Overall, Glasgow UNFCCC negotiations are considered a success. Almost 200 countries signed the Glasgow Climate Pact on Saturday evening, adopting the rules on Article 6 of the Paris Agreement and further outcomes on topics such as climate finance, climate ambition, climate adaptation, capacity building etc.
The negotiations have gone very smoothly the whole 2 weeks and in many senses, the outcomes are more optimistic than expected. However, much work on global ambition still remains to be done as demonstrated by last minute changes “phase-out” to coal “phasedown” on demand of India.
During the COP, over 100 countries also signed The Global Methane Pledge where participants agreed to take voluntary actions to contribute to a collective effort to reduce global methane emissions by at least 30 percent from 2020 levels by 2030, which could eliminate over 0.2˚C warming by 2050.
Some of our clients have contacted us to understand better how Article 6 will impact their business. We have compiled a list of questions and will keep updating them as we get more.
The rulebook provides basic guidance on key issues, such as, transition of CDM, rules for prevention of double counting, etc. But the new mechanism, replacing CDM has many details still to be agreed and designed by the Supervisory Body, and the Subsidiary Body for Scientific and Technological Advice (SBSTA) have number of topics to discuss and decide in the upcoming months, namely methodologies, baselines, procedures, activity types etc.
The draft should be done by November 2022.
Due to the fact that countries will be able to use (some) CERs against their first NDCs, we expect that the already thin supply of the offsets that are often demanded by the private sector will narrow further. The CDM secretariat estimates the potential supply of such CERs to be around 120m (mid scenario). Nevertheless, the decision is up to each country, therefore, we will see how many countries announce their intention to do so. In each case, we anticipate that as a result of this, the price of post 2013 CERs will continue rising.
Can the CERs from Clean Development Mechanism be used by countries for compliance under the Paris Agreement?
Yes, it is possible. Subject to fulfilling certain conditions, countries will be able to use CERs from projects registered from 2013 to 2020 for compliance with the first NDCs as part of the CDM transition.
What are the implications on project development in regards to the country's approval for Article 6.4 reductions and voluntary standards?
Projects under the 6.4 framework will have to follow the new rules of the mechanism, while voluntary carbon standards will continue having their own rules for approving project activities. Gold Standard already announced that they will require the host country’s approvals and corresponding adjustments (CA) upon registration. While Verra (VCS), on the other hand, does not require projects to obtain those at the moment.
The text provides countries with an option to “mark” emission reductions that are bundled with corresponding adjustment (CA) note, in which case the reductions could be used for other purposes (outside NDC accounting) and would stay with the host country. This provides flexibility to the countries and it remains to be seen whether the demand for credits with or without corresponding adjustment will have a stronger demand.
How is double counting avoided when the offset is used towards offsetting obligations under CORSIA by airlines? How does the adjustment work to prevent both the country and the airline from accounting for the benefit?
As mentioned above, the decision to do CAs will be up each host country for emission reductions coming from 6.4. (successor mechanism of CDM). For voluntary carbon credits compliant with CORSIA, it will be up to each voluntary standard to dictate the rules and requirements for Letter of Approval and CA from host countries.