rulebook for article 6 in the paris agreement...andrei marcu & mandy rambharos 3 some takeaways...

RulebookforArticle6intheParisAgreement:

TakeawayfromtheCOP24outcomeAndreiMarcu

MandyRambharos1

1ThispaperiswrittenunderowncapacityanddoesnotrepresenttheviewsorpositionsoftheGovernmentofSouthAfrica

RulebookforArticle6oftheParisAgreement

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TableofContentsSometakeawaysfromthispaper.......................................................................................................31.Introduction............................................................................................................................................42.Article6outcomesinKatowice......................................................................................................53.Article6.2.................................................................................................................................................93.1ITMOdefinition..............................................................................................................................93.2Governance....................................................................................................................................103.3ParticipationResponsibilities................................................................................................113.4TrackingITMOs............................................................................................................................113.5CorrespondingAdjustments..................................................................................................12a)Basisforcorrespondingadjustment................................................................................12b)Multi-yearandsingle-yearNDCs......................................................................................14

3.6ITMOsfromsectorsandGHGcoveredbyNDCs............................................................153.7SpecialcircumstancesofLDCandSIDS.............................................................................173.8Reporting........................................................................................................................................17a)Initialreporting.........................................................................................................................17b)Regularinformation................................................................................................................18

3.9Review..............................................................................................................................................193.10Recordingofadjustments.....................................................................................................193.11Safeguardsandlimits.............................................................................................................193.12Shareofproceedsforadaptation......................................................................................20

4.Article6.4...............................................................................................................................................204.1Definitions......................................................................................................................................214.2Participation..................................................................................................................................214.3ActivityCycle.................................................................................................................................214.4Appealsprocess...........................................................................................................................224.5Overallmitigationinglobalemissions..............................................................................234.6AvoidingtheuseofemissionsreductionsbymorethanoneParty......................234.7TransitionfromKPmechanisms..........................................................................................24

5.Conclusions...........................................................................................................................................25

AndreiMarcu&MandyRambharos

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SometakeawaysfromthispaperThefactthatArticle6wasthelastonetobeagreedatCOP21shouldhavebeenawarning that this will continue to be a challenging issue, and for some, acontroversialmatter.InKatowice,itwastheonlypartoftheParisAgreementRulebook, which did not get over the finish line. This is also a testimony to theimportancethatinternationalcooperationhasinachievingthegoalsagreedatCOP21.

SomeoftheissuesthatcanbeseenashavingledtothedeadlockinKatowicemayinclude,interalia:

• Howdowedealwith ITMOs inmetrics other thanCO2e – is there a need forthem, and does that lead to other outcomes, such as the need for a bufferaccount?

• HowdowedoCAforissuancefrom“outsideNDC”,includingfirstissuanceunderArticle6.4?Wemayneedtoeliminatethatoption,orgiveitatimehorizon.

• How do we articulate tracking-CA-reporting if we allow Parties choice in thebasisandtimingofCA?

• Is it justifiable toaddprovisions thatwerenot in theParisAgreement,even ifexcludingthemseemsunfair?

• Howdoweaddress the single/multi-yearNDCaccounting? Is thereaneed forsimplifyingassumptionstomakethiswhilemarketworkandnotcollapseundertheweightofthebranchesthatthediversityinNDCsbring?

• IsthecontinuityofKPmechanismssomethingthatneedstoweighontheArticle6 rulebook, or this is a political decision This is a longish list, but the realquestion iswhetherwe are on the right track, and only need some additionaltechnicalunderstandingandfinal touchestoreachanagreementatCOP25,orwe actually need to backtrack and re-consider - based on the technical workdonesofar-howmarketswillbeoperationalizedintheParisAgreement?

AreArticle6rulestobewrittentomeetthevarietyofNDCsandthecomplexityofthe Paris Agreement, or do we adapt (NDCs) and simplify (Paris Agreement) inorderthemeettherulesneededforArticle6?

ThecomplexitythattheParisAgreementhasintroducedneedstobeaddressed,anditcanbeaddressedthroughoneormoreofthefollowingoptions:

• Politicalcompromiseonsomeissues;• Simplifications,byassumingthatparticipationisrestrictedtoPartiesaccepting

certainconditions–e.g.NDCinCO2ebudgets;• Centralizationoffunctions.


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1.IntroductionThe Paris Agreement is a political act, which sets objectives, and the broadinstruments to reach them.TheParisAgreement, and the accompanyingdecision,1/CP.21, provided for a number of work programmes to develop the ParisAgreementrulebook,whichwouldoperationalizetheAgreement.

COP24wasthemostimportantCOPfollowingCOP21duetotheanticipatedParisAgreement rulebook, which would operationalise the Agreement. While theRulebookwasindeedagreedinDecember2018,it isanincompleterulebook,withtheArticle6chapterbeingsentforcompletiontothenextCOP.ThiswilltakeplaceinSantiago(COP25).

TheworkprogrammeforArticle6wasassignedtotheScientificBodyforScientificand Technological Advice (SBSTA) (with other PA components undertaken underother bodies). For the last three years, a Contact Group was convened at eachsessionwhichfocusedontheissuesintheworkprogramme,mostnotably:a)howtoavoiddoublecountingunderArticle6.2;b)rules,modalitiesandproceduresfortheArticle6.4mechanismandc)aworkprogrammeforarticle6.8.Theworkcouldnot be completed in Katowice due to the inability to reach consensus on thesematters.

LeadingtoCOP25,Article6willcertainlycapturea lotofattention,andwillmostlikelybethefocusofmuchofthepreparatoryworkforCOP25.WhilemanyPartiesindicatedintheirNDCsthattheywerenotreadytouseArticle6approaches,manyothers,indifferentways,andsometimesconditionally,signalledtheirinteresttogetinvolvedincooperativeapproachesandmechanisms.

In this context,Article6, , is a tool thatmanycountrieswould like touse tomeettheirNDCs,andwhichwillperhapsalsoassisttoenhanceandprogresstheirNDCs,evenifsomesignificantPartiesmadeitclearthattheywillnotuseArticle6intheirfirstNDC.Importantly,itisalsotheonesignaltoinvestorslinkedtocarbonpricing,whichneedstobeoperationalizedatCOP25forthemomentumtocontinue.

Thispaper is intendedasananalysisof theoutcomes inKatowiceonArticle6, inorder to contribute to broadening understanding to help a positive outcome inSantiagoinJanuary2020.

ThispaperisNOTintendedasa“landingzone”paper.Whilesomemaywantthat, it is felt that it is too early after COP24 to seek landing zones.A goodunderstanding,togetherwithadispassionatediscussion,isneededbeforewecantryandlandthisarticle.


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2.Article6outcomesinKatowiceInordertobetterunderstandtheArticle6outcomesfromKatowice,itisnecessaryto identifytheversionsofthetexts,whicharerelevant,andprovideadistinctandclear reference to each of them.This paperwill examinedifferent versions of thetext that emerged at key moments in the two weeks of negotiations, and try toidentify evolution and changes in key issues in the text, and discuss and analyzethesechanges.

Four versions of the Article 6 text will be referred to in our analysis. Workingbackwards, the final outcome of the Article 6 in the Katowice rulebook is largelyprocedural,andwewillrefertoitinthisinpaperasKTF(KatowiceTextFinal).

It ispartofadocument,whichwas issuedonSaturdayDecember15.2ItwasreadfromthepodiumasopposedtotheotherpartsoftheKatowiceRulebook(KRB)andposted on the UNFCCC website as document L.28, later to be amalgamated in acompilationwithallotherLdocuments.

This Article 6 document is largely procedural, but it does contain two importantelements.Itcontainsreferencestotwodocuments,whichare“noted”,whichmeansthat they will have standing in the SBSTA discussions on Article 6, which willcontinueatSBSTA50inJune2019inBonn.Thetwodocumentsthatarereferredtoareelaboratedbelow– the texton the tableat theendofSBSTA49,3and the textissuedbythePresidencyunderthetitleKatowicePresidencyText.4

TheArticle6partoftheKTFalsomakesreferencetoparagraph77(d)oftheParisAgreement,whichispartoftheTransparencyFramework:

Each Party that participates in cooperative approaches that involve the use ofinternationally transferred mitigation outcomes towards an NDC under Article 4, orauthorizestheuseofmitigationoutcomesforinternationalmitigationpurposesotherthanachievement of its NDC shall also provide the following information in the structuredsummaryconsistentlywithrelevantdecisionsadoptedbytheCMAonArticle6:

• (i) The annual level of anthropogenic emissions by sources and removals by sinkscoveredbytheNDConanannualbasisreportedbiennially;

• (ii)Anemissionsbalancereflectingthelevelofanthropogenicemissionsbysourcesand removals by sinks covered by its NDC adjusted on the basis of correspondingadjustments undertaken by effecting an addition for internationally transferredmitigation outcomes first-transferred/transferred and a subtraction forinternationally transferred mitigation outcomes used/acquired, consistent withdecisionsadoptedbytheCMAonArticle6;

2https://unfccc.int/sites/default/files/resource/Informal%20Compilation_proposal%20by%20the%20President_rev.pdf3file:///C:/Users/sancha/Downloads/l20.pdf4https://unfccc.int/sites/default/files/resource/Katowice%20text%2C%2014%20Dec2018_1015AM.pdf


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• (iii) Any other information consistent with decisions adopted by the CMA onreportingunderArticle6;

• (iv) Information on how each cooperative approach promotes sustainabledevelopment; and ensures environmental integrity and transparency, including ingovernance; and applies robust accounting to ensure inter alia the avoidance ofdoublecounting,consistentwithdecisionsadoptedbytheCMAonArticle6.

Thisreferencealsospecifiesthatparagraph77(d)wasagreedinKatowice,withoutprejudice to the final outcome of negotiations under Article 6. This could beinterpreted as meaning that there is the expectation that paragraph 77(d) couldundergomodificationsaspartofnegotiationsfortherulebookforArticle6

AsecondsetofdocumentsarethosethatwereissuedonSaturdayDecember15intheearlyafternoonbythePresidency,asL.24,L.25andL.26, togetherwithall theother L documents that were subsequently incorporated in the KTF. ThesedocumentsrepresentedanattemptbythePresidencytoputforwardacompromisebasedondiscussionswithPartiesandGroupsthedaybefore.Theywerewithdrawnwhen it became evident that they could not form the basis of a compromise, andneverincorporatedintheKTF(laterreplacedbytheL.28document,whichformedtheKTF).

TheseLtexts willbereferredtoasKTL (KatowiceL text).Theyarevaluable,astheymaybedeemedtoofferaglimpseintowhatthePresidencyassumedcouldbeacompromise,basedonthepresumedinsightintocompromisesPartiesandGroupswerewillingtomake,atthattime,inbilateralmeetingswiththePresidency.Thesealsogivesomeindicationofthe“bottomline”ofsomeParties,bearinginmindthesetoocouldhaveshiftedinthelasttwomonths.

Athirddocumentthatwewillreferto,alsoissuedbythePresidency,isoneofthosethatwasnotedinthefinalArticle6document(KTF).ItwasissuedonDecember14.WewillrefertoitastheKTPdocument.ItisnotdifferentfromthePresidencytextissuedonThursdayDecember13,whichPartiesreferredto,duringtheirdiscussionintheSejmiksettingonThursdayevening.

Finally,afourthdocumentisthedocumentthatwaspresentedtotheSBSTAplenaryonSaturdayDecember8,andwillbereferredtointhispaperasKTSB.

The final outcome on Article 6 was certainty disappointing, and represented thechoicebetweenwhatwenowhave,andanoutcome(whoseoutlineweseeinKTL)that would have left many issues open, or half open, and would have almostcertainly required the re-openingatCOP25ofmany issues thatwouldhavebeenincluded in the decision part, that is, the part that would have considered as“agreed”inKatowice.


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Thepatchynatureofsuchadecision, the lackofclarity, the likelyneedtogobackand re-do the work anyway, led to the decision, on the face of it, to have aproceduraldecision.IsKTFtrulyaproceduraldecisiononly,ordoestheparagraph77(d)referencegiveitmoretractionthatitcanbeassumedatfirstglance?

Oneinterpretationofparagraph77(d),agreedandintroducedatthelastminutebyParties, is that it provides the outlines of the approach needed to avoid doublecounting under Article 6.2. It could be seen as vague, although it makes theobligatoryreferenceto”consistentwithdecisionsadoptedbytheCMAonArticle6”.However,itcanbearguedthatparagraph77(d)isaboutreporting,andprovidesnodirectionforaccountingundersingleyear/multiyearNDCscenarios.

However, in theabsenceofany furtherdecisions for theArticle6 rulebook, couldtheseprovisionsbecometheframeworkforreportingtoensurethattheprovisionsofArticle6.2areinprinciplemet?Inotherwords,canparagraph77(d)beenoughinthefaceofnothingelse?IfthereisstillnoagreementunderArticle6inSantiagoatCOP 25, can some Parties start developing their own approaches, based onparagraph77(d)?ThismayleadtoalackofurgencyforsometonegotiateonArticle6atfutureCOPs.

However, it isdebatable if thiswouldbesufficient. Oneview,notsharedbyall, isthat theremaywellbeahigh-level guidance framework toavoiddouble countingunder 77(d), but there would still be significant documentation and preciseguidance thatwould need to be further agreed to for this to be considered goodenoughforavoidanceofdoublecounting. Inaddition, theuseof thesecooperativeapproaches must follow a sound accounting methodology that some see asdevelopedunderArticle6.2–which77(d)maynotcover.

ThesecondquestionthattheKatowiceoutcomeforArticle6raises iswhetherweareinchesawayfromasolution,orifweneedtoseriouslyexamineifweploughedtherightfield,andneedtoretraceoursteps,andgobacktofundamentals.

Again, somemay say thatwewere inches away and a final pushwill put theballoverthegoalline.However,whileinKatowicealleyeswereonBrazilandtheissuesit raised, with the (somewhat logical) conclusion that if that issue could beaddressedorforcedthrough,thenwecouldhaveapositiveoutcome.

Thatmayormaynotbetrue,astherewereotherParties,whoquietlysharedthatposition.Inaddition,therewereotherissuesthatwereofgreatconcern,andwhichstayedoutofthelimelightofthelastminutesdiscussions,butwerestillpresent.


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Maybenotred-lines,andmaybethosePartieswerenotwillingtobeseenassinkingthedeal,butoncewegobacktoarenewedprocess in JuneatSBSTA50, theyareboundtore-emerge.

Basedontheserealities,weareagainfacedwiththe“anythingispossible”dilemma.WemaybeabletobreezethroughstartinginJunefromtheKTPtext.However,itisequallypossiblethatwemayhavetobacktrack,andgobacktorevisitmanyissuesthatwereconcededtomakeadealhappen.

Someoftheissuesthatarestillunsolved,andthatwillbeanimportantimprintfortheDNAofArticle6mayinclude,interalia:

• Metrics:theissueofwhatITMOscanbedenominatedin• Correspondingadjustments:willbedoneateachtransferorattimeofuse• DoublecountingandtherelationshipbetweenArticle6.2and6.4• Accountingforsingleyearandmulti-yearNDCs• ScopeofNDCs:Theinsideoutsidedebate• LegacyofKyotoProtocolmechanisms

Somealso feel that these are issues that need to be addressed in order to have asuccessful conclusion toArticle 6.2, but their legitimacy inArticle 6.2 itself, not asolution,isbeingcontested:

• OverallMitigationinGlobalEmissions• Shareofproceeds

Averygoodexampleofsomeoftheissuesthatwillneedaddressingcanbefoundintwoplaces.OneistheKTLtext,wheretheissueslistedintheworkprogrammefor2019weredeemedsensitiveenoughnottobetackledin2019,iftherewastobeachanceforanagreement.Theyareissuesthatwillneedtobeaddressedinrenewednegotiations.

The second illustration are the six questions that were put by the twoMinisterscharged with addressing Article 6 (Minister Shaw of New Zealand and MinisterSchmidtofChile)duringtheconsultationtheyhadwithGroups.

• Canyouagree to the following landingzone for6.2: thatnocorrespondingadjustment is requiredoutsideNDCuntil 2031, afterwhich, correspondingadjustmentrequired?

• Can you agree to the following landing zone for 6.4: that activities can beinside and outside, but that outside will be correspondingly adjusted onlyafter2031?


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• CanyouagreethatCDMproject transitionwillbetime limitedto2023andrequire certain conditions so that the project takes into consideration theNDC?

• Canyouagreesilenceonuseofpre-2020units?• CanyouagreethatforuseotherthanforNDCs,ifitcomesfromoutsidethe

NDC,therewillbearequirementtomakeacorrespondingadjustmentafter2023?

• Whatotherstepsareneededtotightenthispackagefromtheperspectiveofenvironmentalintegrity?

The questions themselves, and the texts that will be examined below, show thatsome Parties were willing to provide what can be seen as Band-Aid solutions inorder to reach an agreement (2023 and 2031 as sunset for correspondingadjustment).Thesilenceonthepre-2020unitswasanothercompromise–initself,silence is ambiguous: silence in some jurisdictions implies permission; in others,silencemaybeinterpretedasthatactionnotbeingallowed.

3.Article6.2TheformatoftheArticle6.2largelymaintainedfromtheKTSBtextonward,canbeconsideredanindicationthatthenegotiatorsweremovingdowntherightroad.

3.1ITMOdefinition

AdefinitionofanITMOcanhelpclarifyandresolvemanyissues,butcanalsoleadtoanumberofunnecessary“fights”,whichinsomecasescanberesolvedbyhavingade facto definition in the operational part of the text, while minimizing theDefinitionssection.

Inthiscase,thereisanITMOdefinitioninKTSB,whichisrelativelyelaborated,andincludedreferencestoalloptionsthatPartieswanted:

“Beintheformofanthropogenicemissionsbysources[andremovalsbysinks][avoidance],including mitigation co-benefits resulting from adaptation actions and/or economicdiversificationplans[,orthemeanstoachievethem];

Bemeasuredinmetrictonnesofcarbondioxideequivalent(CO2e)inaccordancewiththemethodologiesandcommonmetricsassessedbytheIPCCandadoptedbytheCMAand/orin othermetrics [determined by the participatingParties] [consistentwith the (nationaldeterminedcontributions(NDCs)oftheparticipatingParties];

[IncludeemissionreductionsundertheArticle6.4mechanism;]”

Thereare a few remarks thatmaybeuseful,which couldhighlight somepossibleinterpretations. Removals and avoidance were included, which met the needs of


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thosePartiesthatwantedtopursueREDD+,aswellasthosethatmayhaveaspecialtypeofcooperation,whichwouldbeimpossiblewithouttheinclusionofavoidance.

Atthesametime,therewasalsoreferencebeingmadetooptionsinmetrics.Forthenon-CO2 metric, however, the text refers to “consistent with the (national determinedcontributions (NDCs) of the participating Parties.” This reference can be interpreted asmeaning that a transfer cannotbemade in ametricother thanCO2e,unlessbothPartieshavetheirNDCinthatnon-CO2emetric.Whilethisallowssomecooperationto take place in non-CO2emetrics, itwould severely limitmarket activity to onlyParties that have NDCs in a particular non-CO2e metric. The KTP text issuedincludedadefinitionofITMOs,butwithoutreferencebeingmadetoavoidanceandremovals.

TheITMOdefinitionisabsentfromtheKTLtext,andwasmovedtothedecisionpartofthetexttobeaddressedaspartoftheworkprogramme(WP)during2019.ThissignalsrecognitionofthedifficultieswithreachingagreementinKatowiceonissuesincludedintheDefinitionofanITMO,andthefactthattherewerePartiesattachedtotheoptionsincluded–forsomeclosetoaredline.

Another definition thatwas present inKTSBwas that of overallmitigation underArticle6.2–andwasnotthereanymoreinKTLandKTP. IntheKTLandKTP,theoverall mitigation was moved to the chapter on Participation Requirements, butmade voluntary,with thewording of “Partiesareencouragedtodeliveroverallmitigation”.Thisisaclearcompromiseaimedatthoseforwhomthisisanimportantissue,whilerecognizing the strong opposition by many Parties, as well as the lack of anyreferencetooverallmitigationinArticle6.2intheParisAgreementtext.

3.2Governance

Therewas simplificationbetween theKTSBandKTPandKTL,with someoptionsbeing dropped out. There are no changes between KTP and KTL, which wouldsignifythatthiswasnotseenasaproblemareainreachinganagreement.

The choice between an Article 6 technical expert review (TER), and an expertreview pursuant to Article 13, which were options in KTSB, concluded with theArticle 6 technical review, to be forwarded to the Article 13 technical reviewprocess.

It is not totally clear how the reviewunderArticle 6will be undertaken, but anyfunctions that are in Article 6will require some structure, and potential support,andthereforeadditionalcentralization.


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ItisimportanttonotetherolethattheSecretariattakeson,whichissignificant,asnotonlyitwillproduceasynthesisreports,butwillalsoidentifyrecurringthemesandlessonslearnedfromtheArticle6technicalexpertreviewprocess.

There is no role for the Article 6.4 Supervisory Body in 6.2, as some may havewanted (or an overarching Article 6 Supervisory Body), but the TER, in time, islikely to takeonan increasinglysignificant role,andwill requireadditionaleffort,structureandresourcesespeciallyasmoreandmorePartiesengageincooperativeapproaches.

3.3ParticipationResponsibilities

Participationresponsibilitiesisnotanewitem.ItcanbefoundintheKP,whereallmechanismshadeligibilityrequirements.Theeligibilityrequirementsarethesameunder KTL and KPT, also signalling that this was not an issue in reaching anagreementatCOP24.

One interesting element is that the KTSB refers to providing and obtainingauthorization for the use of ITMOs. The KTP and KTL only refer to providingauthorization, which seemsmore logical, and in linewith Article 6.3 of the ParisAgreement.

3.4TrackingITMOs

ThetrackingandidentificationofITMOsistobedonethroughRegistries,whicharedetailed in the Infrastructure chapter. The items listed to be tracked through theRegistry are almost the same for all the three texts that we examine, which alsoshowsstability.

It isunclearhowaRegistrywoulddothetracking,asregistriesareinprincipleaninstrumenttorecordandkeepunits,andnottotrackthetransferofunits.IntheKP,trackingwasthefunctionoftheITL,whichisnotpresentintheArticle6.2text.Howtracking is done will require elaboration, but such further elaboration was notcapturedintheKTLworkplanfor2019.

TheKTPtextincludesalsoaprovisionfortrackingITMOsfortheshareofproceedsforadaptation.ThisismissingfromtheKTLtextandmayindicatethattherewasathoughtbeinggiven to tryand introduce thisprovision,whichcannotbe found intheParisAgreement itselfunderArticle6.2,butwas removedwhen therewasanattempttofindadealthroughKPLtext.

There is also a difference in the wording on overall mitigation, from “cancellingITMOsforoverallmitigation”inKTSBtextto“voluntarycancelation”intheKTPtext


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and the KTL text. This is clearly amuch softer language, in order to address theconcernsofthosethatdonotseethisasalegitimateprovision.

3.5CorrespondingAdjustments

a)BasisforcorrespondingadjustmentCorresponding adjustment (CA)will continue to be a contentious issue, given thedifferentviewsonthebasisforcorrespondingadjustments–thequestionis,doesitreallyneedtobe?

Theconceptin1/CP.21issimpleenough:thereistobecorrespondingadjustmentsinordertoensurethatweavoiddoublecounting.Essentially,thisprovision(CA)isintendedtomakesurethatamitigationoutcomecannotbeintworegistriesatthesametimeorusedtowardstwoNDCs.

Thetextisvague,anddoesnotspecifywhenthecorrespondingadjustmentistobemade,leavingthisoperationaldecisiontotheworkprogramme.

Thearithmeticissimple:theinitialNDC(promises)=(whatwasachievedinNDC)+/-(theNetITMOpositionattheendoftheNDCperiod).

Whether the net position at the end of the NDC is a number, or it is a de factocalculationbuiltbyadding/subtractingwitheachITMO,is,assomeview,amatterofformratherthansubstance.

Themainbonesofcontentionare:

• Whatgetsadjusted:o AnintermediatenumberwhichwillbeusedtoadjusttheNDCattheend

oftheNDCperiodo The NDC inventory (it is unclear which inventory, the NDC starting

inventory?)• Whentheadjustmentisdone:

o Everytimethereisatransfero AtthetimeofuseoftheITMOtowardstheNDC

TheoptionspresentintheKTLandKTPtextarethesame,signallingthatthiswasagenerally accepted way forward, even if it is unclear how these options wouldfunctiontogether,unlesssomeassumptionsaremade.TheKTPandKTLtexthaveessentiallythesameprovisions,whichrepresentastepforwardfromtheKTSBtext–iteliminatestwooptionsfromtheKTSBtext,andprovidesforamorecompactandcleartext.


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While there was consistency, it also shows a desire to accommodate, to somedegree,thosewhowereinaminority,butweredeeplyattachedtotheconceptofa“buffer/registry/account”. The buffer account allows Parties to have transfers inmultiple“currencies”,andinsomewayprotectsthenationallydeterminednatureoftheNDC.

However,theoptionsbelowcannotbetakeninisolation,theyneedtobetakeintoaccountwiththeprovisionsintheDefinitions(inthecaseoftheKTP)whichlimitstransfertobothPartieshavingNDCsinthesame(non-CO2emetric),whichisratherseverelimitation,probablydifficulttobridge.

OneoptionintheKTPandKTLtextsisproposedforITMOsinmetricsdeterminedbyparticipatingParties.ThishasthesupportofPartiesconcernedwithmaintainingthe “sanctity” of the national determined part of the NDCs, that is, to adjust anumber,which is initialized at 0, every time there is a transferredout/in. This inprevioustextversionswasknownasthe“bufferregistry”option.Perhapsthemoreaccurate name is the “buffer account option.” For some reason, the designation“buffer” was dropped from the KTP and KTL texts. It may be because the term“buffer”wasseenbysome,rightfullyorwrongfully,asmisleadingastheybelievedthat it did not really describe the compromise that was reached as the textsprogressed.

Thetextdoesnotmakeitverycleareitherthatthebufferaccountisnotanendinitself,butrather,anintermediatestepthatwillproduceanetITMOposition,tobeusedinadjustingtheNDC,attheendoftheNDCperiod.Therationaleisalsothatitmay the only viable way to have an Article 6.2 that has more than CO2edenominatedITMOs.

Thesecondoption,applicabletoITMOsdenominatedinCO2e,andwhichhasalargesupport among negotiators, points to the 1/CP.21 text paragraph 36: “that doublecounting is avoided on the basis of a corresponding adjustment by Parties for both anthropogenicemissionsbysourcesandremovalsbysinkscoveredbytheirnationallydeterminedcontributionsundertheAgreement”.ThisapproachistoadjusttheaccountingbalanceforITMOsusingtheinventoryasthestarting.Whatisuncleariswhichinventoryisbeingreferredto–the logicalonewouldbe the inventoryat the startof theNDCperiod,which thencouldbetestedagainstthemostrecentinventorytheendoftheNDCperiod.

It is interesting tonote thatwithin theCO2emetricoption, thereare twooptionswithrespecttotiming–onewouldbetodotheCAatthetimeofuseoftheITMOstowardsanNDCbytheusingParty,whilethesecondoptionmirrorstheapproachfornon-CO2emetrics,thatis,aCAeverytimethereisatransfer.


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UsingCO2eandnon-CO2easmetricsare listedasoptions.Theproposedtextalsoreferredto“eachPartyshallconsistentlyapplyitscorrespondingadjustment”.Itisunclear if this means that both Parties involved in a transaction have to use thesame approach, or the same Party has to apply the same method all the timethroughouttheNDCperiod.Whatoftheoptionofusingoneoptioninonetransferand another option in another transfer? It is somewhat difficult to see how theseoptionswouldco-exist, except throughanassumption thataCAcanbedoneonlybetweenPartiesthathavethesameNDCmetric,CO2eorotherwise.

b)Multi-yearandsingle-yearNDCsThe basis for CA, discussed above, opens different ways of ensuring that doublecounting is avoided. It shows differences in the basis for CA, which cannot bebridged,andthereforeneededtobeco-optedinordertobeabletofindasolutionfortheArticle6rulebook.

This is a regulatory problem that needs to be solved, but one that the non-stateactorsinvolvedwillonlyneedtoobserve,asitdoesnotaffecttheeconomicsofthecooperation (projects based or otherwise). It is important for non-state actors inordertobereassuredofthesolidityoftheregulatorysystemanditsacceptance.

Themulti-year/single-yearissueisdifferent.WhilelistedundertheheadingofCA,itwould seem to be more of an accounting issue, which may have significantcommercial implications. Itbasicallydiscusseshowmuchof thetransfers(ITMOs)cancounttowardsanNDC.

This will dictate if ITMOs have any value for NDC compliance, and therefore ifPartiesare likely toallowthese ITMOs fordomesticcompliance. If theycannotbeusedforinternationalcompliance,itisunlikelythattheywillbeusedfordomesticcompliance, or the sovereign would need to do the backstop. If they have nointernational compliance value and there is no backstop, then theywill not havefinancialvalue–orthefinancialvaluewillbesignificantlyaffectedbytheoutcomeofthisdiscussion.

The texts that are examined for thepurposeof thispaper show that anumberofapproaches are under consideration when it comes to addressing the multi-year/single-yearNDC.Theproposedtextsalsoreferredto“eachPartyshallconsistentlyapplyitscorrespondingadjustment”. Thequestion remainswhat “consistently” refers to:bothPartieshavetousethesameapproach;onePartyhastousethesameapproachthroughouttheNDCperiod.IntheKTLdocument,thereisnoreferencetoadditionalelaboration on this topic,which is probably one of themost important issues formarketparticipants.


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Themulti-year approach has three possible approaches: emissions trajectory; CAforeachyear;endoftheNDCperiodforalltransfers.

Ithas tobenoticed that theoptionwith theCAat theendof theNDCperiodwasmodified in theKTLdocument to include thewording“calculatingamulti-yearemissionbudgetfortheperiodoftheNDCimplementation”whichwentsomewaytotherequirementthat was put forward by some Parties to have a budget calculated for the NDCperiodasa condition forNDCparticipation.TheNDCbudget condition isalsonotpresentintheKTLasaneligibilitycondition.

For the single year NDC, the same three methods are also proposed, with theadditionoftwootherapproaches:averagingtheITMOsoftheNDCperiod;useonlyITMOsofthesamevintageastheParty’sNDC.

Theresultsfromtheseapproachescanbeverydifferent,andwilldeeplyimpactthewayPartieswillusecooperativeapproaches.Itcould,intheory,changehowPartieswilldesignanddefinetheirNDCs.

Whatcanalsobesafelysaid is thatanyof theapproaches thatareproposedhavesomesignificant levelof subjectivity included.Consequently, it canbeargued thatshouldachoicebemadeforanyparticularapproach,somewillbeunhappy.Giventhatstateofaffairsitmaybebettertomakeachoiceandatleastensureconsistencybetween Parties, instead of allowing a choice of approach, whichwould result ininconsistenciesandpossiblearbitrage.

3.6ITMOsfromsectorsandGHGcoveredbyNDCs

Thishasbeenoneofthemostdifficultissuesasitwas,onthefaceofit,averybinarychoice,resultingnotfrompreferences,butfromdifferentviewsoftheworld.

TheissuewasknownasI/OoftheNDC(inside/outsidetheNDC),butinitselfhaddifferentinterpretations:wasitreferringtosectorsand/orgasesoutsidetheNDC,orhowsomesee it,mitigationoutcomes “beyond”what theNDCproposes todo?While theoretically it could be defined, the operational definition of “beyond” hasbeen tricky to pin down. The texts themselves seem to address the I/O the NDCcoveredsectors.

Some argue that essentially, creating ITMOs (and Article 6.4 units) from sectorsoutsidetheNDCisnotdissimilartocreatingaKPnon-Annex1PartyundertheParisAgreement(forthepurposeofmarkets).Youcancreateandexport,andonthefaceofit,thereisnothingtoadjust,aswhatisadjustable,accordingto1/CP21needstobe under the NDC. In addition, 1/CP.21 says that CA are done in order to avoid


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doublecountingtowardsanNDC,andforwhatisundertheNDC.ButitissilenttowhathappensoutsidethesectorscoveredtheNDC.However,thisdoesnotaddresstheissueiftheinventoryisusedasastartingpoint–also,thisdependswhetheritisNDCinventoryorthePartyinventory.

Theflipsideofthisargumentisthat,alsoaccordingto1/CP.21,anytransferseemstoentailaCA:therefore,noCA,notransfer.

Given the level of controversy, the KTL document, which was an attempt atcompromise, sent the issue to the 2019work programme. In contrast, KTSB andKTPshowanumberofelaborateapproaches,whichattempttoshowclearoptions,and/orbridgingproposals.

TheKTSBtextrefersto:“In addition, a Party may transfer ITMOs for emission reductions and removals fromsectorsandgreenhousegasesthatarenotcoveredbytheNDCoftheParty,subjecttotheapplication of corresponding adjustments pursuant to section VII (Correspondingadjustments) [from 2026 onwards] [from 2031 onwards] [from the subsequent NDCperiod]”

TheKTPtextissomewhatdifferent:“A Party that transfers ITMOs from emission reductions and removals from sectors andgreenhousegasesthatarenotcoveredbytheNDCoftheParty[shallapplycorrespondingadjustmentspursuanttosectionV(Correspondingadjustments)][isnotrequiredtoapplycorresponding adjustments pursuant to section V (Corresponding adjustments) until2031].”

TheKTSBdocumenthasavarietyofapproachesproposed:thataCPhastobedoneonly from inside the NDC; that it could be done from outside the NDC with CA,without specifying how it would be done; that it could transfer from outside theNDCbutfrom2026/2031/subsequentNDConly;cantransferfromoutsidetheNDCwithoutanyCA.

In contrast, KTP, which had already simplifiedmany of the text aspects, has twooptionsonly:thatitcantransferfrominsidetheNDConly;doesnotneedtodoaCAfromoutsidetheNDCuntil2031.

Thetexts,astheycurrentlystand,makeitclearthattheattemptatcompromisewasmade through the provision of a time threshold for ITMOs from outside NDCs –whichisattemptatabandaidinordertoavoidtheperceivedideologicaldivide.

Thiswas a difficult pill to swallow formany Partieswho regard any ITMOs fromoutside NDCs as double counting. In addition, one may also argue that creatingITMOsfromoutsideNDCsmaybringusbacktotheCBDRdefinitionmanyfeltwas


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leftbehindintheKP,andreplacedwithastrongdecentralizationofgovernanceintheParisAgreement.Further,manyfeltthat“allowing”forsectorsoutsidetheNDCwouldcompromisetheArticle4requirementforNDCstobeprogressiveandcouldin fact lead to pervasive behaviour.However, for others still therewas a genuineargumentthatsectorswereexcludedduetolackofdataorcapacitytoincludethesesectors.

This issuewasdifficultto land,andwillcontinuetobeso, ifnocomprisesolution,temporalorotherwise,canbefound.

3.7SpecialcircumstancesofLDCandSIDS

Thisisaprovisionthatwasnotcontested,appearsinalltexts,andmaybeusefulifextendedtoabroadersetofcircumstancestoothergroups.Whilethe intention isnottodilutethespecialtreatmentofSIDSandLDCs,itisneverthelessimportanttorecognize that some compromises may be unlocked, by recognizing the specialcircumstancesofsomegroupssuchasLDCsandREDD+countries,whichmayhavelittlespacetocreateITMOs,outsidesomeveryspecifictypeofMO.

TheworkprogrammeunderKTP,contains“Furtherelaborationifrequired,ofthespecialcircumstancesofleastdevelopedcountriesandsmallislanddevelopingStates”

3.8Reporting

a)InitialreportingThreeoftheprovisionsarepresentinallthreeversionsofthetext

a) Demonstrate that it fulfills the participation responsibilities referred to in section III(Participationresponsibilities);

b) CommunicateitsperiodforNDCimplementation,includingthestartandenddate;c) CommunicateitsbasisforcorrespondingadjustmentspursuanttosectionV.A(Basisfor

corresponding adjustments) and its method pursuant to section V.B (Multi-year andsingle-yearnationallydetermined contributions) tobeapplied consistently throughoutitsperiodforNDCimplementation.

Thereisoneprovision,whichisnotpresentintheKTLtext,butpresentintheKTSB,andintheKTPtext(below):• QuantifyitsNDCintonnesofCO2e,includingthesectors,sources,greenhousegasesand

timeperiods coveredby itsNDC, the reference level of emissions and removals for therelevant year or period, and the target level for its NDC; where this is not possible,providethemethodologyforthequantificationofitsNDCintonnesofCO2e

• QuantifyitsNDC,orthatportionofitsNDC,inametricdeterminedbyeachparticipatingParty applying corresponding adjustments in metrics other than greenhouse gasespursuanttosectionV(Correspondingadjustments).”


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As the KTL represented an attempt at finding a working compromise, thisquantification, not dissimilar to a KP budget, was seen as too narrow and toodivisiveandwaseliminated–and in that textversion itwas thereforesent to theworkprogrammefor2019.

b)RegularinformationThereisvariationbetweendifferenttextsonwhatneedstobereportedonaregularbasis.

The first fourprovisions,which refer to standardapprovalsnecessary, andwhichappear in the Paris Agreement, stay the same in all texts. There are howeverprovisions which appear in the KTSB and KTP, and which tended to be moreinclusive and ensure that all needs were met. In some cases, these provisionsdisappearfromKTL,inthesameattempt,seenbefore,toeliminatewhatwasseenasdivisive,andstrikeadeal.SomeprovisionswereeliminatedbetweenKTSBandKTP,as they were pointing into a direction that seemed to include too manyrequirements.

Theavoidanceofunilateralmeasures ispresent inall texts. It isnotclearlystatedwhat kind of unilateralmeasures it is referring to - itmaywell be a reference togeneraltrademeasures,oranarrowerinterpretationonthebanningofcertaintypeofITMOs(similartoHFCCERsintheKP).

Thesameistruefortheprovisionontheavoidanceofnegativesocialandeconomicimpacts, which it is assumed to be a link to Response Measures. A reference tosecretariatcollaborationwiththe forumonResponseMeasures isalso included intheworkprogramme.

Reporting on sustainable development, albeit with recognition of nationalprerogatives, is also present in all texts – the KTSB text was broader, and alsoreferredtotheSustainableDevelopmentGoals.

Otherprovisions,suchashumanrightsobligations,areincludedinKTSBandKTP,but are omitted completely from the KTL text, and does not appear in the workprogrammeeither.

OneprovisionthatismissingfromtheKTLtextisthatofmeasurementinnon-CO2emetrics.Thisprovision is present in theKTP text, but in that case, there is also aprovisionof thisnature in theDefinition,which is, asdiscussed,missing from theKPLtext(thisprovisionsenttothe2019workprogrammefortheKTL,likeallothernon-CO2emetrics-relatedprovisions).


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With respect to the inclusion of mitigation co-benefits from adaptation andeconomicdiversification,thereisaprovisiontoreportonthem,whileatthesametime,thereisafurtherprovisiontoelaborateonthem.

3.9Review

The provisions in the KTP and KTL are the same: The Article 6 technical expertreviewshallreviewtheinitialreport,andtheregularinformation,andforwardittotechnical expert review under Article 13 paragraph 11. The Article 6 technicalexpertreviewelaboration, is,asdiscussed, included in the2019workprogramme(KTL).

3.10Recordingofadjustments

The provisions in KTL and KTP are very similar. Provisions in KTSB, being at anearlierstage,showmoreintheformatofoptions.

SincethissectionisonRecordingofCorrespondingAdjustments,theonediscussionthatneedstobesignaledascriticaltotakeplaceisonanintegratedviewonhowtheflowofcorrespondingadjustments-trackingofITMOs–recording–reporting-takeplace,forCO2eandnonCO2emetrics.

Itneeds tobe clearonhow this takesplace, and if itpossible tohavebothat thesametimefordifferenttimes,etc.

3.11Safeguardsandlimits

ProvisionsonsafeguardsandlimitswerestrongasksbysomeParties,buttheyarenotelaboratedinanydetailinanyofdocumentsthatweareexamining,whichthenalsoindicatesstrongresistancebysomeParties.Alandingzoneforthisissuewillbeadifficultone,even if theperceptionmaybethat itdoesnotsignal that this issuecan bring the whole Article 6 rulebook to a halt. Some of these issues mayinadvertentlyberesolvedifissuesalreadymentionedareresolved(e.g.I/O)

SomedetailscanbeglimpsedfromtheKTLworkprogrammefor2019,wheresomeoftheseissueswereplaced:

• “Transferlimits;• Minimumholdingrequirements;• Use of internationally transferred mitigation outcomes towards a Party’s nationally

determined contributions being supplemental to domestic action such that domesticaction constitutes a significant element of the effort made by each Party towards itsnationallydeterminedcontribution;

• Maximumlimitsontheuseofinternationallytransferredmitigationoutcomestowardsanationallydeterminedcontribution;

• Requirementsrelatingtocarry-overof internationallytransferredmitigationoutcomes


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fromonenationallydeterminedcontributionperiodtothenext;• LimitsrelatingtotheusebyaPartyofinternationallytransferredmitigationoutcomes

from emissions and removals not covered by the sectors and gases included in itsnationallydeterminedcontributiontowardsitsownnationallydeterminedcontribution;

• Avoiding significant fluctuations in the international market for internationallytransferredmitigationoutcomes;

• Addressing internationally transferred mitigation outcomes from sectors that have ahighdegreeofuncertaintyinemissionsestimates.”

While it is quite clear that in the COP 24 context these issues were going to bepushed to thework programme, theywill, in someway, need to be addressed aspartofthepackageatCOP25.Itisunlikelytobeadesiretopushthingstoa2020workprogramme.

3.12Shareofproceedsforadaptation

ThisisanissuethatissimplynotmentionedinArticle6.2whileclearlypresentinArticle 6.4. Financing for adaptation was an important issue at COP 24 and willcontinuetobeinanyclimatechangediscussions.

Both “overallmitigation” aswell as “share of proceeds (SOP) for adaptation” arepresent in the KTSB text, but only SOP remains in the KTP text as a stand-alonechapter.OverallmitigationinArticle6.2isdiscussedinprevioussections.

SOP isnotpresent in theKTLtext,but isreferredto in theworkprogramme, inavoluntaryway,using“could”asanoperativewordasawaytohaveitimplementedforbaseline-and-creditgeneratedITMOs.

Again, difficult issues to resolve, especially as it is linked to the overarchingchallengeofbalancebetween6.4and6.2.

4.Article6.4OnthefaceofitappearsthatArticle6.4isseenasmore“familiarterritory”bymanynegotiators,whileArticle6.2 is seen as thenovelty,wherenew thingshave tobedefinedanddiscovered.ThismaysimplybeduetheinitialreferencetoitasCDM+orasthesustainabledevelopmentmechanism,aswellasthefactthatmanyfeaturesseematfirstblushmorefamiliar.Atthesametime,thereismuchatstake,ashowmuchPartieswillmakeuseofArticle6.2,andhowmuchtheywilluseArticle6.4,andwhatarethedecidingfactors,isstillnotwellunderstood.

Insomeways, the issuesthatareupfordebate forArticle6.4aredifferent,butatthesametime,stronglyconnectedto those inArticle6.2.Themaindifferencewillemerge from the governance of the two articles. The connection results from the


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obvious reasoning that having two different and separate regulatory systems forsecondary transfers (that is beyond the initial issuance) for 6.2 and 6.4 soundinefficientandsomewhatillogical.ThereforeArticle6.4unitswillneedtobehaveasITMOs,orberegulatedunderthesameframeworkatsomepoint–hencetheissue,atwhatpointdoesanArticle6.4unittransferisgovernedbytheITMOframework?

4.1Definitions

In KTSB, KTP and KTL, there are extensive definitions of ITMOs. There is noreference to avoidance and removal, which seem to eliminate whole classes ofassets, andmake the participation bymany Parties, including those interested inREDD+,questionable.Thereferencetonon-CO2emetricsisthere,butdifferentfromthatinArticle6.2inthattheuseofothermetricsistobeproposedbyPartiestotheCMA,foritsconsiderationandapproval.

The one conditionwhich is surprisinglymissing is the one that wouldmake anyArticle6.4activitydependentonmitigationactionsbeingoutside/beyondtheNDC,whichwasoneofthemainasksofsomeParties.

TheKTSBalso includesadefinitionofoverallmitigationasa fixedpercentagenotused–thisdefinitionisabsentfromtheKTPandtheKTL.

Includingnon-CO2easanoption,tobedealtwithaftertheapprovaloftherulebook,willcertainlyensureanuphillstruggletogetthesemetricsapproved.ThiswillmaketheArticle6.4mechanismclosertobeingasuccessortotheCDM.

4.2Participation

InterestingtonotearethereferencesinKTPtounilateralmeasures,probablyascarfrom the KP (but missing from the KTL text where it was pushed in the workprogramme),aswellasastrongreferencetothespecialcircumstancesoftheLDCandAOSIS,whichwillbedefined.Thismayprovide,beyondtherecognitionofthesespecial circumstances, theopportunity toprovide for somecompromises thatwillunlockcurrentproblemsintheArticle6rulebook.

An important question, for Article 6.4, as it was in Article 6.2, is whether suchprovisionswouldthencontravenethenationaldeterminednatureof theNDCs,byforcing Parties to accept vintages and technologies in ITMOs that they feel isinappropriatefortheircircumstances.

4.3ActivityCycle

Intheactivitycycle,therearesomechangesthatneedtobementionedbetweenthe


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KTP and KTL texts, which are a simplification from the optionality in the KTSB.Thesechangesaresignificant,astheyagainsignalissuesthatneedtoberegardedas“difficult”.

TheKTLtext,asopposedtotheKTPtext,doesnotincludeareferencetoremovalsand avoidance, for which the discussion was moved to WP, together with areferencetoco-benefitsfromadaptationandeconomicdiversification.

TheKTLtextalsodoesnotincludeareferencetotheI/ONDC(alsointheWP),aswell as no reference to human rights (also in theWP). Itmust also be noted thespecific bracketed exclusion ofArticle5 (REDD+) in theKTSB text,whichwas notrepeated in theother two texts, butmaybe implicit inhaving adiscussion in theworkprogrammeonremovals(KTLtext).

OtherthingsthatneedtobementionedisthereferenceintheKTPandKTLtextsofthe need for national and subnational consultation. This may be somewhatsurprising given thatmost Parties already have such processes embedded in thenational legislationforprojectapproval,andthe“decentralizedethos”of theParisAgreement,thatshouldstillapplytoArticle6.4.

Finally,andbynomeansaminorissue,isthedemonstrationofadditionality.Article6.4 is seen as a successor to the CDM and a baseline-and-credit approach andtherefore additionality, mentioned in 1CP.21, is a critical aspect. The twoapproachesmentioned are (both KTP and KTL, therefore seem to be believed asacceptable):

• Emissionreductionsachievedbytheactivityareadditionaltoanythatwouldotherwiseoccur,takingintoaccountallrelevantnationalpolicies,includinglegislation;

• Emission reductions are complementary to the policies andmeasures implemented toachievetheNDCofthehostParty.

WhatisuncleariftheseareORconditionsorANDconditions.

The one approach that is not mentioned in the text is the one that would makeadditionalitydependentonmitigationactionsbeingoutside/beyondtheNDC,whichwasoneofthemainasksofsomeParties.

4.4Appealsprocess

BoththeKTPandtheKTLtextscontainprovisionsforanappealsprocess.Thisisanissue that has confounded the CDM for many years, without ever reaching aconclusion.ThegridlockwasdrivenbythedisputeoverwhohadstandingtolaunchanappealprocessforCDM–itwasfearedbysomePartiesthatanyonecouldlaunchan appeal at any time for any reason, essentially blocking internal projects and


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overridingdomesticapprovalprocesses.

Thecurrentformulationdoesnotaddresstheseconcerns,astheprocessislooselydefined,withfurtherworkintheworkprogramme:

“Activity participants may request the mechanism registry administrator to cancel thespecifiedamountofA6.4ERsinaccordancewiththeirinstructions”.

4.5Overallmitigationinglobalemissions

Overallmitigation inglobalemissions isaprovisionpresent inArticle6.4and thatneedstobeoperationalized.TheParisAgreementtextrefersto:

“shallaim:…(d)Todeliveranoverallmitigationinglobalemissions”

Thewordingof “shallaim”,not the “shall”which impliesanobligation inUNFCCClanguage,wasmaintainedinboththeKTPandKTLtexts,butthemethodstoreachthis aim are presented as either voluntary in nature or through less than precisemeans,suchas“conservativebaselines”. Referenceismadetoa10%cancellation,whichistheclosesttoabenchmarkthatPartiesmaybeproddedtoobserve.

4.6AvoidingtheuseofemissionsreductionsbymorethanoneParty

TheKTPtextcontainsaplethoraofoptionsasthiswas,onthefaceof it, the issuethat pushed the Article6 rulebook to COP 25. This issue, which essentially is theavoidanceofdoublecountingunderArticle6.4issuance,wassupposedtohavebeenhermeticallysealedinArticle6.5oftheParisAgreement:

“Emission reductions resulting from the mechanism referred to in paragraph 4 of thisArticle shall not be used to demonstrate achievement of the host Party’s nationallydetermined contribution if used by another Party to demonstrate achievement of itsnationallydeterminedcontribution.”

ExceptthatnooneseemstohaveanticipatedthatonecouldclaimthatifArticle6.4unitsare issued fromoutside/beyondtheNDC, thentheyaredoublecounted.Theprovision that would tighten this up is to say that A6.4U issued by a Party fromoutside the NDC/beyond the NDC cannot be used by the host Party – that is, itcannotpurchase,directly,orthroughalongtransactionandtransferchain,itsownA6.4U coming fromoutside theDC, anduse then towards its ownNDC. Long andconvoluted,butsuchaprovisionwouldclosetheloop.

Oneotherissuethatisaderivative:isthereadifferentiationneededornotbetweentheissuanceandfirsttransfer?

TheKTPtextprovidesnumberofoptionstotightenArticle6.5–andtheyareallsenttothe2019workprogrammeintheKTLtext.


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OptionA62. [Pursuant toArticle6,paragraph5,aPartyhostingArticle6,paragraph4,activitiesshall make a corresponding adjustment consistent with the guidance for cooperativeapproaches referred to inArticle6, paragraph2of theParisAgreement forall emissionreductions[,ifthoseemissionreductionsaretransferredinternationally][from[Xdate]].]

OptionB63. [Pursuant toArticle6,paragraph5,aPartyhostingArticle6,paragraph4,activitiesshall make a corresponding adjustment consistent with the guidance for cooperativeapproaches referred to in Article 6, paragraph 2, only to emission reductions that areincluded in the sectors and greenhouse gases covered by its NDC[, if those emissionreductionsaretransferredinternationally][from[Xdate]].]

OptionC64. [A Party hosting Article 6, paragraph 4, activities shall not be required to make acorresponding adjustment consistent with the guidance for cooperative approachesreferredtoinArticle6,paragraph2forthefirsttransferofA6.4ERsfromthemechanismregistry.PursuanttoArticle6,paragraph5,aPartytransferringafterthefirsttransferoracquiringemissionreductionsfromthemechanismshallmakeacorrespondingadjustmentconsistent with the guidance for cooperative approaches referred to in Article 6,paragraph2.]

It is interesting to note that theKTP text refers to the need for CA for emissionsreductioninthesectorscoveredbytheNDC;italsorefers,asanotheroption,totheneed NOT to make any CA for the first transfer, as a blanket statement, withoutreferring to where they originate. This must be seen as a confirmation that thelanguage of “outsideNDC” or “beyondNDC,whichwas difficult to operationalize,seemstohavebeenlargelyabandoned,atleastforthemoment.

4.7TransitionfromKPmechanisms

Although the PAmakes reference to experience gained and lessons learned fromexistingmechanismsandapproaches, itdoesnotgofurtherthanthat. Thereisnoreference and no direction from the Paris Agreement to create a framework totransfer credits, activities orprojects or knowledge from theKPmechanisms intotheParisAgreement,viaArticle6.4,orotherwise.ThereishoweveranexpectationthatitisthesameUNFCCCthatcreatedaGHGregulatorymarketundertheKP,andthatnotprovidingrecognitionandcontinuitywoulddamagethealreadytarnishedcredibilityofmarketmechanismsissuedfromtheUNFCCCprocess.Thebottomfellfromunder theCDMmarket, largely through regulatorydecisions, and thosewhoinvestedfoundthemselveswithstrandedassets.

Thecampsareverydivided,withsomefeelingthatatleasttheknowledgeneedstobepreservedandused“copy/paste”.Others feelstrongly thatprojectsandcreditsneed to be preserved. The opposition comes from those that question the


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environmentalcredentialsofcreditsfromtheCDMaswellasareconcernedaboutasignificantsurplusthatcouldbebroughtintotheParisAgreementsregime,leadingto (again) depressed prices, and a lack of incentive for what they see as urgentaction.

The options reflect all these options, for both JI and CDM. AAUs have not beendirectly brought into the discussion, even if JI and ERUs to cover indirectly thatissue.Therewasanattempt toapplya temporalBandAid in this caseaswell,byusing2020/2021asthetimewhencreditsthatcanbegrandfatheredinArticle6.4wouldhavetobeissued.

Overall,thissoundsverymuchlikeapoliticalissue,onethatwillbejustified,butnotdecidedonthebasisofnumbers.

5.ConclusionsArticle 6, and carbonmarkets in general, will always elicit strong reactions bothpositiveandnegative.Thisprobablyarises fromthecurrentexperience thatsomefeeltheyhadwithcarbonmarkets,whichisbynomeansgenerallyaccepted.

Markets made a difference in the KP and the EU ETS, however, when pricesdropped, this became the culprit of why things did not turn out the way somestakeholderswantedthemtoturnout.

SomealsoseecarbonmarketsasrepresentinganescapehatchforPartiestoavoidtakingdomesticactionwhichmanyhaveopposed.Oritcouldsimplybethatcarbonmarketsreallycanimpacttheenvironmental integrityoftheParisAgreement, if itdoes not include some safeguards at least. However, there are also manystakeholdersinallsectorsthatseecarbonmarketsasanimportanttooltoprovideaprice signal also in helping address, among others, concerns regardingcompetitiveness. Further carbon markets can be a significant tool in promotingcooperationandreducingcostsofmitigation.

Theissuesarenotintractable.EventheissueofCAforArticle6.4issuanceisintheendrelatedtoavisionthatPartieshaveoftheirplaceintheclimatechangeregime.Butthatplaceischanging,asistheworldaroundus,includingthepictureofglobalcontributionstoeconomicgrowthandemissions.

While we have made progress in Katowice, it is questionable to assume thatsome/any issues can be seen as having been settled in Katowice. Many were


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assumedclosedinParis,onlytobereopenedoverthelastthreeyears-soweneedtobepreparedforthat.

Thebestplace to find the “difficult issues” is theKTL text. Ifwewere to take thisapproach,thensomeoftheissueswemayneedtofocusinclude:

• Howdowedealwith ITMOs inmetrics other thanCO2e – is there a need forthem,anddoesthatleadtootheroutcomes,suchastheneedforabufferaccountforCA.

• HowdowedoCAforissuancefrom“outsideNDC”,includingfirstissuanceunderArticle6.4.Wemayneedtoeliminatethatoption,orgiveitatimehorizon.

• How do we articulate tracking-CA-reporting if we allow Parties choice in thebasisandtimingofCA.

• Is it justifiable toaddprovisions thatwerenot in theParisAgreement,even ifexcluding themseemsunfair - and they are seenby theirproponents tobringaboutbalanceseenbysomeasnecessary.

• Howdoweaddress the single/multi-yearNDCaccounting? Is thereaneed forsimplifyingassumptionstomakethiswhilemarketworkandnotcollapseundertheweightofthebranchesthatthediversityinNDCsbring.

• IsthecontinuityofKPmechanismssomethingthatneedstoweighontheArticle6rulebook,orthis isapoliticaldecisionthatcanbeseparatedandsendtotheCMSasastand-aloneissue.

Noneofthesearesimpleissues,asParties,andnegotiatorshaveinvestedheavilyin“their” option. Markets may be different from what UNFCCC negotiators canimagine,andifwewanttoharnesstheirenergy,wemayneedtoacceptthat.

Intheend,theanswermaybethatwewillhavetomakesimplifyingassumptionsinordertoarriveatafunctionalmarket.ThecomplexitythattheParisAgreementhasintroducedneedstobeaddressedanditcanbeaddressedthrough:

• Politicalcompromiseonsomeissues• Simplifications,byassumingthatparticipationisrestrictedtoPartiesaccepting

certainconditions–e.g.NDCinCO2ebudgets• Centralizationoffunctions

Areanyofthesesolutions,oracombinationthereof,palatabletoParties?

rulebook for article 6 in the paris agreement...andrei marcu & mandy rambharos 3 some takeaways...

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