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Non-Party stakeholders await Parties’ agreement for the implementation of Article 6

29 June 2017

At the May 2017 session of UN Climate Change Conference (SB 46) and the Innovate4Climate, Parties and non-Party stakeholders explored Article 6 implementation, innovation, and the role of non-Party stakeholders.

The inclusion of Article 6 to cater to market-based mechanisms in the celebrated Paris Agreement (PA) was a surprising turnout even for some negotiators and observers on the topic. Indeed, the PA does not include the word “market”, but like other treaties the Agreement is “more than meets the eye”. The Agreement’s Article 6, born from the UNFCCC COP negotiations on Kyoto Protocol’s market mechanisms, encourages Parties to undertake various voluntary means to reduce greenhouse gas emissions and raise ambition through cooperation with other Parties and with the private sector.

Through its Article 6.2, the PA recognises cooperative approaches implemented under Parties’ sovereignty. Parties can transfer and use “internationally transferred mitigation outcomes”, now known as “ITMOs”, towards their Nationally Determined Contributions (NDCs). The generic nature of the PA entrusts to the Parties the responsibility to agree upon a recommended set of implementation guidance for Article 6 by 2018 (*1). At the May 2017 session of the UN Climate Change Conference (SB 46), Parties continued discussion on guidance for Article 6. There were at least three major points discussed in Bonn.

The first point of debate is how to ensure robust accounting of ITMOs. Parties should adopt guidance on how the ITMOs should be tracked and accounted towards NDCs and the inventory reports of Parties engaging in cooperative approaches. This would provide clarity on where we stand on limiting the global temperature increase to 1.5 degrees Celsius above pre-industrial levels and achieve “zero emissions” in the 2050-2100 timeframe. When drafting such guidance, Parties should discuss a number of technical matters. These include, among others: how to avoid double counting on the basis of a corresponding adjustment by Parties through their emissions reports, how to address different NDCs types, how to clarify the connection between reductions made in multiple years to a single-year reduction target, and new reporting formats, to be in line with the PA’s Article 13 on the transparency framework.

Related to the above first point, there are debates about whether Article 6.2 should facilitate a transfer of outcomes in forms other than “CO2e emissions reductions” such as renewable energy certificates, particularly to facilitate around 15% of NDCs (30 Parties) that communicated their NDCs targets in policies and actions measures other than GHG targets (*2). Some observers see this as an opportunity to move from carbon markets to “climate markets”. However, the flexibility offered by the PA for Parties to act according to the national circumstances does not eliminate each Party’s responsibility to regularly report GHG emissions and removals including through a national inventory report, in a transparent, accurate, complete, consistent and comparable manner, and avoid double counting with their cooperative partner. In line with the opinion submitted by most Parties (*3), this calls for ITMOs to be emissions reduction units expressed in CO2e. In the long-run, it will be a more effective use of resources to build capacity to monitor quantified GHG outcomes and agree on the means to ensure they are not double counted and have environmental integrity.

The second point of debate is the role of new market approaches in NDCs. The fact is, the accumulation of efforts planned through the NDCs leaves a gap in achieving the below-2 degrees goal, not to mention the 1.5 goal (*4). Parties and observers seem to agree that Article 6 should raise ambition, providing ‘additionality’ to the Parties’ domestic efforts and eventually contribute to the “ratcheting-up mechanism”. According to some Parties, this could mean the ITMOs are to be accounted only towards a Party’s “conditional” target or within a certain limit of a Party’s overall NDC target. On the other hand, some Parties believe it is important to explore as many opportunities as possible at this point in time. In any case, the guidance should provide incentives for interested Parties to make more ambitious contributions through international cooperation, progressing towards the achievement of the 1.5 degrees goal.

The third point of debate is whether other aspects such as promotion of sustainable development, environmental integrity and transparency should be included in the guidance. Some Parties and observers believe environmental integrity is inseparable from ensuring robust accounting under the COP; others are convinced criteria for sustainable development and prevention of negative impact are a matter of national prerogative. Some Parties agree that sustainable development depends on domestic circumstances, but should be accountable to the international community (*5). Some Parties advocate consistency with the Sustainable Development Goals and to take lessons from the CDM as well as other mechanisms and standards, which may include development of an international assessment tool.

Progressing from the 2016 sessions of the UN climate change conferences (SB 44), Parties now have a concrete list of topics raised by Parties that covers the above three points, among many others (*6). Although informal and not suggested as the basis for developing the guidance, the list provides insight to help ensure that subsequent submissions and meetings by Parties are efficient. Parties now need to establish priorities, streamline the listed ideas, speed up their negotiation process, have informal discussions and add meeting sessions if they are committed to establish the guidance.

Outside the negotiation rooms, non-Party stakeholders are showing more commitment and action than ever, including through market-based mechanisms. More than 2,000 companies and 2,000 cities have made their commitments and actions public through the UNFCCC Global Climate Actio (*7). Initiatives include meeting GHG emissions reduction target, setting internal carbon pricing, and using more renewable energy. At relevant jurisdictions, these initiatives may be related to or additional to participating in mandatory schemes such as an Emissions Trading Scheme.

International organisations are also ready to support Parties to design new mitigation actions under market mechanisms while ensuring transparency and sustainable development benefits, such as the World Bank’s Mitigation Action Assessment Protocol (*8) and the Initiative for Climate Action Transparency (*9). At the new Innovate4Climate event, state-of-the-art technologies were promoted from a natural food supplement to reduce cows’ methane output by at least 30% (*10) (teasing with the possibility of generating “Cow Credit”), renewable natural gas (producing synthetic natural gas using renewable energy), to Blockchain (having evolved from the bitcoin virtual currency, it was promoted to manage carbon assets). Non-Party stakeholders actively participated in the event’s workshops related to Article 6.

Despite their level of eagerness and activities, the role of non-Party stakeholders in the negotiation process, especially on Article 6, continues to be limited. Ways to improve involvement by non-Party stakeholders were discussed in general (*11) but this is something that should continue to be closely observed. The business sector, civil society and the general public are watching carefully as Parties continue to negotiate the implementation of the PA. In fact they are not only watching, but also acting. Private sector engagement will be one of the keys to the success of Article 6. Parties need to serve their constituencies and work together with non-Party stakeholders to achieve our common goals, which will be proven by making submissions on views by October 2017 and discuss them in November 2017 (SB 47). The remaining time to make a collective decision is quite limited—18 months—but Parties will rise to the challenge.

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