CCXG Global Forum March 2018, Information session:State of Play on Article 6.4 and links to accounting by MJ Mace

1. Information session:
State of Play on Article 6.4 and links
to accounting
MJ Mace
Saint Lucia
OECD CCXG
March 7, 2018

2. Many Article 6.4 issues are already resolved in
text of Articles 6.1, 6.3, 6.4, 6.5, 6.6...
• Art 6.1 – Parties engage in voluntary cooperation in the
implementation of NDCs to allow for greater ambition in mitigation
and adaptation action
• Art 6.4 - mechanism to contribute to the mitigation of GHG
emissions and support SD; centralized oversight, aims to
– promote the mitigation of GHG emissions while fostering SD
– Incentivize, facilitate participation in the mitigation of GHGs emissions
by public and private entities authorized by a Party
– contribute to the reduction of emission levels in the host Party, which
will benefit from mitigation activities resulting in emission reductions
that can also be used by another Party to fulfil its NDC and
– deliver an overall mitigation in global emissions
• Art 6.5 - More than one Party cannot use same Article 6.4 emission
reductions to demonstrate achievement of its NDC
• Art 6.6 - Share of proceeds for admin expenses and adaptation

3. And by decision 1/CP.21, para 37
• 37. Recommends that the Conference of the Parties serving as the meeting
of the Parties to the Paris Agreement adopt rules, modalities and
procedures for the mechanism established by Article 6, paragraph 4, of
the Agreement on the basis of:
(a) Voluntary participation authorized by each Party involved;
(b) Real, measurable, and long-term benefits related to the mitigation of
climate change;
(c) Specific scopes of activities;
(d) Reductions in emissions that are additional to any that would
otherwise occur;
(e) Verification and certification of emission reductions resulting from
mitigation activities by designated operational entities;
(f) Experience gained with and lessons learned from existing mechanisms
and approaches adopted under the Convention and its related legal
instruments;

4. But new language, new context, raises new issues
and challenges for PA markets
• All Parties now have NDCs, not just developed
countries
• Under Article 4.13, all Parties shall account for
their NDCs
– In accounting for emissions and removals all Parties shall
promote environmental integrity
– promote transparency, accuracy, completeness comparability,
consistency
– In accounting, Parties to ensure the avoidance of double
counting
• Article 6 now adds complexity to Article 4
accounting, for participating Parties

5. More information, tools required to support robust accounting
for Art 6 transfers, beyond Art 4 accounting,
beyond Art 13 transparency framework
• Need very clear understanding of NDC scope
– coverage in sectors, gases?
– land sector role in NDC, land sector accounting?
– Relationship between NDC and inventories?
– Is NDC budget-based (multi-year) or single year?
– How multiple contributions within an NDC relate?
• Need transparent information on unit transfers
– Party sources?
– Timing of underlying reductions, timing of transfers?
• Need accounting systems in place in participating countries
– to ensure avoidance of double counting
– enable tracking of transfers
– Inform reporting of progress toward NDCs once transfers/acquisitions
reflected

6. • Need additional reporting and review requirements
– To ensure guidance followed, transparency
– Frequency of accounting and reporting for transfers?
– Ongoing tracking for TACCC?
– Common metrics
• Need additional infrastructure, e.g.,
– Registries
– International Transactions Log (ITL)
– Reporting formats
– Compilation reports
– Reporting formats
• Need link to Article 15
– Facilitate improvement; address challenges that may arise

7. Examples of contested issues under Article 6.4
• Are emission reductions transferred from Article 6.4 activities
“ITMOs” for purposes of corresponding adjustments under Art.6.2?
• How to deliver an “overall mitigation in global emissions?”
– An automatic % cancellation of units on transfer? use? How to go
beyond offsetting?
• What is additionality in the context of an NDC?
– Does this concept relate to NDC scope and effort?
• Should projects/activities outside the scope of host Parties’ NDCs be
allowed or prohibited?
• Promoting sustainable development – who decides what SD is?
• Should Parties have quantified NDCs before acquiring or transferring
emission reductions?
• What quantitative restrictions on transfers, acquisitions e.g., to
protect environmental integrity, prevent overselling, protect primacy
of domestic mitigation efforts?
• “Transition” – can KP activities be considered under new rule set?

8. Where are we with discussions?
• On relationship between Art. 6.4 and 6.2
– Appreciation that rules for one should not prejudice/undermine the other
– Discussions around the need for both to meet agreed environmental integrity
standards
– Discussion on extending share of proceeds, overall mitigation in global
emissions to both 6.4 and 6.2
• Moving toward understanding that 6.4 “emission reductions” that are
internationally transferred are ITMOs for purposes of Article 6.2
– With all this entails (robust accounting, corresponding adjustments,
environmental integrity)
– Discussion on whether corresponding adjustments are needed for all transfers;
recognition of perverse incentives that may arise from exclusion
• On governance
– recognition that host Parties will play a greater role, to ensure for example that
domestic emission reductions are not transferred if they will be needed to meet
NDCs

9. Where are we with discussions?
• Accounting balances
– Many of the view that accounting balances or similar system will be
useful to reflect transfers through additions and subtractions
– recognition that NDC itself should not change with transfers, and
inventories also not change
– discussion on whether accounting balances to begin with an inventory
figure, NDC-based figure or other
• Specific rules to address single year and multi-year targets
– Many of the view that specific rules will be needed to address transfers in
the different contexts of single and multi-year targets, to support
accurate tracking, aggregation
– Not give unfair advantage/disadvantage

10. Where are we with discussions?
• On infrastructure
– Recognition that registries or access to a centralized registry is
important
– Recognition of value of unit identifiers, role of ITL
– Some debate on vintage
• On sustainable development
– Parties agree mechanism should support SD - but differ on
whether there should be external criteria agreed, or merely
national criteria
– Some Parties would welcome a tool; some willingness to report
on national criteria applied, degree of detail difficult to agree
• On “transition”
– Some Parties eager to talk transition from KP mechs; others of
the view that not appropriate to discuss until 6.4 rules agreed

11. Considerations to apply, in choosing between
Article 6.4 design options?
• What incentives align with Paris Agreement provisions and goals?
• What rules make it easier for Parties to move toward economy-
wide NDCs over time?
• What rules promote TACCC principles?
• What rules ensure the avoidance of double counting?
• What rules support an accurate tracking of progress for the GST?
• What rules will give the public and the private sector confidence in
the new tool, given the history of the UNFCCC with market based
mechanisms?
• What rules minimize perverse incentives?
– to present unambitious target?
– to maintain sectors outside NDCs?
– to avoid undertaking mitigation domestically?
– to oversell?