Summary of SB48-2 discussions on Article 6 Paris Agreement

Background:

Article 6, Paris Agreement contains three mechanisms that enable Parties to pursue cooperative approaches to the implementation of their nationally determined contributions (NDCs).  These mechanisms are commonly referred to as the Article 6.2, Article 6.4 and Article 6.8 mechanisms. These mechanisms are voluntary and for some Parties, may provide opportunities to increase ambition and lower the cost of compliance with NDCs.

Article 6.2 covers internationally transferred mitigation outcomes (ITMOs) and requires the COP serving as CMA to develop guidance to avoid double counting.

Article 6.4 establishes a new mechanism to contribute to greenhouse gas emissions reduction and sustainable development. The new Article 6.4 mechanism will be supervised by a body designated by the COP serving as CMA.

Article 6.8 is often called the ‘non-market mechanism’. It establishes a framework to promote non-market approaches to mitigation and adaptation; incentivise and facilitate the involvement of public and private sector entities; and deliver overall migitation in global emissions, among other things.

Article 6 is of interest to the private sector, particularly in relation to whether and how these Paris Agreement mechanisms will recognise and transition any of the Kyoto Protocol flexibility mechanisms, such as the clean development mechanism (CDM). Many Parties are of the view that, even if a national decision has not been made with respect to the use of market mechanisms, it is important that the Paris Agreement mechanisms are credible, have integrity and provide confidence to Parties, the public and private sector and civil society.

SBSTA 48.1 adopted the following agenda for SBSTA 48.2 (Bangkok) in relation to Article 6:

Matters relating to Article 6 of the Paris Agreement:

• Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement;
• Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4 of the Paris Agreement;
• Work programme under the framework for non-market approaches referred to in Article 6, paragraph 8 of the Paris Agreement.

At SB48-2 in Bangkok, Parties engaged in detailed and productive discussions that helped understanding of technical issues. Good progress was made on a number of iterations of informal notes and Parties requested that the SBSTA Chair produce content in a joint reflections note with other presiding officers for consideration before COP24.

The Co-Chairs have since produced a joint reflections note (Joint Reflections Note) with text proposals for the Parties to progress at Katowice in Poland in relation to Articles 6.2, 6.4 and 6.8.

The Joint Reflections Note acknowledges that SBSTA 49 at Katowice will be a busy session. It asks Parties to focus preparation on developing compromises that can build support across numerous groups, rather than developing details of options that have the support of a single group or Party and will not likely be the basis for consensus. The Joint Reflections Note is at: https://unfccc.int/sites/default/files/resource/APA_SBSTA_SBI.2018.Informal.2.Add_.2.pdf

 Key Issues discussed at SB48-2 in Bangkok

SBSTA 48-2 agenda item 12 (Article 6) opened on 4 September and Parties quickly moved from matters of logistics and process to the informal texts. A new iteration of the informal notes for Articles 6.2, 6.4 and 6.8 were produced after the first day’s sessions. Parties were productive in identifying priorities for items to be reflected in different elements of potential decision text at COP24.

Much work remains to be done. It is clear from the SB48-2 outcomes and Joint Reflections Note that Parties will need to determine what content and elements are included in decision text at COP24 and which elements or issues will progressed in a 2019 work programme.

Key issues to be resolved by the Parties include:

• governance and oversight of mechanisms under Article 6 (including whether there is any inter-relationship between Article 6.2 and Article 6.4. There is divergence on whether these elements are separate or whether they are related and should be overseen by the same governance body). Some Parties contend that the elements are separate unless and until Article 6.4 creates mitigation outcomes which are internationally transferred (and may fall under the scope of Article 6.2);
• whether and how any Kyoto Protocol flexibility mechanisms (CDM or Joint Implementation) methodologies, projects, and/or emissions reduction units, should transition under the Paris Agreement; noting the CDM is a species of the KP, not the Paris Agreement – many consider not fit for new purpose without at least some changes. Stakeholders may want established or committed CDM projects to continue after 2020, when Kyoto finishes. There is a question about whether these will continue under the Paris Agreement and what happens to the emissions reduction units generated;
• whether and how share of proceeds requirements will apply (noting Article 6.6 anticipates share of proceeds being levied under Article 6.4). Some parties are of the view that a share of proceeds should apply to both of Articles 6.2 and 6.4, with some proceeds going to the Adaptation Fund; and
• interlinking with other elements of the Paris Agreement, such as the transparency framework (Article 13). A common theme in Bangkok was to seek to task the Technical Expert Review (TER) with considering Article 6 reports and information. It will be important for Parties to carefully consider whether and how it can task the TER with functions relating to Article 6, noting the mandate and scope of the TER under Article 13.

Resolution of these and other matters will require further technical work, but also political input at COP24. Other considerations relevant to Article 6 negotiations arising from SB48-2 at Bangkok and the Joint Reflections Note include:

• Accounting considerations, for example whether and how transfers within or outside Nationally Determined Contributions will be recorded and reported, how and when corresponding adjustments will apply, and how reporting and review requirements will operate. Negotiation about the accounting rules is complicated by the variety of NDC target types, scopes of coverage and time frames, (particularly when compared with the economy-wide, multiyear carbon budgets used uniformly under the Kyoto Protocol);
• How to address risks of double counting emissions reductions toward both the NDC target of the host country and the ITMO buyer’s NDC target. Related to inside/outside NDC considerations are questions around the extent to which Article 6 should or will interact with sectoral schemes (such as the International Civil Aviation Organisation’s global market based system established through CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation));
• The definition of what an ITMO is or might be and its main features, as well as the design and role of a centralised registry for ITMOs. The Paris Agreement text is silent on these matters;
• Metrics for measurement, verification and reporting. While there is a growing consensus that mitigation outcomes themselves should be expressed in terms of CO2 equivalence (as has been the approach under the Kyoto Protocol), ITMOs generated from within NDCs may be expressed in metrics that are not easily converted to “tCO-e”. Without more detailed and clear guidance, the diversity of metrics used in NDCs may complicate reporting and transparency matters and pose questions of compatibility, fungibility, and ultimately, integrity with respect to greenhouse gas emissions reductions;
• How centralised tracking may operate under Article 6.4 to assist in preventing double counting;
• Resolving divergence about how transfers of emission reductions under Article 6.4 will contribute to the overall mitigation of global emissions;
• What is covered by Article 6.8. There appears to be an emerging view that the development of the framework under Article 6.8 can form part of a work programme for 2019. A number of Parties remain unclear about the operation of the non-market mechanism. Others consider it could include matters such as the removal of subsidies on certain energy types and transport, innovative finance like green bonds, new policies or programs that cause technology or information transfer; and
• Environmental and social safeguards, consistent with sustainable development and environmental integrity. These items are relevant to each Article 6 element, and will likely be a focus of discussion in relation to the governance arrangements for the supervisory body under Article 6.4. A number of Parties want to ensure this governance body has appropriate grievance procedures, so that Parties and stakeholders can have confidence in the new Article 6.4 mechanism.