There was a bit of a breakthrough in the talks on Article 6.4 today, as Brazil signalled that it is willing to compromise on the issue of corresponding adjustments.
For a long time, Brazil has argued that host countries should not have to make corresponding adjustments for reductions made outside the scope of an NDC that are sold abroad.
However, we understand that last night Brazil acknowledged that if an Article 6.4 unit is authorised for transfer, a host country should make corresponding adjustments.
We believe this is significant because it means that there is no longer an issue of whether reductions are made inside or outside the scope of an NDC.
We think this rule would also apply to reductions that are transferred for voluntary use, as long as the buying party wishes to transfer the reductions abroad. If, however, the buyer merely wished to claim the reduction, they could leave it in the host country registry and so no corresponding adjustment would apply.
There is also some language dealing with how to account for transfers for “other international mitigation purposes”, which we believe refers to markets such as CORSIA and potentially a future market for shipping via the IMO. But it may also refer to the voluntary carbon market, though we believe there is no consensus on this interpretation at the moment.
We know that neither India or China has so far agreed to this new Brazilian position, and therefore more work is needed. But this morning’s text also included options that would allow no corresponding adjustments to apply until 2025 or 2030, and this suggests to us that China and India are prepared to compromise.
Our team is optimistic that this breakthrough in Article 6.4 may generate the momentum needed to stretch to agreement on the other main issues in Article 6: the Share of Proceeds in Article 6.2 and the CDM transition in Article 6.4.
On the Share of Proceeds, we hear that Parties are developing alternative proposals that may mean that a levy for adaptation funding may not be required from Article 6.2 transfers.
There's a growing recognition that generating adaptation finance from Article 6.2 could be problematic, given all the various types of activities that could be covered by this mechanism; applying a share of proceeds would probably be administratively quite difficult.
The US has said that it is still not certain whether it would even participate in Article 6.2 mechanisms, but the US team has indicated it would be willing to provide adaptation finance as a good faith measure. We understand the US pledged $50 million to the adaptation fund, rather than accept that a SoP should apply to all transactions.
The issue of Overall Mitigation of Global Emissions (OMGE) remains a sticking point, with Parties still debating whether they should cancel units at a rate commensurate with the scale of the mechanism under Article 6.4, or just consider the scale when cancelling units, or are just strongly encouraged to cancel units potentially on a similar scale.
On the scale of the cancellation, in the Article 6.4 text released Thursday morning, Parties have made an additional proposal that may point the way to an agreement.
Thursday morning's 6.4 text contains three main options to address OMGE: the first sets a levy of between 2% and 30% on the first transfer of all units, while the second would impose more conservative baselines and shorter crediting periods to achieve the same overall result.
But a new third option proposes a voluntary cancellation of allowances by transacting Parties, and we suspect this may be the compromise option that could get more widespread support.
Some of the more detailed implementation of these issues is likely to be handed down to the subsidiary bodies and to a new executive body of the Article 6.4 mechanism to be fleshed out.
In our daily members briefing today, Dirk suggested that with the corresponding adjustments issue in 6.4 seemingly headed towards resolution, the next issue to be addressed will be the CDM transition. We know that there are a range of options for this item, ranging from no carryover to a full carryover, and intermediate solutions may represent a potential landing zone.
Finance is typically left to the end, and we think the Share of Proceeds will be dealt with last of all. This raises the possibility that COP extends through to Saturday, even though COP President Sharma already began the closing plenaries this afternoon, in an effort to get as much of the agenda completed as possible before the final push.
Thursday at the IETA Business Hub
On Thursday, our partners Natural Capital Partners and Verra discussed how host countries can benefit from engaging with the voluntary carbon market.
CTX/Global Environmental Markets announced new formal agreements with Iceland, Nigeria, Democratic Republic of Congo, Philippines and South Africa to establish national registries.
IETA presented a session on natural climate solutions, looking at how these exciting technologies have evolved and what their prospects are. You can review the event on Zoom here.
YC Holdings hosted an event on "Carbon Pricing and CBAM: Perspectives from Asia”, and our final side event of COP26 was a panel discussion on DEFI and blockchain, and how they can accelerate the transition to net zero, hosted by AirCarbon.
Friday at the IETA Business Hub
IETA’s programme of side events has now concluded, but the Hub will be open all day on Friday in case you’re looking for a quiet spot to relax or work.