Progress made on Paris Agreement Article 6.4 at Bonn; Talks to Continue in Dubai
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Article 6.4 of the Paris Agreement to the United Nations Framework Convention on Climate Change ("UNFCCC") provides a structure for a carbon credit market on which greenhouse gas ("GHG") emission reductions or removals may be transferred internationally.
While the Parties to the Paris Agreement have agreed to basic elements regarding this market mechanism, negotiations continue on environmental criteria that Article 6.4 carbon credits must satisfy, activities that can generate credits, methodologies that will apply, and safeguards to protect against adverse impacts. In addition, outstanding issues remain in relation to the administrative infrastructure needed for the Article 6.4 market mechanism to function.
Discussions continued on these issues at the 58th session of the UNFCCC Subsidiary Body for Implementation and Subsidiary Body for Scientific and Technological Advice ("SBSTA") from 5 to 15 June 2023 in Bonn, Germany (the "Bonn Climate Change Conference"), paving the way for further progress at the upcoming 28th session of Conference of the Parties to the UNFCCC ("COP") in Dubai, United Arab Emirates starting in late November 2023 ("COP28").
Article 6.4 of the Paris Agreement
Article 6.4 of the Paris Agreement was approved by the 21st session of the COP, providing a framework for the establishment of a global carbon credit market. The Article 6.4 mechanism is overseen by a "Supervisory Body" designated by the COP serving as the meeting of the Parties to the Paris Agreement ("CMA").
Under the Article 6.4 mechanism, project developers will seek approval from host countries in respect of GHG mitigation activities, before making an application to the Supervisory Body. Once approved, carbon credits known as "A6.4ERs" will be issued in respect of GHG emission reductions or removals, which may then be transferred to other countries or used for other climate change mitigation purposes. A country purchasing A6.4ERs might use them in recording progress against its Nationally Determined Contribution ("NDC") submitted pursuant to the Paris Agreement.
The centralised framework for the issuance of A6.4ERs under Article 6.4 contrasts with the decentralized framework under Article 6.2 of the Paris Agreement, under which countries tailor their own bilateral arrangements for transferring "internationally transferred mitigation outcomes" ("ITMOs"). The Article 6.4 mechanism is closer in design to the Kyoto Protocol's Clean Development Mechanism ("CDM"), which issued credits known as "Certified Emission Reductions". Article 6.4 stakeholders seek to learn from the experience of the CDM to create an improved mechanism for global carbon credit trading that meets high levels of environmental integrity and transparency.
Other distinctive features of Article 6.4 include a requirement for 5 per cent of the "share of proceeds" from A6.4ERs to be transferred to a "Global Adaptation Fund" to help Global South countries finance efforts to adapt to climate change, and a grievance mechanism in respect of Article 6.4 projects. The latter would allow people and communities negatively impacted by Article 6.4 projects to appeal decisions of the Supervisory Body, or request that a grievance be referred to an independent body.
Key outstanding issues in relation to Article 6.4
Integrity Standards and Eligible Activities
Some important outstanding issues under Article 6.4 relate to the integrity of A6.4ERs and the eligibility of certain types of activities. Below are some of the key issues in this regard, including: (i) whether to include "avoidance activities"; (ii) the eligibility of REDD+ (the acronym for "Reducing Emissions from Deforestation and Forest Degradation in Developing Countries") activities; (iii) the development of methodologies; and (iv) human rights safeguards.
Avoidance vs reduction and removal of GHG emissions
A key issue requiring further clarification is whether GHG avoidance activities may be used to generate A6.4ERs. Under the Article 6 Rulebook agreed at the 26th session of the COP, activities involving the removal or reduction of GHG emissions are expressly in scope of the mechanism.1 The decision as to whether to include activities involving the avoidance of GHG emissions was left for further consideration.2
If emissions avoidance activities were to be included, the question arises of how to define the term.3 Generally, GHG emissions avoidance refers to the prevention of the release of already anticipated emissions, known as 'baseline emissions'. For example, projects which preserve existing forests in areas that are at risk of deforestation, are sometimes included within the category of emissions avoidance because they are intended to avoid increased emissions, rather than actively reduce or remove such emissions.4 Removal activities actively remove GHGs from the atmosphere, and reduction activities operate to reduce GHG emissions associated with existing projects and infrastructure.5
The Philippines contend that emissions avoidance should be within Article 6.4's scope through expanding the definition of GHG emissions 'mitigation'. It emphasises that prevention of future emissions is more relevant to developing countries than removal or reduction of existing emissions.6
Other countries submit that GHG avoidance should not be counted toward A6.4ERs. The United Kingdom contends that including GHG emissions avoidance could undermine the environmental integrity of the Article 6.4 mechanism due to concerns around baseline calculations and additionality.7 Likewise, the Czech Republic asserts that the "environmental integrity of the A6.4 mechanism could be seriously undermined if we allow emission avoidance under A6.4, thereby crediting the conservation of existing carbon stocks, or the crediting of risk reduction exercises, without pre-defined emission reductions, and without a clear demonstration of additionality".8
Eligibility of REDD+ activities
Related to the question of whether avoidance activities fall within scope of the Article 6.4 mechanism is the issue of whether REDD+ activities may give rise to A6.4ERs. Various submissions have called for REDD+ activities to be categorised as emissions reductions or removal activities, rather than avoidance activities, and to thus be included in the scope of Article 6.4.9
If REDD+ credits were to be included in Article 6.4's scope, the methodology for calculating these credits would require further consideration. Some Parties have suggested that a nesting approach should be undertaken with respect to REDD+ activities, which would ensure consistency between REDD+ activities undertaken at different levels with respect to baselines and accounting.10
Development of methodologies
Further consideration is due to be given to the development of methodologies in respect of Article 6.4 activities, including accounting methodologies and methodologies addressing the risk of non-permanence11 and leakage.12 In general, submissions noted the need for different methodologies for different types of activities, such as Direct Air Capture and other technology-based removal activities.13
There have been various submissions to the UNFCCC regarding methodological issues in relation to non-permanence and leakage. A submission from a group of non-governmental organisations called for activity owners to be required to conduct and regularly update an assessment following a pre-defined methodology on the risk of non-permanence and requiring compensation for reversals by either the carbon crediting programme or the activity developer.14 There is also likely to be discussion on the role of activities relating to temporary storage of carbon dioxide in this context. For example, Carbon Market Watch urged the Supervisory Body to prohibit accreditation of such activities if used for offsetting purposes.15 Submissions likewise called for leakage to be minimised, and Sweden's submission argues for all types of leakage to be covered, including upstream and downstream emissions, the shifting of activities, and ecological leakage (activities that affect other hydrologically connected areas).16 Submissions also note that it is important that any approaches are not limited in geographical or sectoral scope due to the cross-jurisdictional nature of leakage.17
As for accounting methodologies, submissions have been made to the UNFCCC in respect of various approaches. For example, the use of "tonne year accounting" has been discouraged by the Institute for Agriculture and Trade Policy, Carbon Market Watch and Stockholm Environment Institute.18 This form of accounting involves calculating removals based on both the amount and duration of GHG emissions removed.19 This means that temporary storage of larger quantities could be equated to permanent storage of smaller quantities, which would undermine the long-term climate goals of the Paris Agreement.20
Human rights safeguards
Human rights safeguards may also be put in place for activities qualifying as A6.4ERs. The Supervisory Body established the need for negative environmental and social impacts to be avoided by activity participants in its recommendations to the CMA at the 27th session of the COP ("COP27").21 Several submissions support the inclusion of such safeguards and seek to incorporate human rights protections, including submissions from Colombia, Sweden and the Office of the High Commissioner for Human Rights ("OHCHR").22 The Swedish submission offers a comprehensive list of safeguards that should be included, such as human rights, women empowerment, free prior and informed consent by Indigenous Peoples and Local Communities, protection of cultural heritage and labour rights, among others.23 Likewise, the Centre for International Environmental Law's submission notes that the list of negative environmental and social impacts provided in the Supervisory Body’s recommendations at COP27 should be amended to explicitly include human rights, and should be stated to be non-exhaustive due to ensure it is inclusive of all other potential impacts.24
If this approach is established, then activities seeking to generate Article 6.4ERs will need to consider and seek to mitigate negative environmental and social impacts. As to how these safeguards should be imposed, Sweden, the OHCHR and the Center for International Environmental Law call for the Supervisory Body to exclude activities that do not fulfil requirements on human rights and other protections.25 Sweden's submission proposes that activity proponents identify impacts using an established methodology (to be developed by the Supervisory Body) in an audited and publicly available report. Activity proponents would then need to formulate a management plan, monitor impacts, and demonstrate mitigation. The submission goes into further detail as to how to conduct stakeholder consultations. For example, stakeholders should be consulted prior to proceeding with and validating the activity, their input should be taken into account and publicly documented, and communication should continue after these processes are complete.26
Infrastructure and Procedures
In addition to integrity and eligibility considerations, discussions continue in connection with the establishment of the highly complex administrative infrastructure necessary for the functioning of Article 6.4. Some of the key issues are set out below, namely (i) the authorisation process; (ii) the Article 6.4 grievance mechanism; and (iii) Article 6.4 registries.
Authorisations
Pursuant to the Article 6 Rulebook, host countries must approve each Article 6.4 activity, including public or private entities participating in the activity, and must specify whether the A6.4ERs are authorised for achievement of the host country's NDC or other international mitigation purposes.27 Further clarification is necessary with respect to the authorisation, including its timing.28
As to the content of the authorisation statement, it is likely that minimum information requirements will be specified. Submissions to the UNFCCC have suggested general information to be included in all such authorisation statements, such as: the host country, registration number, activity participants, the relevant sector and activity type, crediting period, monitoring period, usage of the Article 6.4ERs, date of authorisation, the first transferring party and the registry each participating Party will use for tracking. Submissions have also suggested that specific information could additionally be required for particular cases, such as specific conditions or limits stipulated by the host country, or limitations on use (for example, specifying which country may use the carbon credit towards its NDC).29 Submissions also generally agree that revisions to the statement should not be typically permissible, as it could create uncertainty and undermine the credibility and functioning of Article 6.4.30
A further area of uncertainty relates to the status of A6.4ERs which are not authorised for use towards achievement of the host country's NDC and/or other international mitigation purposes. It was agreed at COP27 that A6.4ERs not authorised for such purposes, known as "mitigation contribution A6.4ERs", may be used for, inter alia, results-based climate finance, domestic mitigation pricing schemes, or domestic price-based measures.31 A remaining area of uncertainty is whether "mitigation contribution A6.4ERs" may be transferred to companies domiciled outside the host country on the voluntary carbon market, and used by such companies towards their climate targets. If so, then the mitigation contribution A6.4ERs could be counted towards the host country's NDC at the same time as being counted towards the recipient company's climate goals, without the host country having to apply a corresponding adjustment. By contrast, if A6.4ERs to be transferred on the voluntary carbon market would need to be expressly authorized for such purpose, then the host country would be required to apply a corresponding adjustment to its NDC upon transferring to the company domiciled abroad.32
Art 6.4 grievance mechanism
The Article 6 Rulebook refers to an "independent grievance process", that would allow people and communities negatively impacted by Article 6.4 carbon crediting projects, as well as other stakeholders, to appeal decisions of the Supervisory Body or request that a grievance be referred to an independent body.33 Stakeholders are now seeking to ensure such mechanisms are effective, transparent and accessible. Various requirements were therefore recommended, such as expedited access without the need to rely on costly experts, and a public grievance repository.34
Registries
Features of registries that will be used to record Article 6.4 transactions were addressed by submissions to the UNFCCC. For example, Carbon Market Watch recommends that registries contain: (i) an in-depth analysis of each project; (ii) a record of all transactions and holders of Article 6.4ERs; (iii) project design documents; and (iv) information on finance reaching project developers.35
The ability for a registry to connect with other registries (i.e. interoperability) is a key part of the discussion. For example, the Czech Republic’s submission emphasises the need for a system that operates across Article 6.2 and Article 6.4 to enable recording of transfers of Article 6.4ERs to third parties, including ITMOs transactions.36 Likewise, the submission from Argentina, Brazil and Uruguay contemplates connecting the registry with mechanisms under Article 6.2, as well as CDM registries and registries outside the UNFCCC. Further work is needed on establishing how this interoperability may be achieved.37
Progress at the Bonn Climate Change Conference
In advance of the Bonn Climate Change Conference, the SBSTA published a synthesis report of Party submissions on Article 6.4.38 Sessions were held at the conference to discuss these issues among delegates and experts. Following the Bonn Climate Change Conference, the SBSTA published draft conclusions on Article 6.4.39
The SBSTA will hold a technical expert dialogue on the Parties' Article 6.4 submissions in advance of COP28.40 The SBSTA has invited submission of further views to be taken account in this dialogue by 15 September 2023.41
Following this dialogue, the SBSTA will publish a document summarising (i) views from the Bonn Climate Change Conference; (ii) outcomes from the technical expert dialogue; and (iii) submissions from Parties sent in advance of COP28. This document is to be considered with a view to producing draft decisions for consideration at future COP sessions.42
Further reading
- Negotiations on Carbon Credits Expected to Continue at COP27 (21 September 2022)
- Article 6 of the Paris Agreement: Opportunities for Africa (12 December 2022)
- Energy Transition & Industry Impact – Carbon Trading (10 November 2021)
- Scaling voluntary carbon markets: Opportunities and challenges (21 October 2021)
- Scaling Voluntary Carbon Markets: Phase II Report (30 July 2021)
- Scaling Voluntary Carbon Markets: Phase II Public Consultation (16 June 2021)
- Scaling Voluntary Carbon Markets: The Final Report (18 February 2021)
1 UNFCCC, Decision 3/CMA.3, 2021, Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement, Annex, V.A.31(a), available here.
2 UNFCCC, Decision 3/CMA.3, 2021, Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement, paragraph 7(h), available here.
3 The Philippines' submission suggests that emissions avoidance could be defined as "the full displacement or prevention of GHG emissions expected to be generated by planned GHG emitting actions in energy, transport, manufacturing, agriculture, human induced deforestation, and other GHG emitting development activities." The submission by the Republic of Korea acknowledges that a clear definition of emissions avoidance needs to be established, along with a list of activities which would be included in this definition. It also notes that this process should involve checking and ensuring the compatibility of such activities with the Article 6.4 design requirements; in particular, the achievement of real, measurable and long-term benefits, additionality, and minimisation of the risk of non-permanence, leakage and negative environmental and social impacts. See, UNFCCC, UNFCCC, Philippine Submission on SBSTA 56 Agenda Item 13, available here; UNFCCC, The Republic of Korea's views on Article 6, paragraph 4, of the Paris Agreement referred to in paragraph 10 of decision -/CMA.4, available here.
4 S&P Global, 'Debate on avoidance and REDD+ carbon projects to dominate the next UN Climate Conference', 12 January 2022, available here.
5 Vertree, 'Carbon offsets – avoidance and removals', available here.
6 It argues that the inclusion of avoidance emissions would incentivise developing countries that are still growing their infrastructure to invest in alternatives that prevent emissions; examples provided include preventing the use of planned fossil-fuel based projects or land use change from forest to agriculture. The proposal takes into consideration the fact that developing countries may have limited means to shift to zero GHG emitting technologies but nonetheless have a right to socio-economic sustainable development. UNFCCC, Philippine Submission on SBSTA 56 Agenda Item 13, p.2, available here.
7 UNFCCC, The United Kingdom of Great Britain and Northern Ireland's submission to the United Nations Framework Convention on Climate Change on matters related to the mechanism established by Article 6, paragraph 4, of the Paris Agreement, Section 4, p.5, available here.
See also: UNFCCC, Submission by Czech Republic and the European Commission on behalf of the European Union and its Member States, 29 August 2022, pp.7-8, available here.
8 UNFCCC, Submission by Czech Republic and the European Commission on behalf of the European Union and its Member States, 29 August 2022, available here.
9 For example, the submission from Colombia on behalf of Chile, Colombia, Guatemala, Panama, Paraguay and Peru notes that REDD+ activities should not be classed as emissions avoidance and claimed that it was recognised as an emissions reduction programme at COP13. Colombia's submission also notes the need for all activities under REDD+ to be covered by the Supervisory Body's guidance, i.e. conservation, management and expansion of forests should be captured as well as reduction of deforestation and forest degradation. See, UNFCCC, Submission by Colombia on behalf of Chile, Colombia, Guatemala, Panama, Paraguay and Peru, March 2022, paragraph 14, available here. Similarly, Papua New Guinea's submission calls for emissions avoidance to not be included in the scope of Article 6.4, but it emphasises that REDD+ activities should not be classed as such. It also highlights all types of REDD+ activities as eligible, including conservation, management and enhancement, in accordance with Decision 1 at the 16th Conference of the Parties. See, UNFCCC, Papua New Guinea on behalf of the Coalition for Rainforest Nations, 28 February 2023, available here.
10 UNFCCC, Submission by Colombia on behalf of Chile, Colombia, Guatemala, Panama, Paraguay and Peru, March 2022, paragraph 13.
11 "Permanence" refers to the requirement that any GHG mitigation benefits in respect of which carbon credits are issued are not reversed due to unforeseen events.
12 "Leakage" occurs when a carbon credit shifts emissions from one location to another, rather than achieving a net decrease in emissions.
13 For example, the Republic of Korea has noted that Direct Air Carbon Capture and Storage (and Use) and other engineering-based removal activities require more specific accounting methods and expert input as they are undergoing rapid technological development. See, UNFCCC, The Republic of Korea's views on Article 6, paragraph 4, of the Paris Agreement referred to in paragraph 10 of decision -/CMA.4, p.12.
14 UNFCCC, Joint Submission on Removals, 'Recommendations to the Article 6.4 Supervisory Body on Activities Involving Removals', pp.4-5, available here.
15 UNFCCC, 'CMW inputs on removal activities in Article 6.4, in response to the invitation for observer comments', 14 March 2023, available here.
16 UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on activities involving removals', p.4, available here.
17 UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on activities involving removals', p.4.
18 UNFCCC, submission by The Institute for Agriculture and Trade Policy, 15 March 2023, p.9, available here; UNFCCC, 'CMW inputs on removal activities in Article 6.4, in response to the invitation for observer comments', p.3.; and UNFCCC, Stockholm Environment Institute, et al., 'Submission of views on activities involving removals', 15 March 2023, available here.
19 CarbonCredits, 'Tonne Year Accounting for Temporary Carbon Storage', 19 August 2022, available here.
See also: CarbonPlan, 'Unpacking ton-year accounting', 31 January 2022, available here.
20 UNFCCC, 'CMW inputs on removal activities in Article 6.4, in response to the invitation for observer comments', p.3; and UNFCCC, Stockholm Environment Institute, et al., 'Submission of views on activities involving removals', pp.1-3.
21 UNFCCC, Supervisory Body, Recommendations on guidance for activities involving removals under the Article 6.4 Mechanism, November 2022, paragraph 21, available here.
22 UNFCCC, Submission by Colombia on behalf of Chile, Colombia, Guatemala, Panama, Paraguay and Peru, March 2022, paragraph 15; UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on activities involving removals', pp.7-8; and UNFCCC, OHCHR Response, p.3.
23 UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on activities involving removals', pp.7-8.
24 UNFCCC, Submission from the Center for International Environmental Law, p.18, available here.
25 UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on activities involving removals', p.8; UNFCCC, OHCHR Response, p.3; and UNFCCC, Submission from the Center for International Environmental Law, p.17.
26 UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on activities involving removals', p.8.
27 UNFCCC, 3/CMA3, Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement, Annex, Section V.C., paragraphs 40-42.
28 The Republic of Korea and Sweden advocate for authorisation to be allowed anytime between validation and issuance, to offer flexibility in determining different uses of the Article 6.4ERs generated by the activity. The argument is that if authorisation occurs when the activity is registered, then all Article 6.4ERs generated from it would need to be for the intended use stipulated at that time, whereas host Parties may have a better understanding of the credits' use after registration. See, UNFCCC, The Republic of Korea's views on Article 6, paragraph 4, of the Paris Agreement referred to in paragraph 10 of decision -/CMA.4', p.6; and UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on matters referred to in paragraph 9 of the CMA4 decision’, 6 March 2023, p.3, available here. The UK argues that authorisation should take place at the time of registration to avoid the risk of rules not being fully applied and validated, lack of transparency and loss of stakeholder confidence. See, UNFCCC, The United Kingdom of Great Britain and Northern Ireland's submission to the United Nations Framework Convention on Climate Change on matters related to the mechanism established by Article 6, paragraph 4, of the Paris Agreement, Section 3, p.4.
29 UNFCCC, The United Kingdom of Great Britain and Northern Ireland's submission to the United Nations Framework Convention on Climate Change on matters related to the mechanism established by Article 6, paragraph 4, of the Paris Agreement, Section 3, p.4; and The Republic of Korea's views on Article 6, paragraph 4, of the Paris Agreement referred to in paragraph 10 of decision -/CMA.4', p.5.
30 UNFCCC, The United Kingdom of Great Britain and Northern Ireland's submission to the United Nations Framework Convention on Climate Change on matters related to the mechanism established by Article 6, paragraph 4, of the Paris Agreement, Section 3, pp.4-5; and UNFCCC, Submission by Sweden and the European Commission on behalf of the European Union and its Member States, 'Submission of views on matters referred to in paragraph 9 of the CMA4 decision', 6 March 2023, p.5.
31 IETA, COP27 Summary Report, available here, p.12.
32 Standard-setters such as Gold Standard have announced that they will require corresponding adjustments to be applied in respect of carbon credits that are retired for voluntary offsetting claims. See Evolution and Opportunity in the Voluntary Carbon Market, Gold Standard, available here.
33 UNFCCC, 3/CMA3, Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement, Annex, Section V.L., paragraph 62.
34 See, e.g., UNFCCC, 'CMW inputs on the grievance process in Article 6.4, in response to the invitation for observer comments', p.3.
35 UNFCCC, 'Carbon Market Watch note on selected Article 6.4 elements following SBSTA 56 call for submissions', 30 August 20233, pp. 3-4, available here.
36 UNFCCC, Submission by Czech Republic and the European Commission on behalf of the European Union and its Member States, 29 August 2022, p.6.
37 UNFCCC. Views of Argentina, Brazil and Uruguay (ABU) on the Rules, Modalities and Procedures for the Mechanism Established by Article 6, Paragraph 4, of the Paris Agreement, paragraph 24.
38 Synthesis Report on the Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement and referred to in decision 3/CMA.3, SBSTA, available here.
39 UNFCCC SBSTA, Rules, modalities and procedures for the mechanism established by Article 6, paragraph 4, of the Paris Agreement and referred to in decision 3/CMA.3, Draft Conclusions, 14 June 2023, available here.
40 UNFCCC SBSTA, Draft Conclusions, 14 June 2023, paragraphs 6-7.
41 UNFCCC SBSTA, Draft Conclusions, 14 June 2023, paragraph 8.
42 UNFCCC SBSTA, Draft Conclusions, 14 June 2023, paragraph 9.
Harjas K. Dhillon (Trainee Solicitor) and Maria Roxo Bacha (Latin America Fellow) contributed to the development of this publication.
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