Unpacking Article 6 talks in the first week

Discussions on carbon markets at the United Nations Framework Convention on Climate Change (UNFCCC) fora are grouped under Articles 6.2 and 6.4 of the Paris Agreement. At 28th Conference of Parties (COP28) to the UNFCCC in Dubai in 2023, governments failed to reach any agreement on addressing various elements of the framework for market mechanisms under both Articles.

The 60th Session of UNFCCC Subsidiary Bodies, also called the Bonn Climate Change Conference, commenced on June 3, 2024 in the German city. Bonn talks are the key mid-point in the journey from COP28 in Dubai to COP29 in Azerbaijan to be held later this year.

Discussions in Bonn this week focused on the elements necessary to operationalise the carbon markets. To this end, the Chair of the Subsidiary Body for Scientific and Technological Advice (SBSTA) issued an informal note to serve as the basis for discussions on both Articles 6.2 and 6.4.

Parties meeting to negotiate both tracks largely agreed to consider the note as the basis for further negotiations, but some parties expressed displeasure at not being consulted in the development of the note.

Article 6.2

Authorisation: Authorisation in the context of Article 6 refers to the formal approval process where emission reductions (Internationally Transferred Mitigation Outcomes or ITMOs) are sanctioned by the host country (where the emission reduction activity takes place) for transfer to another country.

In Dubai, discussions on authorisation were heated. When talks began in Bonn, one of the first orders of business was the authorisation process. Differences emerged regarding whether authorisation was required for every cooperative approach (a mutual agreement between parties to pursue a set of emission reduction activities) between parties, as well as for the issuance of ITMOs. 

Some argued for distinct authorisations for each cooperative approach, while others suggested consolidated authorisation between parties instead of individual authorisations for each cooperative approach.

Another point of difference was regarding the changes to and revocation of authorisation once issued.

The SBSTA informal note stated:

any changes to an authorisation of a cooperative approach should not apply to or affect internationally transferred mitigation outcomes that have already been first transferred, unless otherwise agreed and made publicly available by the participating Parties in a cooperative approach or by a participating Party under extreme circumstances;

Some groups, such as Alliance of Small Island States (AOSIS), Environmental Integrity Group (EIG)  and countries like New Zealand, opposed the idea of revoking authorisation at any point, as it would bring ‘uncertainty’ and hurt ‘market confidence’ in the mechanism. On the other hand, developing countries and blocs like LMDCs, Grupo SUR (formerly known as ABU countries), India, China, and others argued that authorisation should remain a national prerogative, with changes being decided by party countries before the first transfer. 

The AGN group wanted the changes to be defined within the framework. Regarding unilateral changes to authorisation by a party under extreme circumstances, several parties believed there should be a clear definition of what constitutes such circumstances.

Other elements of the authorisation process such as the content of authorisation was also discussed.

Sequencing, addressing inconsistencies and Agreed Electronic Format: Sequencing and timing involve guidance to the parties on the chronological steps of submitting reports to the UNFCCC, the authorisation process and issuance and transfer of ITMOs.

Countries shared their views on when reports ought to be submitted and reviewed, and how important sequencing is for environmental integrity. The LMDC characterised sequencing and reporting inconsistencies as procedural issues.

The EIG, however, differed in their interpretation, arguing that these elements are not merely procedural but also crucial for ensuring quality and environmental integrity.

The topic of addressing inconsistencies relates to errors, underreporting, and misreporting by parties when they submit their initial report (IR), annual reports, authorisations and other information to the UNFCCC, as well as to the review process for such information. 

The key questions are how to address the inconsistencies once they are identified and what relevance they hold. As the AGN Group highlighted, there should be consequences and effects for it to be a meaningful process. The European Union emphasised prevention over cure and the need for reporting to have depth.

The Agreed Electronic Format (AEF) is a standardised template for reporting information related to cooperative approaches. The AEF ensures transparency and consistency in how data is shared and tracked. The format, under discussion for over a year now, is yet to be adopted.

The LMDC felt that the AEF discussions have not been inclusive and reflect the views of only some experts. The Arab Group indicated that the AEF may not be ready for adoption this year.

Functionalities and procedures for international registry: The International Registry is meant to track transactions on emission reduction units (ITMOs) between parties. The Mechanisms Registry is meant to track transactions of Article 6.4ERs (emission reduction units generated from Article 6.4-based markets). Besides these, national registries will be maintained by country parties engaging in the market mechanism.

The discussion centred on whether the transfer of 6.4ERs, once authorised as ITMOs, is allowed into the international registry or whether the international registry can only ‘pull and view’ the information on them from the mechanisms registry. The SBSTA informal note supported the actual transfer of the 6.4ERs, a position seconded by the EU and AOSIS. Others, such as the LMDC, favoured only a ‘pull and view’ functionality.

A new iteration of the informal note is due to take the discussions forward and to further discuss other matters, such as whether emission avoidance activities can be allowed under Article 6.2, the application of corresponding adjustment, modalities for reviewing confidential information, and other related issues.

Article 6.4

Authorisation: In Article 6.4 discussions, authorisation was the primary point of focus, with most parties recognising it as a priority issue. The SBSTA informal note stated that if parties do not provide authorisation by the time the 6.4ERs are issued, they will be assigned as mitigation contribution A6.4ERs in the mechanisms registry. 

Different preferences were expressed for when the authorisation needs to be given — before the issuance of emission reduction units or before the first transfer of the units. EIG, AOSIS, Coalition of Rainforest Nations (CfRN), Australia, and the United Kingdom maintained that authorisation is important before any issuance. Brazil and India maintained that the process of authorisation must be host-party driven and is a part of national prerogative.

They, including the LMDC and the AGN, preferred the flexibility of allowing authorisation after issuance.

Brazil highlighted the issue of no guidance being provided on the transfer of afforestation/reforestation activities from CDM to Article 6.4, even though the transition of CDM activities to Article 6.4 has already started. Enabling the transition of projects does not prejudge eligibility, it said.

Emission avoidance activities: The SBSTA informal note defers the decision to SBSTA consider whether emission avoidance and conservation enhancement activities are allowed to be credited under Article 6.4.

The European Union stated its preference for allowing only emission reduction and carbon removal activities under the crediting mechanism, this was seconded by Grupo SUR, CfRN, AOSIS, Least Developed Countries, Independent Alliance of Latin America and the Caribbean Ukraine and some others. 

Some of these parties were ok with deferring the matter as provided in the note, in the interest of ‘flexibility’. Some others such as the Philippines and the LMDC welcomed the text and wanted this consideration to be left for subsequent sessions. 

The interoperability between registries and a similar set of views on transfer of 6.4ERs to the international registry were also discussed under this track. 

Article 6.4 Supervisory Body

The Article 6.4 Supervisory Body is one of the constituted bodies under the Article 6.4 mechanism. Its current mandate is to develop procedures for the functioning of Article 6.4-based markets.

On the inaugural day of the Bonn Conference, the Article 6.4 Supervisory Body held an engagement session for parties and stakeholders. It posed a set of questions, categorised as general, removal guidance, and methodology guidance, seeking opinions on them.

Regarding one of the questions about the relationship between guidance under Article 6.4 and Articles 2.1(c), 4.5, 9, 10, and 11 of the Paris Agreement, several parties objected to linking climate finance with market mechanisms under Article 6. AOSIS emphasised that it was also beyond the mandate of the Supervisory Body to consider this.

Contentious views were also exchanged about carbon removal activities and the related guidance. CfRN emphasised that removal guidance under Article 6.4 must reflect what has already been agreed upon under Article 5.2 on REDD+.

Others, like Switzerland and the UK, disagreed with this viewpoint. The European Union asked the Supervisory Body to consider restructuring the removal guidance to differentiate between nature-based solutions and other removal activities.

The 13th meeting of the Supervisory Body is scheduled for July.