Summary of SB50 discussions on Article 6.2 and 6.4 Paris Agreement

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Date produced: 11/07/2019

Can you provide a summary of the latest developments on Article 6.2 and 6.4, Paris Agreement.

Advice:

The work under Article 6 was one of the few parts of the Paris rulebook that was not completed at Katowice.

It was hoped that agreement on final texts could be reached at SBSTA 50, but this was not possible. However, the negotiatiors have condensed their proposals into negotiating texts reflecting the range of views through the use of options, brackets and narrative. There was no consensus for inter-sessional work (workshops, technical papers, etc.) but at least the issues that need to be resolved are now clearly presented in the negotiating texts.

Article 6.2 (cooperative approaches)[1]

Relationship between ITMOs and NDCs

The relationship between ITMOs and NDCs is still a matter of discussion.

In particular, parties disagree as to whether a party should be able to transfer ITMOs in respect of sectors and greenhouse gasses that are not covered by that party’s NDC. Some parties argue against this on the basis that, if implemented, it would give parties a perverse incentive to avoid broadening the coverage of their NDC. A compromise might be found in a proposal to require parties to make corresponding adjustments where it transfers ITMOs based on sectors and greenhouse gasses not covered by its NDC.

Parties also disagree as to whether ITMOs can be used for international mitigation purposes other than towards an NDC. An example that featured in discussions was using ITMOs towards the International Civil Aviation Organisation’s (‘ICAO’) Carbon Offsetting and Reduction Scheme for International Aviation (‘CORSIA’). An objection to this proposal is that it does not appear to have been what was envisioned on a literal reading of Article 6.2, which refers to “the use of internationally transferred mitigation outcomes towards nationally determined contributions”.

Accounting

One of the key differences between parties concerns the nature of so-called ‘corresponding adjustments’. The idea is that the party transferring an ITMO will make a corresponding adjustment to its NDC as set out in the Guidance. This is said to be the mechanism to ensure transparency and avoid double counting as required by Article 6 (and indeed Article 13.4.) However, this is contentious.

The fundamental difficulty is that NDCs are envisioned by the Paris Agreement as being nationally determined: both the extent of the commitments entered into and the form in which those commitments are given is to be left to the discretion of each party. Article 4 does contain some provisions concerning the form and content of NDCs, but these apply to certain groups of states only and are not absolutely binding. For example, “[d]eveloped states should […] undertake economy-wide absolute emission reduction targets”[2] while LDCs and SIDS “may prepare and communicate strategies, plans and actions for low greenhouse gas emissions development[.]”[3] The difficulty arises in how a corresponding adjustment can be applied using the same methodology, given that NDCs are expressed in different ways.

Most of the options under consideration reflect the reality that, due to the diversity of form among NDCs, there will have to be multiple methods for applying corresponding adjustments, although one proposal requires that participating parties have NDCs quantified in the same metric. Another method is provided for ITMOs measured in tonnes of CO2 emissions. The text also reflects proposals for a buffer-registry, where adjustments would be made by effecting additions and subtractions from a starting point of a zero balance. Some options provide for parties to apply the resulting balance to their NDCs in accordance with the Article 13.13 and decision 18/CMA.1, but one proposal provides for parties to apply the resulting balance as part of the regular information they provide to track progress in implementing and achieving its NDC pursuant to Article 13.7(e). The latter proposal, although arguably gives participating parties greater freedom of form in expressing its NDC, risks compromising transparency and environmental integrity.

Parties also differ as to whether corresponding adjustments should be made to emissions and removals covered by an NDC or by the quantification of emissions level allowed under an NDC.

Regular Information

The negotiating text contains a requirement for parties to submit information as to how they implement the Guidance. There appears to be a significant degree of consensus around this approach, although some parties are concerned that care be taken to avoid duplication with other reporting obligations. There is at present a bracketed proposal for this information to be submitted as part of biennial transparency reports pursuant to Article 13.13 and decision 18/CMA.1, which appears to at least partially address this concern.

Article 6.4 (market mechanisms)[4]

Activity Cycle

The requirements an activity must fulfil to be eligible under Article 6.4 remain unclear. Outstanding issues include whether actions relating to forests under Article 5 of the Paris Agreement can be registered under Article 6.4, and whether the activity must achieve emissions reductions within the scope of the host party’s NDC. Some parties suggest that corresponding adjustments should be made where activities achieve emissions reductions outside of the scope of a party’s NDC to avoid the risk of double-counting.

Further, the requirements for the methodologies used to assess the emissions reductions from an activity is a contentious issue, with some parties arguing that methodologies should be able to use ‘business as usual’ or historic emissions, as opposed to a performance-based approach, when setting the baseline by which emissions reductions are identified. A key issue is whether, for an activity to be truly additional, it must achieve emissions reductions that are additional to those needed to achieve the NDC of the host party, or whether it is merely sufficient to achieve emissions reductions beyond those that would otherwise occur under existing legal requirements of the host party. Bracketed text includes a reference to emissions reductions that are ‘complementary’ to the host party’s NDC: this might form the basis of a compromise but it is unclear what exactly is meant by this in practice.

There is also proposed text that allows the supervisory body to waive additionality requirements for LDCs and SIDS.

Governance & Infrastructure

The current negotiating text shows there is an emerging consensus around some aspects of governance under Article 6.4. However, the ‘division of labour’ between the supervisory body and host parties remains one of the key outstanding issues. One proposal is a centralised approach, where the supervisory body is tasked with operating the Article 6.4 mechanism by accrediting entities, designing methodologies, approving the issuance of emission reductions, maintaining a registry, etc. Another proposal is that the supervisory body takes a more decentralised approach and supervises host parties who volunteer to operate the Article 6.4 mechanism by conducting those functions themselves. A compromise proposal currently contained in the negotiating text would permit a parallel system of governance: individual parties operate the Article 6.4 mechanism under the supervision of the supervisory body, while the supervisory body is also tasked with performing those operational functions itself.

Transition from the CDM/JI

A contentious issue is whether projects under the Kyoto Protocol’s Clean Development Mechanism (‘CDM’) or Joint Implementation (‘JI’) should be transferred to the new mechanism to be established under Article 6.4. Some parties favour this, arguing that the Kyoto Protocol ends in 2020 and a transition would provide the greatest certainty for the private sector. Other parties disagree, either because (a) the CDM/JI projects would not meet the criteria for inclusion under the Article 6.4 mechanism and/or (b) the effect of including these projects would be to increase the supply of, and therefore decrease the price of emissions reductions issued under the Article 6.4 mechanism. A compromise option may well be to provide an expedited registration process for the transition of CDM/JI projects that meet the criteria for projects for inclusion under Article 6.4 only. Some parties have commented that transitional arrangements should wait until there is greater clarity around the design of the Article 6.4 mechanism.

There is also discussion about transitioning methodologies and accreditation standards developed under the Article 12 of the Kyoto Protocol.

Common issues

Some cross-cutting issues have emerged.

Sharing of Proceeds

Firstly, parties disagree as to whether – and if so, how – the proceeds of carbon markets should be shared with developing country parties to finance adaptation by means of a levy on transactions. The Paris Agreement provides for a share of proceeds in relation to market mechanisms under Article 6.4, but some parties seek to extend this approach to some or all transfers under Article 6.2.

The issues include whether the levy should be a monetary percentage, a percentage of emissions reductions or a combination of the two. Parties also disagree as to the percentage that should be chosen and whether the percentage levied should increase with each subsequent transfer.

The proposed text is still in its infancy and further elaboration and development is required.

Overall Mitigation in Global Emissions

Some parties argue that the Guidance adopted under Article 6.2 should include provision for ensuring that cooperative approaches aim to ensure an overall mitigation in global emissions. Others object on the basis that the Paris Agreement does not specify such an aim in respect of Article 6.2, but only in the context of Article 6.4.

Proposals include voluntary cancellation by parties, cancellation of a specified percentage, although some parties argue that, with respect to Article 6.4, use of the mechanism in itself ensures overall mitigation in global emissions.

Sustainable Development and Human Rights

An emerging issue is ensuring that Article 6 activities promote sustainable development and respect human rights. Parties differ as to what language, if any, should be included in the negotiating texts.

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[1] https://unfccc.int/documents/197875

[2] Art 4.4 Paris Agreement (2015).

[3] Art 4.6 PA

[4] https://unfccc.int/documents/197876