Towards net zero: making baselines for international carbon markets dynamic by applying ‘ambition coefficients’

This paper discusses options to increase mitigation ambition in crediting mechanisms that serve the Paris Agreement (PA), such as the Article 6.4 mechanism. Under the Clean Development Mechanism and other crediting mechanisms, baselines have been specified in the form of greenhouse gas (GHG) intensity factors and linked to business-as-usual developments. This means that with increasing production of goods and services through carbon market activities, absolute emissions may increase or fall only slowly. At a global level, such an approach widens the ‘emissions gap’. To enable continued use of emissions intensity baselines in crediting mechanisms while being in line with the PA’s goal to pursue efforts to limit temperature rise to 1.5°C, we propose to apply an ‘ambition coefficient’ to emissions intensities of technologies when establishing the baseline. This coefficient would decrease to reflect increasing ambition over time, and reach zero when a country needs to reach net zero emissions. Due to the principle of common but differentiated responsibilities and respective capabilities, the coefficient would fall more quickly for developed than for developing countries. The latter would be able to generate emission reduction credits well beyond 2050, while for the former, crediting would stop around 2035 or before. An ambition coefficient approach would generate certainty for carbon market investors and preserve trust in international carbon markets that operate in line with the agreed, long-term ambition of the international climate regime

Best available technology and benchmark base-line setting under the Article 6.4 mechanism

This study, commissioned by the Swedish Energy Agency, analyses lessons learned and explores benefits and challenges of applying benchmarks derived from “best available technology” assessments in international market-based cooperation. While there is limited experience in international carbon markets, it is proposed as a baseline setting approach for the Article 6.4 mechanism to increase the mitigation ambition of the mechanism and the share of mitigation that is retained by the host country

Lessons learned from the first round of applications by carbon-offsetting programs for eligibility under CORSIA

In 2016, the International Civil Aviation Organization (ICAO) adopted the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The scheme requires participating airline operators to purchase carbon offset credits to compensate for the increase in their carbon dioxide emissions from international flights above 2019/2020 levels. This paper synthesizes key lessons learned from an assessment of the first 14 applications of carbon-offsetting programs for eligibility under CORSIA, focussing on five out of eight eligibility criteria established by ICAO. The evaluation shows that the degree to which the applicants satisfy the ICAO requirements differs substantially. Some applicants hardly meet any of the requirements and may not even be considered carbon-offsetting programs. However, there are also notable differences in relation to specific criteria. With regard to ensuring additionality and establishing baselines, key shortcomings are that many programmes apply approaches that do not guarantee environmental integrity of the generated credits. Not all programs regularly reassess whether their approaches are still appropriate in the light of new circumstances, such as lower costs of renewable energy technologies, and programs may still need to update their approaches for assessing additionality and establishing baselines in the light of the new context of the Paris Agreement. Some programs also do not require an independent third-party assessment of baseline methodologies. Most programs do not yet have procedures in place or planned for avoiding double counting between CORSIA and nationally determined contributions (NDCs) under the Paris Agreement. However, a few programs are in the process of implementing detailed procedures, based on voluntary Guidelines developed by a multistakeholder group. To address non-permanence, most programs use "buffer" approaches. The duration for which non-permanence is ensured, the avoidance of moral hazard risks of intentional reversals, and the "capitalization" of buffers vary considerably among programs. The Clean Development Mechanism's provisions to address non-permanence were in principle robust but do no longer work, given that the Kyoto Protocol will not have a third commitment period. Lastly, only two programs have a process in place which requires the assessment of environmental and social risks, the adoption of safeguards, and the monitoring and reporting on risks. The paper also identifies several cross-cutting issues. First, we recommend that ICAO only approve programs as eligible for CORSIA once programs have amended their standards and procedures to fulfil all criteria. Second, the evaluation identified that ICAO still needs to clarify several matters that are not explicitly addressed in current criteria, such as what global warming potentials programs should use to convert non-CO2 emissions into CO2 equivalents; whether offset credits will be eligible if the host country does not participate in the Paris Agreement; with what type of international mitigation targets double counting must be avoided; and the treatment of emission reductions not covered by NDCs. Clear international rules on these matters would greatly facilitate the approval of programs and the implementation of CORSIA. Third, we recommend that ICAO adopts a transparent procedure for the initial approval, ongoing supervision, re-approval, suspension and termination of eligibility of programs. This procedure could also address the insufficient level of information in current applications, by requiring programs to provide more detailed information. Lastly, we recommend that the Parties to the Paris Agreement include specific provisions in the international rules on Article 6 for how countries should account for offset credits used under CORSIA

Development of guidance for non-market approaches in the Paris Agreement: operationalizing Articles 6.8 and 6.9 of the Paris Agreement

While market-based forms of cooperation are enshrined in Articles 6.2–6.7, Article 6.8 of the Paris Agreement recognizes the importance of non-market approaches (NMAs) in international cooperation on climate change mitigation and adaptation in a variety of fields. Article 6.9 establishes the NMA framework that promotes NMAs described in Article 6.8. The Parties to the Paris Agreement are currently negotiating a work program to further elaborate on this. If properly designed, fostering the accelerated diffusion of non-market based international cooperation on technology development and transfer, capacity-building and finance in both adaptation and mitigation can provide a relevant contribution to NDC implementation and ratcheting up of ambition. Having that goal in mind, this report provides recommendations on the operationalization of the NMA framework and the work program and the identification of concrete NMAs for consideration by the negotiating Parties. We provide concrete examples of NMAs in various fields Parties have identified as relevant under the framework, including forests, resilience, removals, energy efficiency and the cross cutting topics mentioned above. The NMA work program should be designed as a meaningful addition to ongoing work under the United Nations Framework Convention on Climate Change. The focus must be on activities that are not duplicating ongoing efforts, not implementable through markets, transformative, and have so far been side-lined by international public climate finance. The NMAs’ relevance will ultimately depend on Parties’ active engagement in the identification of concrete NMAs and their submission to the NMA forum envisaged in the latest iterations of the Presidency draft texts from COP25. The NMA forum should operate in a flexible but results-oriented manner to allow for the consideration of emerging concepts and pilot activities. In the end, the role of finance will also be pivotal for the work program’s relevance. According to the current status of negotiations, the work program will not have own financial resources but the consideration of finance is essential to avoid that the NMA work program becomes a mere ‘talk shop’

Transition pathways for the Clean Development Mechanism under Article 6 of the Paris Agreement. Options and implications for international negotiators

The ambitious targets under the Paris Agreement (PA) to keep global warming below 2°C and achieve a balance of emissions and sinks in the second half of the century require significant mitigation investments, already in the short term. However, the current willingness of governments to use low-cost options such as international carbon markets remains limited, and negotiations on the rules for the market mechanisms under Article 6 of the PA are dragging on. This is surprising given that the Clean Development Mechanism under the Kyoto Protocol functioned very well during the 2000s, mobilizing hundreds of billion USD for thousands of greenhouse gas mitigation projects in over 100 developing countries. Private investors in the CDM market feel “let down” by the sudden reduction of government demand for credits after 2011 which led to a fall of credit (CER) prices by 95%. While carbon pricing mechanisms (such as emission trading schemes or carbon taxes) are being implemented (or planned) in a large number of countries, in only a few of them these mechanisms are generating demand for CERs, as for instance Colombia, South Africa and South Korea. This CER demand is, however, lower than in the past, and subject to many restrictions regarding host countries, project types and eligible project developers. The CDM is the only currently available market mechanism under the UNFCCC that could be immediately used for NDC implementation and that is already operational while the new market mechanisms introduced by Article 6 will need several years to be fully operationalized. Thus, it is necessary to ensure a swift transition of the CDM to the PA in the short term, ideally already at COP 25 in Chile. Without some criteria for the transition, billions of CERs could flood the market in the near future, with very negative effects in terms of price and credibility. We therefore define a set of criteria for possible restriction of this transition, building on the key elements under discussion by international negotiators. Criteria include cutoff of the eligible CER vintage, according to the registration date of the activity, and exclusion of certain activity types or certain types of host countries. Through differentiated application of these criteria, we develop three pathways, ranging from full CDM transition to strict limitation. Under full transition, total CER volume could reach 15.6 billion until 2030. A 2013 registration cut-off date, coupled with exclusion of industrial gas and large hydro projects, would limit CER volume to 0.89 billion. A November 2016 registration cut-off and limitation to least developed countries (LDCs) and small island developing states (SIDS) would reduce the projected CER volume to just 0.13 billion. In case of a formal termination of the CDM, Article 6.2 would allow bilateral approaches that are based on existing CDM activities. Further qualitative criteria that could be considered are the eligibility of activities outside the NDC coverage, activities that are part of the unconditional part of the NDC, the applicability of standardized methodologies, the need to pass a new additionality test, and the contribution to sustainable development. We also shed light on possible key administrative requirements, such as a new letter of approval or the need for activity deregistration for the transition in order to assess the potential negative impacts these may have on the transition. The pathways’ impacts are tested on 4 specific case studies - two cookstove PoAs, one renewable energy project in an LDC and a coal power project - and provide useful insights into how specific activities can be affected by the different criteria in place. Particularly the treatment of registration cutoff for PoAs or the related CPAs would make a strong difference. Ideally, governments of large countries would start an initiative to acquire the accumulated CER surplus to allow an ambition increase of their second NDC to reduce the gap to a pathway consistent with the long-term ambition of the PA. This would require funding comparable to the first round of financing for the Green Climate Fund. Building on the successes of South Korea and Colombia, at the domestic level, governments should introduce carbon pricing mechanisms to incentivize mitigation investments, while allowing for offsetting through emission credits from international market mechanisms to reduce costs for the ambition increase

Etude d’opportunité sur la mise en place d’un instrument de tarification carbone au Sénégal

Perspectives and the Senegalese consultancy Afrique Énergie Environnement find a carbon tax with careful redistribution as most promising carbon pricing opportunity for Senegal

GUIDE DES NÉGOCIATIONS – Décryptage des principaux résultats de la CdP25 (Chili/Madrid)

Le Guide des négociations est un document réalisé annuellement par l’OIF/IFDD pour accompagner les sessions de la Conférence des Parties (CdP) à la Convention-cadre des Nations Unies sur les changements climatiques (CCNUCC). Compte tenu du contexte inédit induit par la pandémie de Covid-19, et du report des sessions formelles à 2021, le présent document constitue plutôt un Guide de décryptage « passerelle » d’ici à la prochaine édition du Guide des négociations qui sera publié en amont de la 26e session de la Conférence des Parties (CdP26) (1-12 novembre 2021, Glasgow). Il reste toutefois une source précieuse pour offrir à chacun l’accès à une présentation analytique des enjeux. Dans ce cadre, ce document apparait en effet d’autant plus utile, voire nécessaire. Face à une situation à laquelle personne n’était préparé, l’ensemble des entités impliquées dans le cadre des négociations, dont certaines Parties elles-mêmes, n’ont pas la capacité de se tenir informées, ni de se préparer avec le plus d’efficacité possible à la reprise des sessions en présentiel prévue en 2021. Alors que l’urgence climatique ne peut souffrir d’aucun retard supplémentaire, et que d’importantes décisions devront aboutir dès la reprise des activités formelles, ce document entend ainsi s’inscrire dans une dynamique positive et constructive permettant de tendre vers une CdP26 réussie et ambitieuse. Le Guide propose, dans un premier temps, un décryptage des résultats clés de la dernière session de la Conférence des Parties (CdP25 – Chili/Madrid, 2019), en indiquant les perspectives associées aux prochains enjeux des négociations. Il présente ensuite un cadre de lecture indicatif des incidences de la pandémie sur le processus de la CCNUCC et des dispositifs inédits mis en place pour s’y adapter. Comme chaque année, le Guide bénéficie de l’apport d’un groupe d’auteurs et de contributeurs issus de différents pays de la Francophonie, impliqués dans les négociations sur le climat depuis de nombreuses années. Un Comité de relecture composé d’experts sélectionnés pour leur implication dans le processus des négociations permet, en outre, de s’assurer de la pertinence et de la rigueur des informations. L’ensemble des informations est actualisé à la date du 2 novembre 2020. Ce document a été rédigé par ENERGIES 2050 pour le compte de l’Institut de la Francophonie pour le développement durable (IFDD). Il est publié à titre d’information et ne reflète pas le point de vue de l’IFDD, ni celui du Secrétariat de la Convention, ni celui de la présidence de la CdP26. Ce Guide produit par l’IFDD est actualisé sur la base des informations disponibles à la date du 2 novembre 2020

Negotiating cooperation under Article 6 of the Paris Agreement

What's holding up the Article 6 negotiations? Can differences be resolved at the 25th Conference of Parties (COP25) to the UN Framework Convention on Climate Change? This policy paper explains the crunch issues in Article 6 negotiations in generally accessible language. It sheds light on the key differences between negotiating Parties on the eve of COP25 in Madrid. Understanding the issues and Party positions is a key step to identify solutions in these highly political and technically complex negotiations

Setting crediting baselines under Article 6 of the Paris Agreement

The new discussion paper, with inputs from and for the Carbon Market Mechanisms Working Group, explores the ongoing discussions around setting crediting baselines for Article 6 market-based cooperation while securing NDC achievement and aligning carbon markets with long-term decarbonisation pathways. The authors identify opportunities for high environmental integrity but also challenges on the trade-off between dynamic baseline setting and investment security. Ein neues Diskussionspapier, mit Beiträgen von und für die Carbon Market Mechanisms Working Group, untersucht die laufenden Diskussionen um die Festlegung von Baselines für marktbasierte Kooperationen nach Artikel 6 unter Sicherstellung der Erreichung der NDCs und der Ausrichtung der Kohlenstoffmärkte auf langfristige Dekarbonisierungspfade. Die Autoren identifizieren Chancen für hohe Umweltintegrität, aber auch Herausforderungen im Hinblick auf den Kompromiss zwischen der Festlegung dynamischer Baselines und Investitionssicherheit