ecbi european capacity building initiative Article 6 Mechanisms Emissions trading & Sustainable Developt Mec. Túlio Andrade Ministry of Foreign Affairs of Brazil european capacity building initiative initiative européenne de renforcement des capacités for sustained capacity building in support of international climate change negotiations pour un renforcement durable des capacités en appui aux négociations internationales sur les changements climatiques

Article 6.2 - Where engaging in use of internationally transferred mitigation outcomes towards NDCs; - Shall (legally binding): Promote sustainable development; Ensure environmental integrity & transparency: Including in governance Apply: Robust accounting; Among other things, avoid double counting (1/CP.21 – “on the basis of corresponding adjustments”); - Consistent with CMA guidance

Article 6.3 - Engagement in 6.2 voluntary and conditioned upon authorization of participating Parties.

Necessary safeguards: fungibility requires full comparability; same outcome not to be traded twice; Must work in the long term: context not the current; new policies from many more countries - Reputation of the regime.

Options for operationalizing Article 6.2 OPTION 1: “framework for various approaches” Linking various non-multilateral emissions trading scheme; Safeguards (comparability & non double counting) would require: impose multilaterally-agreed rules and governance on each existing and new scheme; policy space restrictions; existing ETS to undergo significant adjustments; Impractical. Procedurally, discussions on FVA suspended.

Options for operationalizing Article 6.2 OPTION 2: “6.2 as an accounting framework” Analogy to emissions trading (KP, Article 17); voluntary; additional layer to 4.13 & 13; more rigid; top-down reminiscent dimension.

Analogy to Emissions Trading - Multilateral registry with national accounts; - International Transaction Log - Issuance of units – quantification of NDCs; Technical Expert Review of calculation; Limitation of tradable units (Doha amendments); additions to, and subtractions from, NDCs permitted emissions; additions of CERs from CDM & SDM.

Sustainable Development Mechanism – Article 6.4 Legal language of the Paris Agreement and decision reflect KP Article 12 language on the CDM: Under CMA authority & guidance; Supervision by designated body; Voluntary; Real, measurable & long-term mitigation benefits; Additionality; Verification & certification by DOEs; 6.4(c) - Host Party to benefit from emission reductions that can also be used by another Party to fulfill its NDC; Share of proceeds.

What’s new? Specific scopes of activities (reference to PoAs); Incentivize & facilitate participation of public & private non-State actors (similar to CERs voluntary cancelation) Results-based finance; Corporate socioenvironmental responsibility strategies; Carbon footprint offset (including individuals). 6.5: CERs used towards host country’s NDC cannot be used again.

Issue of Highest priority: smooth transition from CDM to SDM - Key to legal certainty & reputation of the regime; Foster early-action while SDM not fully operational; Encompasses four dimensions: CDM CERs converted to SDM CERs; continued validity of CDM methodologies; issuance of SDM CERs for CDM registered project activities; transposition of CDM accreditation system. Decision in Bonn could immediately give price signal and revive CDM.

Additionality - To award activities that would not otherwise occur - Not in relation to NDCs, but in relation to SDM itself; Continued application of CDM requirements: first-of-its-kind; Investment analysis; Barriers analysis; Common practice analysis. With progressive implementation of NDCs, activities once approved will no longer be proven additional. Additionality & conservative baselines to deliver overall mitigation.

SDM registry Registry administered by Secretariat with Board supervision; To gather every SDM CERs issued by the Board; To allow non-Party stakeholders unprecedented access to UN credits; CERs purchased from the SDM registry: By a Party: transfer to 6.2 national account; By non-Party actor: transfer to cancellation account.

No application of corresponding adjustments for 6.4 Legally: under the Paris Agreement & decision, corresponding adjustments restricted to 6.2; Technically: Illogical subtraction from host country national account if it has not taken part in transaction; illogical double subtraction (from host country national account and SDM registry).

No application of corresponding adjustments for 6.4 Environmentally: Corresponding adjustments: perverse incentives To limit SDM potential for additional mitigation; host Parties not to move to absolute economy-wide targets; Risk of “double claiming”: 6.5;

Accounting x Inventories No application of corresponding adjustments for 6.4 Accounting x Inventories National inventories: bona fide calculation; SDM mitigation activities will not necessarily affect the calculation of emission levels in national inventories; CDM/SDM Executive Board baseline and monitoring methodology x IPCC Guidelines for National Inventories; Counterfactual (hypothetical net emissions) x factual (actual emissions); Emission factor: “combined margin” x average.

ecbi THANK YOU! european capacity building initiative Túlio Andrade Ministry of Foreign Affairs of Brazil tulio.andrade@itamaraty.gov.br european capacity building initiative initiative européenne de renforcement des capacités for sustained capacity building in support of international climate change negotiations pour un renforcement durable des capacités en appui aux négociations internationales sur les changements climatiques