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

2. 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

3. 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

4. The Paris World: NDC Types
Climate Challenges, Market Solutions

5. 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

6. 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

7. 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

8. 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;

9. 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

10. 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.

11. 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

12. 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

13. 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

14. IETA’s GROWING RESOURCE LIBRARY

15. Thank you!
Climate Challenges, Market Solutions