Business perspective on Article 6 Stefano De Clara Director for International Policy, IETA December 13, 2017

What is IETA? Global Cross-Sector Business Association +130 companies from oil, electricity, banking, industry, traders and brokers, law, consulting, project developers, exchanges, verifiers, etc. … Collectively providing a global business voice on carbon markets Principles: GHG trading systems = most efficient means of achieving environmental objectives Long-term policy certainty is necessary to achieve cost-effective reductions Use of offsets/linkages to a global carbon market are effective ways to contain costs Climate Challenges, Market Solutions

IETA Members Power Sector (Enel, EDF Energy, Statkraft, SSE, American Electric Power, E.ON, RWE, Vattenfall, China Light & Power, PG&E...) Oil/Gas (Shell, Statoil, PetroChina, Eni, BP, Gas Natural, Chevron, Total..) Industry (Norsk Hydro, BHP Billiton, Dow Chemical, HolcimLaFarge, Mitsubishi, Solvay, RioTinto...) Finance (BAML, Morgan Stanley, Standard Bank, BNP Paribas, Commerzbank..) Traders and Brokers (Mercuria, Vertis, CF Partners, AitherCO2 Evolution Markets..) Market Analysts (ICIS-Tschach Solutions, BNEF, Thomson Reuters, Argus...) Legal (Baker McKenzie, Reed Smith, Latham & Watkins, Dentons, Norton Rose..) Consulting/Project Developers (Climate Smart Group, Greenstream, CarbonSink, South Pole, ClimateCare, Althelia- Ecosphere+, First Climate...) Exchanges (ICE, EEX, CBL Markets..) Verifiers (ERM, DNV, PwC, KPMG...) Standards and Others (ACR, CAR, VCS…) And many others.... collectively providing an effective business voice on carbon pricing Climate Challenges, Market Solutions

The Paris World: NDC Types Climate Challenges, Market Solutions

Article 6 Potential ITMO trading could be exponentially greater than Kyoto trading Allows enhanced cooperation through market linkages with robust accounting principles New mitigation mechanism available to all who want to use it For both developed & developing countries Could be broader than mere crediting Operates in context of all Parties implementing NDCs NDCs reviewed every 5 years – may signal supply / demand trends Climate Challenges, Market Solutions

A new publication from IETA presenting a straw-man vision for the market provisions within Article 6, covering internationally transferred mitigation outcomes (ITMO) and the mechanism to contribute to the mitigation of greenhouse gases and foster sustainable development (EMM). Climate Challenges, Market Solutions

IETA Article 6 ‘Vision’ Article 6.2: ITMO becomes the required approach for any quantifiable exchange of units or use of a carbon delineated mechanism between Parties; Article 6.4: The EMM is a process for unitizing an activity for climate financing and/or subsequent transfer of a mitigation outcome between Parties; Article 6.8: The non-market framework is for activities not immediately delineated in carbon units

Article 6 and Environmental Integrity Without quantification, the double counting provisions of Article 6 cannot be applied. Therefore: Both NDC’s involved in an ITMO or a clearly defined sector within the NDC must be fully quantified in absolute tonnes over the period they apply to; An NDC must be quantified up front for an ITMO to proceed, then reconciled against that quantification at the end of the period (e.g. a true-up). The transparency mechanism (Art 13) of the PA could be useful to ensure this takes place;

IETA Article 6.2 ‘Vision’ The concept of exchange of carbon units, either notional or real, should be an underpinning feature of any ITMO to ensure appropriate accounting. An ITMO should always entail to a corresponding adjustment of both Emissions Accounts involved. An ITMO is the process by which there is a quantitative transfer of emission reduction capability between two Parties either in the form of: Allowances; Reduction units; A carbon delineated inventory adjustment

IETA Article 6.4 ‘Vision’ Article 6.4: The Emissions Mitigation Mechanism (EMM) is a process for quantifying and delivering emission reductions (as an allowance type of unit) against an emissions reference level for: Climate finance (e.g. results-based finance) A subsequent transfer of a mitigation outcome between Parties; Enabling the use of domestic carbon pricing systems All of which should be measured in tCO2 in a standardised way against an emissions reference or baseline.

The Article 6 Architecture Crediting (offset model) Crediting with correction (Joint Implementation model) Allowance trade (linked ETS model) EMM Climate Funds NDC Coverage = emissions account EMM Emissions Account ITMO (EMM) ETS Coverage ETS Coverage Allowance trade (ITMO, may use EMM) EMM NDC Coverage Climate Challenges, Market Solutions

Market mechanisms around the world Voluntary Market New Zealand Tokyo & Saitama RGGI California Beijing Tianjin Shanghai Chongqing Hubei Shenzhen Guangdong EU ETS South Korea Switzerland Washington Kazakhstan (Suspended) Taiwan Vietnam South Africa Mexico China US Canada Alberta Ontario ETS in place Subnational ETS in place ETS Being Designed Carbon Tax with Offsets Being designed or in place Linkages Trinidad and Tobago Ukraine Hybrid Carbon Pricing British Columbia Australia Thailand Oregon Quebec Nova Scotia Colombia New Brunswick Turkey Chile Pacific Alliance Peru CORSIA Climate Challenges, Market Solutions

The way forward Focus going forward will be on NDC implementation and evolution Article 6 Provisions will be crucial to achieve the goals of the Paris Agreement in a cost effect way A World Bank report estimated that the use of an international carbon market could reduce global mitigation costs by more than: 30% by 2030 50% by 2050 Crucial for countries to implement carbon markets and other form of carbon pricing and then benefit from Article 6 provisions Climate Challenges, Market Solutions

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