Next month negotiators will convene under the auspices of the UNFCCC to start in earnest the process of putting flesh on the bones of the Paris Agreement. Although this work has been underway for a year now, most of this time has been spent on further conceptual thinking about the necessary framework, rather than the specific text that will drive the Paris Agreement forward.
Within this process, there is also the need to further define Article 6, the part of the Paris Agreement that many hope will usher in a framework on which a global carbon market can be constructed. Although Article 6 doesn’t specifically mention carbon markets, the references to transferable mitigation outcomes and mitigation mechanisms can be readily interpreted as trade of carbon units for the purpose of monetizing and financing mitigation – i.e. carbon pricing.
Over the last twelve months, the International Emissions Trading Association (IETA) has published various articles and given presentations around its own view on Article 6 development. A summary of that view is as follows;
- Article 6.2 – Underpins carbon trade between countries as cap-and-trade systems are linked and emitters seek to optimize their mitigation economics; e.g. California-Quebec (i.e. USA and Canada).
- Article 6.4 – Offers a means of assigning units to mitigation actions, both at the project level and the system / sector level. This is a pre-requisite for trade.
- Create allowances for a cap-and-trade system at national level.
- Create credits within a sector baseline-and-credit system.
- Create CERs for a specific project.
- Certify carbon sequestration.
- Article 6.5 – Changes the accounting for cross-border carbon trade, but particularly for project based units.
- Article 6.8 – Non-market approaches, such as the Kigali Amendment to the Montreal Protocol, can offer solutions in areas that are not as well suited to emissions trading, therefore supporting the development of more robust carbon markets.
The challenge is to turn the above into a text framework that can be built on as more granular rules, modalities and procedures are required to fully define the operation of Article 6. That more granular work will likely emerge after COP24 in 2018, but for now an initial text framework is required. IETA has taken a first step in this direction by writing a straw-proposal for negotiators to consider, in a format that would be suitable for inclusion in a COP24 Decision. It draws on the work the association over the past 18 months and builds on the straw-proposal launched in 2014 which helped deliver Article 6 in the first instance.
One particular aspect of the proposal is the rule required to ensure avoidance of double-counting of carbon emission reductions when Parties instigate a mitigation transfer between their economies. Avoidance of double-counting is a key provision of Article 6 of the Paris Agreement. This is easily managed in conventional cap-and-trade systems, such as the linked Quebec-California system (Canada-USA), but is more complex between nationally determined contributions (NDCs) which may not be similar in structure. IETA have chosen to follow a route the requires quantification of the NDCs, even if their initial basis is not in terms of absolute emissions. For example, the IETA definition of an internationally transferred mitigation outcome (ITMO, as given in Article 6.2 of the Paris Agreement) has a specific reference to quantification, that is later used to ensure double-counting cannot take place;
An internationally transferred mitigation outcome (ITMO) is the subtraction of a given absolute quantity of greenhouse gas emissions measured in tonnes of carbon dioxide equivalent from the quantitatively defined nationally determined contribution of a given Party or sector within said contribution and the addition of an equivalent amount to the quantitatively defined nationally determined contribution or sector of another Party.
The IETA straw-proposal is a starting point, but nevertheless an important one. It takes the concepts of Article 6 and moves them forward into a format which can be further debated and improved. Hopefully, it helps accelerate the negotiating process and leads to an outcome that is both suitable for the Parties themselves and workable for the business world that the Parties will likely turn to for full implementation of the Paris Agreement.