its NDC – this point becomes moot if the view that all policies, programs or reductions exist for the sole purpose of reducing or removing GHGs from the single pool of emissions (as described in the preceding paragraph) is accepted.
The points of view expressed in this paragraph 1 are enhanced by the provisions of Article 4.13.
2. Article 4.13
Article 4.13 requires Parties to account for their nationally determined contributions and states that, in accounting for anthropogenic emissions and removals corresponding to their nationally determined contributions, Parties are required to promote environmental integrity, transparency, accuracy, completeness, comparability and consistency, and are required to ensure the avoidance of double counting. The word “shall” is used consistently throughout this Article to demarcate these as hard obligations of the Parties.
On the basis of the conclusion arrived at in paragraph 1 above (i.e. that Brazil’s NDC mandates an assessment of progress toward meeting the goals set out in its NDC based on a single pool of economy-wide emissions), Brazil’s argument that domestic policies and measures that result in the sale or transfer of ITMOs under Article 6 mechanisms to other Parties or private entities outside of Brazil should not trigger an automatic corresponding adjustment to its national inventory could potentially cut across some or all of the requirements in Article 4.13. In particular, Brazil could breach the requirement to avoid double counting where, following a sale or transfer of ITMOs under Article 6, it fails to make a corresponding adjustment to its national inventory resulting in the GHG reductions or removals achieved by such ITMOs being counted twice – (i) once towards achievement of the targets and goals in the NDC of the purchasing Party (or, if the ITMO is sold or transferred to a private entity under the Article 6.4 mechanism, the Party in which that private entity is registered or has its primary place of business), and (ii) towards achievement of the targets and targets in Brazil’s own NDC. This could cut across the principles of environmental integrity, transparency, accuracy, completeness and avoidance of double counting, each of which is enshrined in Article 6.
3. Enhanced transparency framework and Article 13.7
Article 13.1 establishes an enhanced transparency framework in order to build mutual trust and confidence and to promote effective implementation between the Parties. As part of this frameworks, Article 13.7 requires each Party to regularly provide the following information:
- under Article 13.7(a), a national inventory report of anthropogenic emissions by sources and removals by sinks of GHGs, prepared using good practice methodologies accepted by the Intergovernmental Panel on Climate Change; and
- under Article 13.7(b), information necessary to track progress made in implementing and achieving its NDC under Article 4.
Failure by Brazil to make a corresponding adjustment to its national inventory following the sale or transfer of an ITMO under Article 6 on the basis of domestically implemented policies or measures would not absolve Brazil of (i) its obligation to report its emissions removals for the purpose of Article 13.7(a) under which it would need to disclose (in order to comply with its obligations under Article 4.13) the sale or transfer of ITMOs, and (ii) its obligation to provide information under Article 13.7(b) which, in our view, would necessarily include information relating to the sale or transfer of ITMOs (given that, as described in paragraph 1 above, any sale or transfer of ITMOs would affect the overall volume of emissions reductions or removals in the single pool and therefore be directly relevant to the tracking of progress made by Brazil in implementing and achieving its NDC under Article 4).
4. Article 6 is voluntary
The market mechanisms which are contemplated by (but which are yet to be developed under) Articles 6.2 and 6.4 are voluntary in nature with their purpose stated as facilitating the pursuit of voluntary cooperation by Parties in the implementation of their nationally determined contribution. In other words, nothing in Article 6 requires a Party to sell or transfer ITMOs under either market mechanism.
Brazil’s argument that, for the purpose of Article 6, policies and measures implemented at domestic level could be treated as outside the scope of its NDC (at Brazil’s discretion) and therefore not necessitate a corresponding adjustment to its inventory would result in a situation where Brazil’s participation in a voluntary market mechanism (potentially) cuts across its hard obligations under Article 4.13 and is ultimately at the expensive of the integrity of the goals and targets set out in its NDC.
5. No provisions supporting its argument
There are no provisions in the Paris Agreement that clearly support or corroborate Brazil’s point of view or argument.
However, as noted in the assumption in our summary above, if Brazil’s point of view and argument are premised on the rules and framework that is ultimately developed and settled on a version of the Article 6.4 market mechanism that is exclusive of NDC commitments and without linkage to the Article 6.2 market mechanism, then our view is that Brazil’s arguments may have some merit.
By way of example, Brazil could support its position by arguing that its intention of selling/transferring ITMOs internationally without making corresponding adjustments does not fall foul of the aims of the Article 6.4 mechanism described at paragraphs (c) and (d) of Article 6.4. However, the robustness of any argument along these lines would need to be tested against the final text of the Article 6.4 rules and framework which we understand is currently the subject of negotiations at COP 26 and in light of the well-rehearsed arguments against perverse incentives.
Lastly, we think it is worth noting that if Brazil wanted to facilitate its argument by diluting its current NDC to move away from the “economy-wide absolute targets” principle that it has set for itself, it should not permitted to do so on the basis of Article 4.11 which, as noted at paragraph 1 above, only allows a Party to adjust its NDC with a view to enhancing its level of ambition.
In light of (i) Brazil’s NDC contemplating an assessment of economy-wide anthropogenic emissions and removals based on a single pool of emissions, (ii) the hard obligations in Article 4.13 which promote transparency, accuracy, integrity and avoidance of double counting, (iii) the reporting obligations in Article 13.7 which ought to force disclosure of a sale of ITMOs and the effect of the same on Brazil’s national inventory, (iv) the voluntary nature of Article 6, and (v) the fact that there are no provisions supporting Brazil’s argument in the Paris Agreement, our view is that it would not be possible for Brazil to substantiate a claim or make an argument along the lines set out in the query above.