Exploring Article 6.2
Article 6.2 provides a framework designed to facilitate cooperative approaches in achieving and enhancing NDCs through the generation and trading of mitigation outcomes, which represent emission reductions or removals, between countries.
These mitigation outcomes, when transferred internationally, are termed Internationally Transferred Mitigation Outcomes (ITMOs). An ITMO is generated by the host country of the activity and purchased by a buyer entity within the agreed-upon cooperative framework.
ITMOs must represent real, additional, and verified mitigation outcomes issued after the year 2021. ITMOs may be authorized by a host country for their use towards:
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another country’s NDC;
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international mitigation purposes, such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA);
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and other purposes, such as the voluntary use of carbon credits.
Authorization is a key process to avoid double counting and ensure the environmental integrity of international cooperation. After authorization and the first transfer of ITMOs, countries need to apply corresponding adjustments to their emissions balances. This action makes ITMOs available for the buyer’s use.
Article 6.2 holds the potential to channel substantial climate finance to host countries. Typically, revenues from ITMOs are allocated on an ex-post basis, following the successful verification of emissions reductions. However, the modalities of these arrangements are flexible and should be defined mutually between the host and buyer countries.
What are the participation requirements a Party must fulfill to participate in Article 6.2?
Before participating in Article 6.2, countries need to fulfill the following requirements:
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Source: Perspectives Climate Group
What is the eligibility criteria of Article 6.2 activities?
Activities that aim to generate ITMOs, must fulfill certain criteria including:
The activity should adhere to a robust methodology that aligns with Article 6 principles.
The activity should be additional, meaning that the activity is not mandated by law nor viable without the sale of revenues from the mitigation outcomes.
The activity does not lead to an increase in emissions in the NDC implementation period, meaning the activity must deliver credible and real emission reductions.
If the activity relates to carbon removal, safeguards must be in place to ensure performance and avoid the risk of reversal.
The activity should undergo a robust assessment to ensure there is no potential negative environmental, social or economic impacts (human rights, gender equality and sustainable development objectives).
Authorization and corresponding adjustment process
Host countries need to set a process for authorization of mitigation outcomes. When authorization is granted, the first transfer of an ITMO will trigger a corresponding adjustment.
For the application of the corresponding adjustments, the transferring country (Country A) adjusts its emissions balance upward, while the acquiring country (Country B) adjusts its emissions balance downward (see figure below).The corresponding adjustments will be recorded in the Biennial Transparency Report, including how the corresponding adjustments ensure that double counting and net increases in emissions are avoided "within and between NDC application periods."
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Source: Perspectives Climate Group
The Parties must indicate at the outset the method to be used for the application of the corresponding adjustments.
Parties' tracking and reporting responsibilities
Parties cooperating under Artcile 6.2 need to fulfill essential reporting requirements. The submission of this information aims to ensure transparency, accountability, and progress in meeting NDC through collaborative efforts.
Initial report
To be submitted when a Party authorizes an ITMO under a cooperative approach for the first time. The initial report must include:
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confirmation that the Party complies with the requirements for participation;
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information on the Party’s NDC and how the corresponding adjustments will be made;
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information on how environmental integrity will be ensured, sustainable development promoted and negative impacts avoided.
Annual report
Party reports information related to the traded ITMOs, including authorization, the first transfer, acquisition, use and cancellation.
Regular infomartion
Report is included as part of the Biennial Transparency Report.
It includes an ex-post evaluation of the information provided in the inception report.
This includes accounting for the first transfer and use of ITMOs, by applying the corresponding adjustments.
Source: Perspectives Climate Group
Developing a governance architecture for participation in Article 6.2
The establishment of a robust governance architecture is fundamental for the effective participation in Article 6 market mechanisms. Key elements to considere to construct such a framework include:
01.
Strategic Considerations
Preliminary steps for participation in Article 6, which include the declaration of political will to participate in them and specific aspects for countries to critically reflect on in their informed participation in Article 6, e.g., type of strategy, eligibility criteria, guiding principles, capacities created by participation in other carbon market mechanisms, among others.
02.
Legal foundations and governance
Legitimization of government institutions and the creation of legal conditions for participation in Article 6.
03.
Institutional Arrangements
Establishment of institutional arrangements and definition of roles and responsibilities under Article 6
04.
Operating procedures
Technical and procedural tasks that must be carried out to achieve effective participation and operation of Article 6.
05.
Infrastructure
Infrastructure for tracking including tools, softwares and instruments (e.g., databases, records), that must be available and accessible to support operational procedures.
Who are the relevant national stakeholders within the framework of Article 6.2?
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Article 6 focal point ministry
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Ministries, agencies and departments relevant to NDC implementation
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National standardization organizations and regulatory bodies
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Associations of lower-level administrative entities
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Mitigation activity developers
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Commercial banks
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Project developers
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NGOs
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Research institutions and think tanks
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Technical consultants
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Consulting firms
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Development agencies
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Bi- and multilateral development banks
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Private financial entities
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Third-part project validators and verifiers