ARTICLE 6 APPROACH PAPER SERIES PAPER FOUR Country Policy Framework for Cooperative Approaches under Article 6.2 © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of the World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Attribution Please cite the work as follows: The World Bank. “Country Policy Framework for Cooperative Approaches under Article 6.2,” World Bank Working Paper, Washington, D.C. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Design and copyediting by Clarity Global Strategic Communications (www.clarityglobal.net) Table of Contents Background 1 Summary Description of the Policy Framework Schedules 2 Country Policy Framework for Cooperative Approaches under Article 6.2 7 PART I – Guiding principles 7 1. Scope and obligations 7 2. Environmental integrity 7 3. Sustainable development 7 4. Alignment with Article 6.2 Guidance and any future CMA Guidance 7 PART II – Framework for eligible MO activities 8 5. MO development process 8 6. Validation and registration 8 7. Monitoring and reporting 8 8. Verification and issuance 8 9. Eligible entities for independent assessment 8 [PART IIA – Framework for approval and authorization] 9 10. Approval of activities 9 11. Activity Participants 9 12. Letter of Authorization 9 13. Authorization for the purposes of Article 6.3 of the Paris Agreement 10 [OR] [PART IIIB – Framework for approval and authorization] 10 14. Approval for international transfers of MOs 10 PART IV – Issuance of MOs 11 15. Pre-requisites for creation of MOs 11 16. [Creation of MOs] 11 17. Registry and tracking 12 PART V – Corresponding adjustments 12 18. Corresponding adjustments and reporting of ITMOs 12 PART VI – DNA, penalties, and appeals 13 19. Governance 13 20. Penalties 13 21. Appeals Committee 13 Table of Contents cont. Policy Framework for Cooperative Approaches under Article 6.2 cont. Schedules 14 Schedule 1 – Definitions 14 Schedule 2 – Environmental integrity requirements 16 Schedule 3 – Sustainable development criteria 18 Schedule 4 – Eligible MO activities 18 Schedule 5 – Eligible methodologies 19 Schedule 6 – MO development process 20 Schedule 7 – Validation and MRV 20 Schedule 8 – Requirements for Activity Participants 20 Schedule 9 – Issuance 20 Schedule 10 – Eligibility criteria and/or approval/accreditation process for independent entities 23 Schedule 11 – Authorization requirements 23 Schedule 12 – Pre-requisites for MOs 23 Schedule 13 – Registry procedures 24 Schedule 14 – Reporting procedures 24 Schedule 15 – Functions of the DNA and relevant ministry 25 User’s guide to the Policy Framework for Cooperative Approaches under Article 6.2 26 1. Introduction 27 2. Legal considerations 28 3. The concept of a unilaterally declared Policy Framework 29 4. Schedules 29 5. Distinction between MOs and ITMOs 30 6. Authorization of Activity Participants 31 7. Other international mitigation purposes 32 8. Registry infrastructure 32 9. Non-GHG metrics 33 Acknowledgements This technical approach paper has been written for the Climate Warehouse Program at the World Bank, which seeks to operationalize Article 6 through piloting activities. The paper has been prepared jointly by Peter Zaman and Matthew Yeo of Reed Smith LLP. Harikumar Gadde (World Bank), Sandhya Srinivasan (World Bank), and Seoyi Kim (World Bank) provided substantive inputs and managed the project. Chandra Shekhar Sinha (World Bank) provided valuable comments and suggestions to the authors. Klaus Oppermann (World Bank) also contributed to the review. This work also benefited greatly from consultation with the World Bank Article 6 Advisory Group and has been discussed in the Climate Market Club. The Article 6 Advisory Group comprises 20 private sector companies convened by the International Emissions Trading Association (IETA), four governments, and three project-implementing entities in World Bank client countries. The Climate Market Club, as of July 2021, has representatives from 13 countries and four non-sovereign entities as its members, with the Multilateral Development Banks Working Group on Article 6 acting as its Secretariat. Acronyms BAU Business as usual CDM Clean Development Mechanism CMA Conference of the Parties serving as the meeting of the Parties to the Paris Agreement CP Carbon pricing ER Emission reduction GHG Greenhouse gas ITMO Internationally transferred mitigation outcome MO Mitigation outcome MRV Monitoring, reporting, and verification NDC Nationally Determined Contribution tCO2e Tonnes of carbon dioxide equivalent UNFCCC United Nations Framework Convention on Climate Change ARTICLE 6 APPROACH PAPER 4 1 Background Article 6.2 of the Paris Agreement is The main body of the Policy Framework is accompanied expected to support a bottom-up approach by several Schedules to the Policy Framework, which play an integral role in setting out the specific to markets that require considerably requirements. It is intended that these Schedules higher levels of engagement and oversight contain the detailed and technical information from host countries. Specifically, the related to, among other things, environmental decisions on how to quantify, monitor, integrity, sustainability requirements, approved verify, authorize, and report emission sectors and activities, and approved standards and reductions (ERs) under Article 6.2 are methodologies, for the purposes of implementing a Cooperative Approach. These may be as specific (for largely up to the participating countries. example, the methodology that MO activities must use) or as broad (for example, eligible methodologies Transfers of Mitigation Outcomes (MOs) will of international standards including the Clean trigger corresponding adjustments of the host Development Mechanism (CDM), Gold Standard or country’s Nationally Determined Contributions Verra, etc.) as a country deems fit. Recognizing the (NDCs) and will require close attention by the potential multiplicity in requirements and options, the authorities of the host country’s mitigation pledges goal will be to utilize the discussions related to the to ensure integrity and achievement of NDC goals. Approach Papers and give clarity and direction for Countries that host cooperative activities will need countries to define requirements through Schedules robust policy and regulations along with strong that meet their national circumstances and climate institutional arrangements and procedures. strategies. The development of Schedules will also benefit from inputs from various technical experts and The attached Policy Framework has been drafted on consultations in platforms such as the Climate Market a unilateral basis for a Party to declare its preferred Club, alongside the final Article 6.2 Guidance. The approach towards implementing a Cooperative Policy Framework is intended to be a live document Approach under Article 6.2. The Policy Framework that will be updated as additional information is intended to provide the minimum legal foundation becomes available through the United Nations required to give Parties (including private sector Framework Convention on Climate Change (UNFCCC) entities) the necessary certainty regarding their rights negotiations and with the development of individual and obligations as participants to the Cooperative Approach Papers. Approach Papers can outline Approach, including the ability to enforce cross-border options and provide guidance for the development contractual arrangements. The Policy Framework is of Schedules to the Policy Framework - references intended to facilitate negotiations and subsequent and links have been included in the Schedules agreement between two or more Parties, and the where applicable. The remaining text included in Policy Framework does not in itself create an effective the Schedules is for illustrative purposes only. and binding Cooperative Approach between Parties. 2 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Summary description of the Policy Framework Schedules A summary of the contents of each of NDC compared to “business as usual” (BAU) of the schedules defined in the Policy conditions; and 2) unit quality, that is whether the volume of transferred MOs generated from a mitigation Framework is provided below. In addition, activity is accurately calculated by setting a stringent an outline of the type of analytical work or conservative baseline. Through this Schedule, the that may be required for developing these country will describe how it will ensure that the MOs it schedules and the linkages across various generates and transfers have environmental integrity. schedules are also described below to help country participants prioritize the The Approach Paper on Environmental Integrity can be used as a starting point for developing this order of development of schedules. Schedule. As summarized in Table 1, the Approach Paper considers the stringency of the NDC and an Schedule 1 – Definitions: This Schedule assessment of unit quality to ensure that the MO outlines definitions for terms used in the Policy has environmental integrity. As an NDC effectively Framework to ensure a consistent understanding. introduces a national commitment or emissions cap This section is intended to be uniform across under the Paris Agreement, assessing the stringency countries, and only requires modification where of the NDC of the issuing country is crucial. On the countries intend to use different terminology other hand, ensuring unit quality – that is, making sure (for example, approval vs authorization). that the face value of the MOs is correctly calculated and fairly represents the quantity of MOs created Schedule 2 – Environmental integrity requirements: through baseline setting – is important in reducing Ensuring environmental integrity is recognized as an over-selling risks from the issuing country’s and MOs important goal under Article 6 of the Paris Agreement. being inside/outside the scope of the NDC, the paper The principle of environmental integrity is intended suggests options to ensure environmental integrity to ensure that transfers of ERs or MOs do not lead in a practical manner under the Paris Agreement. to an increase in global greenhouse gas (GHG) emissions. The approach paper on environmental While the approach in the paper can be used to integrity being developed through the Climate Market establish the country’s principles regarding the Club suggests that ensuring environmental integrity environmental integrity, a broader unit quality requires assessment of two aspects: 1) stringency assessment could use the Mitigation Action Assessment Protocol (MAAP) tool for assessment with regard to the sustainable development benefit, financial sustainability of the mitigation activity, and capability of the mitigation action management entity. ARTICLE 6 APPROACH PAPER 4 3 Schedule 3 – Sustainable development Verra) also carry out checks of the sustainable criteria: This Schedule is intended to demonstrate development co-benefits created from a specific linkage between activities generating MOs and project. Assessment of contributions to SDGs can sustainable development. The 17 Sustainable be streamlined at the policy level to inform the Development Goals (SDGs) of the United Nations identification of eligible sectors and/or technologies. could form a starting point for this Schedule. More detailed assessments of sustainable development benefits can support the “branding” of MOs from Under the CDM, host countries were required to the country, or from specific projects. Countries can confirm that the activities contributed to sustainable also use the MAAP tool to assess the sustainable development in the country, as part of the Letter of development benefits of mitigation actions/outcomes. Authorization. Some voluntary market standards (for example, Gold Standard and more recently, Table 1. Approaches for ensuring environmental integrity under different scenarios Independent NDC Transferred mitigation occurs… assessment* stringency Inside the scope of NDC Outside the scope of NDC Possible More stringent Apply corresponding Ensure unit quality than BAU adjustments AND [**To avoid over- [Apply corresponding selling/transferring, adjustments, if agreed ensure unit quality] in the modalities for Article 6.2 for activies Issuing*** outside the scope of NDC] country’s NDC is… Less stringent Apply corresponding adjustments than BAU AND Ensure unit quality Not possible Difficult to Apply corresponding adjustments ascertain AND Ensure unit quality * Third-party assessment of the stringency of the NDC is a recommended best practice and is possible in cases where NDC is transparently presented with all assumptions, data used and its sources and methodology used and all this information is made available for the assessment. ** For stringent NDC (if the NDC is transparently disclosed and independently assessed by a third-party that it is more stringent than BAU), corresponding adjustments would be sufficient to ensure environmental integrity. Ensuring unit quality is desirable from the issuing country’s perspective to avoid over-selling because if the country over-transferred, it will require substantially higher effort by the issuing country to meet the increased ambition. *** Though the Madrid draft text refers to the term ‘Participating Party’ in general, for the purpose of clarity, the term ‘issuing party’ is used in this Schedule. 4 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Schedule 4 – Eligible MO activities: Through Schedule 6 – MO development process: This this Schedule, the country may define conditions, Schedule is intended to outline the steps in the technologies, or sectors that would be eligible for development of an MO. This would provide clarity generating MOs. Clarity on eligibility could incentivize to an Activity Participant on the processes to be investment in activities that could generate additional followed, and the stage at which approval and/ revenues through the sale of MOs. Countries may or authorization could be sought from the relevant choose to define eligibility in various ways, for government ministry or agency. The Approach example, through a “positive list” of eligible sectors Paper on Carbon Asset Development Cycle or technologies; a list of criteria that would be used prepared through the Climate Market Club could to establish eligibility; and/or a process for review serve as a starting point for this Schedule. and assessment of eligibility of an activity. In consultation with the Informal Working Group of Eligibility directly links to Schedules 2 and 3, that the Carbon Asset Standards, the Approach Paper is, only activities that contribute to sustainable on Carbon Asset Development Cycle outlines a development and demonstrate environmental common set of steps for the generation of MOs integrity would be eligible MOs. The benefit of a through different standards. However, there may policy-based approach towards defining eligible be differences in the stage at which approval and/ activities is to reduce the transaction cost for or authorization is provided by the government. This participation in markets by clarifying the need for would also be informed by the use case (compliance carbon finance for specific activities or sectors or voluntary) defined for a particular MO. upfront by using the results of macroeconomic policy analysis to provide a rationale for eligibility. It also links to Schedule 13 (registry procedures) as the country’s decision between establishing its Schedule 5 – Eligible methodologies: Through own register plus (transaction) registry and utilizing this Schedule, the country will outline the eligible other infrastructure (for example, a regional registry, methodologies that Activity Participants may use international standard registry/registries, and UNFCCC for estimating MOs from an eligible activity. For Article 6.2 international registry) influences the detailed example, countries may pre-approve relevant, process. While this Schedule brings clarity to the internationally peer-reviewed standards and temporal aspect of when approval and/or authorization their methodologies, such as the CDM, Verra, can be provided, Schedule 9 (issuance) details the Gold Standard. Countries may also establish a process for issuance of an MO, and Schedule 11 mechanism for developing new methodologies. (authorization requirements) specifies what Activity Participants should do to obtain authorization. This schedule links closely to Schedule 4, that is, if the country chooses to use existing methodologies, Schedule 7 – Validation and MRV: The country would it would be helpful to check which standards have outline the validation or independent assessment existing methodologies for the identified eligible and verification process, whereby an accredited/ activities. The selection of methodologies also has eligible third-party entity ensures that the Activity implications for Schedules 7 (Monitoring, Reporting, Participant has correctly applied and followed the and Verification (MRV)) and 10 (eligibility of independent methodology to estimate MOs. The country would entities), since the MRV process is typically outlined also outline the MRV process to be followed by in the methodology of a given standard. Lastly, the eligible activities to generate MOs. For example, the choice of methodology is likely to be influenced country could adopt the MRV process prescribed by Schedule 13 (registry procedures), that is, if a under the approved methodologies. Alternatively, the country chooses to use the registry system of a government may require a different MRV process particular standard, then it would be bound to adopt or outline required/permissible modifications to the the methodologies specified by that standard. process to ensure robustness and conservatism. ARTICLE 6 APPROACH PAPER 4 5 Schedule 7 is directly linked to Schedule 5 (eligible Schedule 9 – Issuance: In this Schedule, the country methodologies), and since methodologies are typically would outline the process for issuance of an MO, accompanied by an MRV process for determining that is, reviewing and confirming that an MO activity the ex-post volume of MOs. Potential to strengthen has complied with the requirements of the Policy or automate MRV, and reduce transaction costs Framework and authorizing it for international transfer. and the need for physical verification could be considered under this Schedule. If a country plans If a country chooses to use an external registry to use an external registry (Schedule 13), it may under Schedule 13, it may need to comply with need to confirm that there are provisions to request the issuance requirements set out by the relevant recognition of modified MRV protocols that use new standard. In the case of using an external registry, technologies. For example, for a renewable energy the country should also ensure that the issued project that uses the CDM methodology of ACM0002, units are retired from the external registry once which refers to checking meter calibration through they are transferred to another registry or used. physical verifications, digitizing MRV through the use of smart meters could bring down transaction Schedule 10 – Eligibility criteria and/or approval/ costs with effective management of data and efficient accreditation process for independent entities: verifications. This use of digitized MRV, however, This schedule would formulate criteria for entities requires modification of methodology, and if the to be eligible to carry out independent assessment country is outsourcing the registry function, the country or validation and verification. The country may pre- should ensure that such modified MRV protocols approve accredited bodies under an existing standard can be accommodated through a due process. or ISO 14065/14066, or define a process for the selection and accreditation of independent entities. Schedule 8 – Requirements for Activity Participants: Activity Participants may include The development of this Schedule is closely linked governmental agencies, relevant ministries, public to Schedule 5 (eligible methodologies) and Schedule sector undertakings, legally and validly established 13 (registry procedures). Different market standards corporate entities, unincorporated associations, bodies may have already identified or accredited entities corporate, trust bodies, multilateral organizations that are eligible to carry out independent assessment and international financial institutions, etc., but will or validation and verification of projects that issue not include individuals. This schedule is intended to MOs under that standard. The government may define which entities can be Activity Participants and choose to recognize the accredited entities of the how they could potentially engage in the generation, relevant standards, entities accredited under ISO transfer, and/or use of MOs (whether as a buyer 14065/14066, or specify additional requirements. or a seller) within the jurisdiction of the country. Schedule 11 – Authorization requirements: The development of this Schedule may also need to The documents or submissions to be made by an consider the broader regulatory framework, such as eligible Activity Participant to seek authorization the tax status of different categories of entities, their from the country for international transfer of MOs coverage under existing domestic carbon pricing would be outlined. This may include the Letter of policies, and the level of regulatory oversight that the Authorization or Endorsement templates developed government would have over their participation in through the Climate Market Club, which outlines the markets. Also, the process through which these Activity commitments to be made by the country as part of Participants are approved and the scope of rights and authorization and/or endorsement of an activity. obligations that they will have regarding the approved Article 6.2 MO activity can be defined in this Schedule. 6 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Building on the experience with the CDM and simulation also provide insight on the specific data Joint Implementation, the country may choose to fields that need to be made publicly available, and create similar authorization requirements. A clear the different modes through which information specification of eligible activities under Schedule 4 can held in a registry could be surfaced to systems that help reduce the administrative load on governments aggregate data from multiple registries to ensure in reviewing authorization requests. Authorization transparency and avoidance of double counting. processes may also be automated, for example, on the basis of reporting systems related to NDC Schedule 14 – Reporting procedures: Based on the achievement, existing analysis of marginal abatement guidance related to Article 6.2 that emerges from the costs, and the reports of independent entities. international negotiations, the country will outline how it will follow and meet these reporting requirements. Schedule 12 – Pre-requisites for MOs: The country In this Schedule, the country should explain how it will may outline criteria to be met by an MO to be conduct NDC accounting and inventory accounting transferrable; for example, eligible metrics, conversion of the issued MO after its use. The Approach Paper factors if applicable, the years in which MOs may on Corresponding Adjustments for single-year and be generated or eligible vintages for transfer, etc. multi-year targets and the Information Paper on Accounting in the context of the Paris Agreement This Schedule is expected to be closely linked to could provide insights on different accounting types the NDC of the country, and will allow the country and implications of choosing different accounting to ensure consistency between its reporting of methods. Detailed reporting procedures, that is, targets and its reporting related to transfers. how the country effectively manages the reporting requirements, are influenced by Schedule 13 Schedule 13 – Registry procedures: A country (registry procedures) as different registry choices would need to operate or have access to registry affect the effectiveness of data management. infrastructure in order to facilitate tracking and recording of MOs to avoid double counting. This Schedule 15 – Functions of the DNA and relevant Schedule would outline the registry that would be ministry: This Schedule would outline the institutional used and the process for registration, authorization, processes, and the roles and responsibilities of relevant transfer, and reconciliation through this system. ministries, designated agencies, committees or relevant bodies that would be responsible for facilitating and This Schedule has implications for Schedules 5–7, regulating participation in markets. The Approach 9–11, and 14, and the level of reliance on an external Paper on Country Processes and Institutional registry needs to be well-defined. Furthermore, the Frameworks outlines the full set of functions that inter-operability of the chosen registry infrastructure need to be performed at the country level. Through with external systems also needs to be considered. this Schedule, information on which ministries/ The Approach Paper on Infrastructure Requirements agencies/committees/bodies are responsible for at the national level can serve as the starting point for regulating Schedules 2–14 would be made available. this Schedule. The lessons from the Climate Warehouse ARTICLE 6 APPROACH PAPER 4 7 Country Policy Framework for Cooperative Approaches under Article 6.2 Purpose 1.2 [Country X] grants approval of MO activity and authorization of MO as an ITMO a. [Country X] is a Paris Agreement party and is pursuant to the procedures indicated committed to its obligations under the Paris in Part III of this Policy Framework. Agreement, and wishes to operationalize, at a national level, the provisions of Article 6.2 of the 1.3 [Country X] will undertake reporting and Paris Agreement and its applicable guidance. corresponding adjustments [as specified in the Article 6.2 Guidance] for all ITMOs it has first- b. [Country X] wishes to promote sustainable transferred, and for all ITMOs it has used towards development and ensure environmental integrity achievement of its own NDC [or MOs used and transparency in pursuing any cooperative towards other international mitigation purposes].1 approaches that it agrees with any other country. 2. ENVIRONMENTAL INTEGRITY c. This Policy Framework (“Policy Framework”) sets out the elements of how [Country X] will, inter alia, 2.1 Each MO activity must demonstrate environmental facilitate participation in cooperative approaches integrity in accordance with the requirements set under Article 6.2 of the Paris Agreement with other out in Schedule 2 and any further requirements Paris Agreement Parties, in order to allow for higher as specified in the Article 6.2 Guidance. ambition in mitigation and adaptation actions. 3. SUSTAINABLE DEVELOPMENT PART I – Guiding principles 3.1 Each MO activity must promote sustainable 1. SCOPE AND OBLIGATIONS development in accordance with the criteria set out in Schedule 3. 1.1 This Policy Framework governs the process for generation, approval, authorization and transfers 4. ALIGNMENT WITH ARTICLE 6.2 GUIDANCE of Internationally Transferred Mitigation Outcomes AND ANY FUTURE CMA GUIDANCE (ITMOs), from approved MO activities, which must have environmental integrity consistent 4.1 This Policy Framework will be amended, as with any applicable requirements under the required, to ensure conformity with Article 6.2 Article 6.2 Guidance and Schedule 2. Guidance and any relevant decisions of the CMA. To the extent that any existing provisions of this Policy Framework are inconsistent with Article 6.2 Guidance and any relevant decisions of the CMA, they shall be interpreted in a manner consistent with the latter prior to amendment. N.B. Where such use for other international mitigation purposes is covered by this Policy Framework. 1 8 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 PART II – Framework for eligible 7. MONITORING AND REPORTING MO activities 7.1 MO activities must be monitored 5. MO DEVELOPMENT PROCESS and reported in accordance with the requirements as set out in Schedule 7. 5.1 Eligible MO activities for [Country X] are listed in Schedule 4. 8. VERIFICATION AND ISSUANCE 5.2 The MO activities shall use approved 8.1 MOs from approved MO activities must be methodologies or develop new verified by an eligible entity in accordance with approaches according to the procedures the requirements as set out in Schedule 7. described in Schedule 5. 8.2 MOs must be documented in a monitoring 5.3 MO activities must follow the MO development report(s) and any monitoring report(s) must process as set out in Schedule 6. be verified pursuant to the verification requirements at Schedule 7. 6. VALIDATION AND REGISTRATION 8.3 MOs from approved MO activities 6.1 An MO activity must be validated by must be issued in accordance with the an independent entity according to the requirements as set out in Schedule 9. validation standards for the applicable methodology as set out in Schedule 7. 9. ELIGIBLE ENTITIES FOR INDEPENDENT ASSESSMENT 6.2 Upon validation by an eligible entity, an MO activity shall submit a request for 9.1 Independent entities are independent a Registration to the [relevant Ministry/ auditors [designated]/[authorized]/ Authority] by delivering such information and [recognized] by the [relevant Ministry/ documentation prescribed by the [relevant Authority] to conduct validation and verification Ministry/Authority] as set out in Schedule 8. activities under this Policy Framework. 6.3 Upon successful Article 6.2 Registration, any 9.2 The [relevant Ministry/Authority] may Letters of Approval in respect of an MO activity [designate]/[authorize]/[recognize] entities will be published in English [and in the language that are [accredited in accordance with the of [Country X]], and be made publicly available accreditation process set out in Schedule 10] 4 on the website of the [relevant Ministry]. [or] [designated and accredited in accordance with the Article 6.4 Mechanism Rules] 5 [or 6.4 An MO activity must not be registered under International Organization for Standardization more than one [national or] 2 international climate (ISO) 14065 certification bodies]. 6 mitigation mechanism, 3 whether voluntary or otherwise, to avoid double counting. N.B. This is in the case where Country X contemplates multiple climate mitigation mechanisms. 2 N.B. This would mean that an MO activity approved for the purposes of Article 6.2 cannot be registered under Article 6.4 and is intended 3 to avoid risk of regulatory overlap. N.B. This would be most appropriate where Country X chose to establish its own accreditation mechanism and process. 4 N.B. This would be appropriate if Country X were to simply accept any accredited bodies already approved under other processes 5 (for example, Article 6.4 Mechanism, Clean Development Mechanism (CDM), or a voluntary body such as the Gold Standard). N.B. Please note, this is an illustrative list and not an exhaustive list. 6 ARTICLE 6 APPROACH PAPER 4 9 [PART IIIA – Framework for 12. LETTER OF AUTHORIZATION approval and authorization]  7 12.1 Any Activity Participant(s) [established 10. APPROVAL OF ACTIVITIES in [Country X]] 8 may apply for a Letter of 10.1 Requirements for approval of an MO Authorization for ITMOs from the [relevant activity by the [relevant Ministry] are: Ministry] in respect of an MO activity that has been carried out within [Country X] and a. The satisfaction that the proposed activity validated or verified. The [relevant Ministry] meets the requirements for environmental will determine the conditions 9 relating to integrity and sustainable development the grant of a Letter of Authorization to required by this Policy Framework; and Activity Participant(s) that apply to it. b. The validation [and audit/confirmation] 12.2 Any Letter of Authorization granted by the pursuant to the standards required. [relevant Ministry] in respect of an approved MO activity will be published in English [and in the 10.2 Approval of MO activity is provided through language of [Country X]] and be made publicly a Letter of Approval issued by [Country X]. available on the website of the [relevant Ministry]. 10.3 An MO activity will be approved automatically 12.3 Any Activity Participant(s) will be deemed to be by the [relevant Ministry] if the Activity falls authorized to represent the MO activity and are within the specified sectoral scopes as set authorized by [Country X] to deal in, including out in Schedule 4; to sell and to transfer, any MOs arising from that MO activity, subject to any conditions 11. ACTIVITY PARTICIPANTS specified in the Letter of Authorization.10 11.1 Activity Participants may include governmental 12.4 [To the extent that [Country X] agrees with agencies, relevant ministries, public sector another Paris Agreement Party that this Policy undertakings, legally and validly established Framework forms a Cooperative Approach with corporate entities, unincorporated associations, that Paris Agreement Party, the MOs referred bodies corporate, trust bodies, and multilateral to in Paragraph 10.3 will be [converted to or if organizations and international financial applicable, deemed] 11 ITMOs for the purposes institutions, etc. but will not include individuals. of such a Cooperative Approach.] 12 11.2 The [relevant Ministry] of [Country X] shall authorize Activity Participant(s) in approved MO activities in accordance with the requirements set out in Schedule 8, which shall be consistent with any requirements of the Article 6.2 Guidance. 7 N.B. Country X should use this mechanism where blanket approval and authorization is granted insofar as the MO activity and Activity Participants fulfil the necessary criteria. However, each batch of MOs will require specific authorization by Country X prior to their international transfer (that is, the Letter of Authorization). 8 N.B. Country X should determine whether it will permit applicants from outside of its jurisdiction to be involved in MO activities in its jurisdiction. 9 N.B. Such conditions may include, inter alia, establishing whether the applicant has the exclusive authority to represent the MO activity, duration for approval, quotas, or limits in number of ITMO, etc. 10 N.B. For example, the Letter of Approval may be limited in that the Activity Participant is only authorized to sell the MO as an ITMO since its approval is given on the basis of an Article 6.2 Registration and not any other basis (for example, to sell as a VCU for Carbon Offsetting and Reduction Scheme for International Aviation purposes). 11 N.B. Whether an MO requires conversion into an ITMO (for example, by including a tagged item of information in its serial number) or can be used directly as an ITMO (for example, because when issued as an MO it was created in a manner consistent with the Article 6.2 Guidelines and the requirements agreed with the other Paris Agreement Party under a Cooperative Approach) will depend on the registry infrastructure used for the creation of the MO and transfer of the ITMO to the acquiring Paris Agreement Party. 12 Need to confirm that this requirement is needed. The Using Party reporting the ITMO and making the corresponding adjustment should constitute the declaration of a Cooperative Approach with Country X. 10 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 13. AUTHORIZATION FOR THE PURPOSES OF [OR] [PART IIIB – Framework for ARTICLE 6.3 OF THE PARIS AGREEMENT approval and authorization]  14 13.1 [Country X] agrees and authorizes that any MO 14. APPROVAL FOR INTERNATIONAL under this Policy Framework that becomes TRANSFERS OF MOs an ITMO under a Cooperative Approach may be used by a Paris Agreement Party 14.1 The [relevant Ministry] of [Country X] shall towards the achievement of an NDC [provided approve mitigation activities and authorize that its use occurs towards the same NDC them to generate a specific volume of Period in which it was generated].13 MOs in a given time period, in accordance with the requirements set out in Schedule 13.2 [Country X] agrees and authorizes that an MO 9, which shall be consistent with any under this Policy Framework that becomes requirements of the Article 6.2 Guidance. an ITMO under a Cooperative Approach may be used by a Paris Agreement Party for 14.2 [To the extent [Country X] agrees with another other international mitigation purposes. Paris Agreement Party that this Policy Framework forms a Cooperative Approach 13.3 [Country X] authorizes that any MO under with that Paris Agreement Party, the MOs this Policy Framework that becomes an ITMO when first transferred will be [converted to under a Cooperative Approach may be used or if applicable, deemed] 15 ITMOs for the towards [a reduction in overall mitigation/ purposes of such a Cooperative Approach.] 16 voluntary cancellation] by any Paris Agreement Party, and will not be applied toward 14.3 Only an Activity Participant meeting the [Country X]’s national mitigation goals. requirements set out in Schedule 8 may apply for a Letter of Approval from the [relevant Ministry] in respect of an MO. The [relevant Ministry] will determine the conditions 17 relating to the grant of a Letter of Approval for the mitigation activity. 14.4 Activity Participants may include governmental agencies, relevant ministries, public sector undertakings, legally and validly established corporate entities, unincorporated associations, bodies corporate, trust bodies, and multilateral organizations and international financial institutions, etc. but will not include individuals. 14.5 Any Letter of Approval granted by the [relevant Ministry] in respect of an MO activity will be published in English [and in the language of [Country X]], and be made publicly available on the website of the [relevant Ministry]. 13 N.B. The proviso should be included where ITMO should not be made bankable across NDC Periods. 14 N.B. Country X should use this mechanism where its control for ITMOs happens at the MO activity approval level. Under this mechanism, approval for each subsequent transfer of MOs from an approved MO activity would not be required, hence there is no Letter of Authorization for ITMO transfer. 15 N.B. Whether an MO requires conversion into an ITMO (for example, by including a tagged item of information in its serial number) or can be used directly as an ITMO (for example, because when issued as an MO, it was created in a manner consistent with the Article 6.2 Guidelines and the requirements agreed with the other Paris Agreement Party under a cooperative approach) will depend on the registry infrastructure used for the creation of the MO and transfer of the ITMO to the acquiring Paris Agreement Party. 16 Same consideration as footnote 12 on whether this provision is needed. N.B. Such conditions may include, inter alia, establishing whether the applicant has the exclusive authority to represent the MO activity, 17 duration for approval, quotas, or limits in number of ITMO, etc. ARTICLE 6 APPROACH PAPER 4 11 14.6 Any Activity Participant that is granted PART IV – Issuance of MOs a Letter of Approval is authorized by [Country X] to deal in, including to sell and to 15. PRE-REQUISITES FOR CREATION OF MOs transfer, the specified MOs internationally as 15.1 All MOs must satisfy the requirements ITMOs from that MO activity, subject to any as set out in Schedule 12. further conditions specified in the Letter of Approval, such as verification requirements. 15.2 All MOs authorized under this Policy Framework will be assessed and verified against the 14.7 [Country X] agrees to undertake any following requirements before their transfer: corresponding adjustments and reporting required in respect of the MOs specified in the a. [Independent assessment]/[validation] of Letter of Approval sold under a Cooperative project documents by an [eligible entity] Approach as ITMOs, in accordance with Part V of this Policy Framework. b. Existence of complete monitoring and verification reports 14.8 [Country X] agrees and authorizes that any MO covered by a Letter of Approval, which c. Consistency of the MOs with becomes an ITMO under a Cooperative conditions of the authorization Approach, may be used by a Paris Agreement Party towards the achievement of an NDC d. The MOs have not previously been [provided that its use occurs towards the same issued under other national or NDC Period in which it was generated].18 international systems or standards 14.9 [Country X] agrees and authorizes that an MO e. No evidence of discrepancy with the provisions covered by a Letter of Approval that becomes on environmental integrity and sustainable an ITMO under a Cooperative Approach development set out in the Framework may be used by a Paris Agreement Party for other international mitigation purposes. f. Payment of the necessary fees as determined by the [relevant Ministry] from time to time. 14.10 [Country X] authorizes that any MO covered by a Letter of Approval/Authorization that 16. [CREATION OF MOs] becomes an ITMO under a Cooperative Approach may be used towards [a reduction in 16.1 MOs shall be created in accordance with overall mitigation/voluntary cancellation] by any the registry procedures as set out in Paris Agreement Party, and will not be applied Schedule 13 [or rules and requirements of toward [Country X]’s national mitigation goals. the relevant approved GHG program]. 16.2 MOs created shall have unique serial numbers that are issued in accordance with block structures [which will include, at least, information identifying [Country X], vintage of the underlying MO, type of MO activity, and such other information and format as may be required under the Article 6.2 Guidance].19 18 N.B. The proviso should be included where ITMO should not be made bankable across NDC Periods. 19 N.B. For the purposes of determining unique identifiers for MOs, and for consistency with reporting requirements under Article 13 of the Paris Agreement, it is anticipated that a common format for unique IDs for ITMOs and Article 6.4 ERs will be developed. 12 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 16.3 [Country X] will make any adjustments required PART V – Corresponding adjustments to the above in respect of any MOs that will be part of a Cooperative Approach agreed 18. CORRESPONDING ADJUSTMENTS with one or more Paris Agreement Parties AND REPORTING OF ITMOs to facilitate the treatment of those MOs as 18.1 [Country X to specify how corresponding ITMOs when transferred internationally. adjustments and reporting will be done, 17. REGISTRY AND TRACKING in accordance with the requirements of the Article 6.2 Guidance.] 17.1 [Country X] will establish, or have access to, an Article 6.2 Registry to facilitate the objectives 18.2 [Corresponding adjustments will be applied of this Policy Framework and to enable it to for anthropogenic emissions by sources and comply with its obligations under the Paris removals by Sinks covered by [Country X’s] NDC Agreement and any Article 6.2 Guidance. through [additions/subtractions] for all ITMOs transferred (independent of their use)]. 23 17.2 [Country X to specify if the Article 6.2 Registry will be linked under any cooperative approaches.] 20 18.3 [If Country X has a single-year NDC target] For each NDC Period, [Country X] will: 17.3 The Article 6.2 Registry shall function in accordance with the registry procedures a. [Provide a multi-year emissions trajectory, as set out in Schedule 13. trajectories or budget for the NDC Period that is consistent with implementation 17.4 [Any Activity Participant authorized in respect and achievement of the NDC, and apply of an MO activity shall be entitled to an corresponding adjustments for the total account in the Article 6.2 Registry.] 21 amount of ITMOs first transferred for each year in the NDC Implementation Period]; [or] 17.5 [OR] [[Country X] will use the Article 6.2 International Registry for the purposes b. [Calculate the average annual amount of the ITMOs that are the subject of ITMOs first transferred over the NDC of this Policy Framework.] 22 Implementation Period, by taking the cumulative amount of ITMOs and dividing by the number of elapsed years in the NDC Implementation Period and annually applying indicative corresponding adjustments equal to this average amount for each year in the NDC Implementation Period, and applying corresponding adjustments equal to this average amount in an NDC year.] 20 N.B. The alternatives recognize that the Paris Agreement Parties to the Cooperative Approach may decide not to link their respective registries. The draft Article 6.2 Guidance of the Paris Agreement does not elaborate on how registries will be connected so that MOs may be tracked across decentralized markets. A centralized platform or a decentralized approach for integrating registries across countries may be required in the future, given the need for different registry systems to communicate with one another for compliance purposes. 21 Country X may consider extending the rights of access to its registry to a wider group of persons, but this would be subject to the choice of other Paris Agreement Parties in respect of their own Article 6.2 Registry for the relevant Cooperative Approach. 22 Where Paris Agreement Parties do not propose to establish their own registries, they can use the Article 6.2 International Registry if and when that becomes operational. 23 N.B. Country X to determine if this should be an addition or subtraction based on the type of NDC it has in a manner that is consistent with the Article 6.2 Guidance. ARTICLE 6 APPROACH PAPER 4 13 [OR] [If Country X has a multi-year NDC target] PART VI – DNA, penalties, and appeals For each NDC Period, [Country X] will calculate a multi-year emissions trajectory, trajectories 19. GOVERNANCE or budget for its NDC Implementation Period 19.1 The government of [Country X] hereby that is consistent with its NDC, and annually appoints [for example, the Ministry of Finance/ apply corresponding adjustments for the total Environment] as its [relevant Ministry/ amount of ITMOs first transferred each year in Designated National Authority (DNA)] for the the NDC Implementation Period and cumulatively purposes of Article 6 of the Paris Agreement. at the end of the NDC Implementation Period. 19.2 The [relevant Ministry/DNA] shall be responsible 18.4 [Country X] will annually submit to the Secretariat for implementation of this Policy Framework. quantitative net-information on ITMOs first transferred (and to the extent it is applicable, 19.3 The [relevant Ministry/DNA] shall have the transferred, acquired, held, cancelled and/or functions as set out in Schedule 15. used), accompanied by information uniquely identifying the ITMOs, including references to the 20. PENALTIES respective monitoring and verification reports. 20.1 [Country X to specify penalties for non- 18.5 [Country X] will report under the Article 13 of compliance with this Policy Framework by the Paris Agreement the following information: MO activities or Activity Participants.] a. In the biennial transparency report covering 20.2 [Country X to specify the mechanism the inventory information on the NDC end year, for revocation of any Letters of Approval it will reflect corresponding adjustment in its or Letters of Authorization]. assessment of whether it has achieved the target(s) of its NDC, pursuant to 18/CMA.1; and 21. APPEALS COMMITTEE b. In each of its biennial transparency reports 21.1 [Country X to determine the process submitted in relation to the NDC Period, for appeals and the terms of reference emission balances, effecting the ITMOs for the Appeals Committee.] transferred [or used towards its NDC], and qualitative information on any cooperative 21.2 [The Appeals Committee shall hear approaches it enters into that adopts this and decide appeals arising from: Policy Framework, including information on the provisions for ensuring environmental integrity a. [Country X to determine what matters/ and promoting sustainable development decisions may be appealed.]] established under this Policy Framework. 14 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Schedule 1 – Definitions As used in this Policy Framework, the following terms “Article 6.2 International Registry” means the shall have the following meanings: registry implemented by the Secretariat under the Article 6.2 Guidance that allows for tracking “Activity Participant ” means any person that is a and recording authorization, transfer, acquisition, private and/or public entity who has obtained cancellation and use of ITMOs towards NDC, a Letter of Approval or Authorization from the authorizations for use toward other international [relevant Ministry] and is either listed as a project mitigation purposes, voluntary cancellation, and participant in the relevant MO design document or for holding accounts necessary to facilitate these is otherwise expressly evidenced to the [relevant functions. Ministry]. “Article 6.2 Registration” means the formal “Appeals Committee” means the committee acceptance and listing of an MO activity as an constituted [from time to time] to hear and decide eligible activity for the purposes of this Policy appeals arising from decisions of the [relevant Framework by the [relevant Ministry], published Ministry] (or its designated bodies), within the in English [and in the language of [Country X]] scope of its terms of reference. and made publicly available on the website of the “Approved GHG Program” means a GHG program [relevant Ministry]. that is accepted and approved under this Policy “Article 6.2 Registry” means the registry implemented Framework, and which, among other things, by [Country X], in its own jurisdiction, that allows provides the underlying infrastructure to facilitate for tracking and recording authorization, transfer, listing and registering of MO activities, issuing, acquisition, cancellation and use of ITMOs holding, transferring and retiring MOs, provides towards its NDC, authorizations for use toward records of all MO activities and MOs issued, and other international mitigation purposes, voluntary provides public access to all MO activities and cancellation, and for holding accounts necessary MOs information. to facilitate these functions. “Article 6.2 Guidance” means the relevant decision(s) “Article 6.4 Mechanism” means the mechanism that of the CMA providing guidance on cooperative is referred to in Article 6, paragraph 4 of the Paris approaches referred to in Article 6.2, of the Paris Agreement and which has been operationalized Agreement, as may be agreed or subsequently pursuant to the relevant decisions of the CMA from amended from time to time. time to time. “Article 6.4 ER” means a unit issued pursuant to the “Article 6.4 Mechanism Rules” means any decisions Article 6.4 Mechanism that is equal to one tCO2e of the CMA, the body of eligibility rules, GHGs (tonnes of carbon dioxide equivalent), calculated assessment and quantification methodologies and in accordance with the methodologies and metrics MRV parameters for a given emission reduction assessed by the Intergovernmental Panel on project type developed in a manner that satisfies Climate Change (IPCC) and adopted by the CMA, the requirements for Article 6.4 of the Paris or such other metrics adopted by the CMA under Agreement, any national requirements adopted by the Article 6.4 Mechanism Rules. the [relevant Ministry], and any rules, modalities and procedures for the mechanism established under Article 6.4. ARTICLE 6 APPROACH PAPER 4 15 “Authorized Participant ” means a private sector “Letter of Approval” means the letter through which participant [established in [Country X]] that fulfils the [relevant Ministry] approves the MO activity for the requirements set out in Schedule 8 and is the purposes of any Cooperative Approach under listed by the [relevant Ministry] as an authorized this Policy Framework.26 participant in, or authorized to represent, an approved MO activity.24 “Letter of Authorization” means the letter, which may be issued in conjunction with the Letter of “CMA” means the Conference of the Parties serving as Approval, through which the [relevant Ministry] the meeting of the Parties to the Paris Agreement. authorizes the relevant [private sector participant’s] participation in the proposed MO activity for the “Cooperative Approach” means the arrangements purposes of any Cooperative Approach.27 outlined in a bilateral agreement as agreed to and adopted by [Country X] and another Paris “Mitigation Outcome” or “MO” means one or more Agreement Party under Article 6.2 of the Paris of the following outcomes resulting in emission Agreement, in respect of the mutual recognition, reductions or removals, including mitigation co- acceptance, use of and dealing in MOs [[including benefits resulting from adaptation actions and/ enhancing removals of Sinks and reservoirs/ or economic diversification plans, or the means enhancement of removals (for example, REDD)], to achieve them and which are capable in being avoidance of GHGs,25 involving GHGs that are represented in a form of a unit of measure. generated from the specified activity type, involving “Mitigation Outcome activity” or “MO activity” a specified sectoral scope]. means the activity, action, project or groups of “DNA” means the designated national authority of activities that lead to the achievement of an MO. [Country X] for the purposes of Article 6.2 [and “NDC” means the Nationally Determined Contribution Article 6.4] of the Paris Agreement that has been of a Paris Agreement Party, as prepared, formally designated and registered with the communicated and maintained from time to time in Secretariat as required by the Article 6.2 Guidance. accordance with Article 4.2 of the Paris Agreement “Greenhouse Gas” or “GHG” means any of and Decision 4/CMA.1. carbon dioxide, methane, nitrous oxide, “NDC Implementation Period” means the period of hydrofluorocarbons, perfluorocarbons, sulfur time within a specific NDC Period. hexafluoride, nitrogen trifluoride, halogenated ethers, trifluoromethyl sulfur pentafluoride, and any “NDC Period” means the five-year period specified in other halocarbons subject to the ‘2019 Refinement Article 4.9 of the Paris Agreement, Decision 1/CP.21 to the 2006 IPCC Guidelines for National and any relevant decisions of the CMA, during Greenhouse Gas Inventories’ as published by and which the Paris Agreement Parties shall achieve updated from time to time by the IPCC. their respective NDC. “International Transferred Mitigation Outcome” or “Other international mitigation purposes” means “ITMO” means an MO arising in respect of an MO a purpose, for the use of an ITMO, that is other activity for which [Country X] has issued a Letter than the achievement of a Paris Agreement Party’s of Authorization and is first transferred outside by NDC, as determined by a Paris Agreement Party [Country X] to a Paris Agreement Party pursuant [including a delivery of overall mitigation/voluntary to a Cooperative Approach in a manner that is cancellation]. consistent with the Paris Agreement and Article 6.2 Guidance. 24 N.B. Country X should determine whether it will permit applicants from outside of its jurisdiction to be involved in MO activities in its jurisdiction. 25 For example, crediting schemes. 26 N.B. Delete where Part IIIB is used in this Policy Framework. 27 N.B. Delete where Part IIIB is used in this Policy Framework. 16 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Schedule 1 – Schedule 2 – Definitions cont. Environmental integrity requirements “Paris Agreement Party” means a country that is Relevant approach paper: Environmental Integrity a signatory to the Paris Agreement and who has deposited their instrument of ratification, Ensuring environmental integrity is recognized as acceptance, approval or accession to the an important goal of [Country X] under Article 6. A Secretary-General of the United Nations in the commonly accepted definition is that environmental capacity of depository of the Paris Agreement. integrity is ensured as long as global GHG emissions For the avoidance of doubt, a country that has do not increase as a result of transfers of MOs (when withdrawn from the Paris Agreement shall no compared to the scenario where such transfers did longer be a considered a Paris Agreement Party not take place). This Schedule outlines the approaches after its withdrawal takes effect pursuant to Article by [Country X] to implementing the concept. 28(2) of the Paris Agreement. The starting point for ensuring environmental “Paris Agreement ” means the agreement adopted by integrity is the stringency of the NDC of [Country the parties to the UNFCCC at its 21st meeting in X] based on whether targeted GHG emissions Paris as reflected in Decision 1/CP.21 (Adoption of are equal to, or lower than what would be the Paris Agreement). expected under BAU conditions. Specifically: “Relevant Ministry” means the governmental body • When the issuing country’s NDC is more stringent designated by [Country X] to perform the relevant than BAU, for MO activities that are inside the function under this Policy Framework. scope of the NDC, the environmental integrity “Secretariat ” means the secretariat to the UNFCCC, of MOs is ensured as long as the issuing appointed at Secretariat to the CMA pursuant to country applies the corresponding adjustment Article 17 of the Paris Agreement. to its NDC. When the MO activity is outside the scope of the NDC, the issuing country needs “Sink” means any process, activity or mechanism that to ensure unit quality of its MO and can also removes a GHG, an aerosol or a precursor of a apply corresponding adjustments if it wishes to GHG from the atmosphere. demonstrate increased ambition of climate action. “ tCO2e” means an amount of carbon dioxide emission • In cases where the NDC is less stringent than measured in metric tons that would cause the BAU, MOs generated from the MO activity same integrated radiative forcing or temperature will require corresponding adjustment to the change, over a given time horizon, as an emitted issuing country’s NDC as well as additional amount of a GHG or a mixture of GHGs. measures to ensure environmental integrity through the assessment of unit quality of “UNFCCC” means the United Nations Framework the MO.28 This is summarized in Table 2. Convention on Climate Change. The term “unit quality” is used widely and interpreted differently in carbon markets. This Schedule uses unit quality to refer to the level of 28 confidence that an internationally transferred emissions unit is associated with at least one tonne of CO2-equivalent ERs. ARTICLE 6 APPROACH PAPER 4 17 Table 2. Approaches for ensuring environmental integrity under different scenarios Independent NDC Transferred mitigation occurs… assessment* stringency Inside the scope of NDC Outside the scope of NDC Possible More stringent Apply corresponding Ensure unit quality than BAU adjustments AND [**To avoid over- [Apply corresponding selling/transferring, adjustments, if agreed ensure unit quality] in the modalities for Article 6.2 for activies Issuing*** outside the scope of NDC] country’s NDC is… Less stringent Apply corresponding adjustments than BAU AND Ensure unit quality Not possible Difficult to Apply corresponding adjustments ascertain AND Ensure unit quality * Third-party assessment of the stringency of the NDC is a recommended best practice and is possible in cases where NDC is transparently presented with all assumptions, data used and its sources and methodology used and all this information is made available for the assessment. ** For stringent NDC (if the NDC is transparently disclosed and independently assessed by a third-party that it is more stringent than BAU), corresponding adjustments would be sufficient to ensure environmental integrity. Ensuring unit quality is desirable from the issuing country’s perspective to avoid over-selling because if the country over-transferred, it will require substantially higher effort by the issuing country to meet the increased ambition. *** Though the Madrid draft text refers to the term ‘Participating Party’ in general, for the purpose of clarity, the term ‘issuing party’ is used in this Schedule. In order to ensure unit quality, the Schedule requires different levels of crediting baselines that MO activities in [Country X] can adopt. The approach for unit quality can use discounting of the MO to address uncertainties related to baseline setting. One possibility is for discounting to be based on the relative mitigation value, which can be determined by the relative ambition of NDC targets in the two trading countries. Lastly, the paper considers increasing the climate ambition of the country and scope of the NDC targets over time to address concerns with weakening climate ambition caused by the transfer of MOs. 29 Though the Madrid draft text refers to the term ‘Participating Party’ in general, for the purpose of clarity, the term ‘issuing party’ is used in this Schedule. 18 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 [Country X] has adopted the Sustainable Development Schedule 3 – Goals (Figure 1) and is committed to achieving these. All MO activities should document sustainable development co-benefits. [Country X] [recommends]/ Sustainable [requires] the use of the Sustainable Development Co-benefits Tool 30 for all MO activities with development estimated annual MOs in excess of [xx] tCO2e. criteria Figure 1: Sustainable Development Goals Schedule 4 – [Country X to specify approved activity types] [Country X to specify sectoral scope] Eligible MO [This Schedule may specify a “positive list” activities of technologies or (sub) sectors that may be conferred automatic approval as MO activities. The process to be followed can be similar to that of the CDM; see link] 31 Introduction: This section covers technologies that confer automatic approval to MO activities. 30 See https://www4.unfccc.int/sites/sdcmicrosite/Pages/SD-Tool.aspx 31 See CDM guidelines, process, etc. for identifying and updating a “positive list” of technologies at https://cdm.unfccc.int/methodologies/ PAmethodologies/tools/am-tool-32-v1.pdf ARTICLE 6 APPROACH PAPER 4 19 Scope: This is a list of technologies and associated conditions that confer automatic approval to MO activities that apply such technologies and Schedule 5 – meet specified conditions (hereinafter referred to as the positive list). The methodological tool specifies the validity, process for update, and Eligible timelines for the update of the positive list. methodologies Applicability: The use of this list and the automatic approval is not mandatory for the Activity Participants of an MO activity for demonstrating eligibility or environmental integrity. The positive list as contained [Country X to set out the eligible methodologies and herewith is valid up to [XX yyy 202x]. Technologies standards for ex-ante estimation of MOs as well as can be added to the positive list through revisions the process for approval of new methodologies.] of this tool before this date. Version 01.0 of this list enters into force on [January 1, 202x]. One approach that [Country X] could follow is to pre-approve existing internationally reviewed List of activities: MO activities are deemed standards and their methodologies and processes. For automatically approved if they exclusively example, the International Civil Aviation Organization apply the technologies listed under this section Council approved the eligible emissions units for and demonstrate that they fulfil the related the Carbon Offsetting and Reduction Scheme for conditions specified in the same section. International Aviation. The decision is based on recommendations following extensive review of applicable standards by the Technical Advisory Body established by International Civil Aviation Organization and the following were the six eligible standards: • American Carbon Registry • China GHG Voluntary Emission Reduction Program • CDM • Climate Action Reserve • The Gold Standard • Verified Carbon Standard. As a starting point, [Country X] may utilize the existing extensive set of mythologies, process and, if needed, institutional arrangements to quickly initiate MO activities and investments. 20 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Schedule 6 – Schedule 8 – MO development Requirements for process Activity Participants [Country X to set out the asset development process, [Country X to define which entities can be Activity including monitoring and reporting requirements, Participants and how they could potentially engage in validation and/or independent assessments, and the generation, transfer, and/or use of MOs (whether as the applicable verification standards and issuance a buyer or a seller) within the jurisdiction of the country.] process for each eligible standard or process.] Relevant Approach Paper: Carbon Asset Development Process Schedule 7 – Schedule 9 – Validation Issuance and MRV [Country X to set the process to approve [Country X to outline the requirements and processes or define standards, methodologies, and for issuance of MOs. Country X may choose to issue requirements for monitoring and reporting.] through an existing independent carbon standard or establish its own national issuance process. Where eligible methodologies are from pre-approved Figures below demonstrate possible options.] standards, [Country X] should use the applicable validation, MRV process and institutions, if appropriate. ARTICLE 6 APPROACH PAPER 4 21 Figure 2. Potential Article 6.2 activity cycle from transferring country perspective, using international crediting programs for MRV Request pre-authorization National process for concept Paris Agreement using international Article 6 process Grant crediting standard pre-authorization for MRV Full project design Validation Request Request registration authorization Register Authorize project ITMOs Implement/ Legend monitor Activity proponent Verify Auditor Issue units National authorities International crediting program Request Transfer transfer ITMOs Note: the criteria for approving authorization would be the same regardless of when Apply corresponding it happened in the activity cycle adjustments Source: authors 22 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Figure 3. Potential Article 6.2 activity cycle from transferring country perspective, using domestically developed/adopted MRV approaches Request pre-authorization National process for concept Paris Agreement Article 6 process Grant pre-authorization Full project design Validation Request Request registration authorization Register Authorize project ITMOs Implement/ monitor Legend Verify Activity proponent Issue units Auditor National authorities Request Transfer transfer ITMOs Note: the criteria for approving authorization would be the same regardless of when Apply corresponding it happened in the activity cycle adjustments Source: authors ARTICLE 6 APPROACH PAPER 4 23 Schedule 10 – Schedule 12 – Eligibility criteria Pre-requisites and/or approval/ for MOs accreditation process for [Country X to specify when an MO of a certain vintage year can be transferred.] independent [Country X to specify the metrics for measuring an MO: entities a. GHG metrics – metric tons of carbon dioxide equivalent (measured using IPCC metrics and methodologies for Global Warming Potential as adopted by the CMA); and [Country X to specify the requirements b. Non-GHG metrics – agreement on for accreditation or approval of validation, measurement unit (and in accordance verification, and audit/confirmation bodies.] with any future decisions of the CMA) Where pre-approved standards are allowed, i. Determination of conversion factor(s) [Country X] should use the applicable accreditation (if any) to (1) GHG metrics or (2) process for independent entities. other non-GHG metrics; and ii. Determination of whether vintage year is applicable to non-GHG ITMOs.] Schedule 11 – Authorization requirements [Country X to specify the requirements for authorization of a private sector participant.] 24 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 Schedule 13 – Schedule 14 – Registry Reporting procedures procedures Relevant technical papers: Generic [Country X to specify the reporting requirements, registry specifications; lessons learned following Article 6.2 Guidance. This includes from Climate Warehouse simulation. producing initial reports, as well as annual information, and regular information.] [How ITMOs will be created will turn on the type of Cooperative Approach adopted by Country X and the Paris Agreement Party. This could range from a simple recognition of MOs generated by Country X to full-blown emissions trading system-style sector-wide arrangements.] [Country X to determine whether MOs are to be created and issued, or merely recorded. This is likely linked to whether an Article 6.2 Registry is operated by each Paris Agreement Party (including Country X) within their own jurisdictions, or Country X uses the Article 6.2 International Registry operated by the Secretariat referred to in the Article 6.2 Guidance.] [Country X to specify the reconciliation process to be used. The suitability of this process will depend on the Article 6.2 Registry and type of Cooperative Approach involved. For example, if Paris Agreement Parties are using Article 6.2 Registries that are linked, this may be a simple debit from one registry and credit in another. Alternatively, if not linked, this may require the cancellation in one registry and the creation in another to effect a transfer. Therefore, the mechanism of transfer will depend on (a) the nature of what the ITMO is (for example, in unit form and reflecting GHG metrics), or (b) whether the transfer is in two Article 6.2 Registries or in the Article 6.2 International Registry.] ARTICLE 6 APPROACH PAPER 4 25 Schedule 15 – Functions of the DNA and relevant Ministry Relevant approach paper: Country processes and institutional arrangements for Article 6 transactions [Country X to specify scope of powers for the DNA and relevant Ministry.] Responsible entity/ Functions Detailed responsibilities organization • Agree on overall scope of Article 6 engagement Policy • Agree on use of elements of international coordination crediting programs and oversight • Agree on allocation of all other functions • Approve methodologies, technical standards, and guidelines • Approve accreditation rules for third-party auditors • Approve NDC-related parameters for Rulemaking emission reduction calculations • Guide and oversee Article 6 program implementation • Review implementation decisions, if appropriate • Address grievances and appeals • Accredit auditors to carry out validation and verification • Approve projects and project entities to generate MOs for Article 6 • Review and register eligible projects and their crediting period • Certify and issue ER units • Authorize units to transfer for Article 6 Implementation • Execute transfer of Article 6 units • Approve and implement converting Article 6 units to domestic units and vice versa • Maintain a registry of projects and ERs, including links with international registries where required • Implement corresponding adjustments • Report on projects, units and transfers (in Biennial Transparency report) for Article 6 Technical Expert Review • Review international methodologies, technical guidelines, and default factors • Oversee development of new methodologies, technical Technical guidelines, and default factors by third parties advisory • Develop new (top-down) methodologies • Provide analysis of impact of potential projects/transfers on NDC compliance 26 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 User’s guide to the Policy Framework for Cooperative Approaches under Article 6.2 1. Introduction 27 2. Legal considerations 28 3. The concept of a unilaterally declared Policy Framework 29 4. Schedules 29 5. Distinction between MOs and ITMOs 30 6. Authorization of Activity Participants 31 7. Other international mitigation purposes 32 8. Registry infrastructure 32 9. Non-GHG metrics 33 ARTICLE 6 APPROACH PAPER 4 27 1.3 As readers will be aware, a form of the Article 6.2 1. Introduction Guidance, in draft, had been negotiated during COP25 in Madrid. The final draft of that Article 6.2 Guidance 33 (the “Madrid Text ”) has formed the basis of our approach in drafting the Policy Framework. We understand that the Madrid Text 1.1 The purpose of this user’s guide (“User’s does not reflect a final agreement accepted by Guide”) is to provide some background and all Parties to the Paris Agreement. However, context behind the Policy Framework document the Madrid Text reflects the draft form of the (“Policy Framework”) that countries may refer Article 6.2 Guidance with the least amount of to if considering the adoption of a cooperative square bracketed items and therefore, provides approach, pursuant to Article 6, paragraph 2 the clearest position document on which to base of the Paris Agreement (“Article 6.2”),32 with our work in building the Policy Framework. one of more Parties to the Paris Agreement (“Parties”, and each a “Party”). 1.4 As drafted, it is intended that the Party using the Policy Framework will amend its Policy 1.2 As of the time of drafting the Policy Framework, Framework subsequently to align with any final the CMA has yet to agree on the final CMA adopted form of the Article 6.2 Guidance. guidance on cooperative approaches (the “Article 6.2 Guidance”) referred to in paragraph 1.5 Terms not otherwise defined herein 36, Decision 1/CP.21. The absence of the shall have the meaning ascribed to Article 6.2 Guidance makes it challenging for them in the Policy Framework. those Parties that wish to advance their work in establishing cooperative approaches. Now that COP26 is not going to take place until November 2021, the earliest opportunity for the Parties to adopt a final Article 6.2 Guidance is some time away. Therefore, the purpose of the Policy Framework is to enable such willing Parties to begin their discussions for establishing a Cooperative Approach, from a certain level or standard. Article 6.2 permits Parties to voluntarily engage in cooperative approaches, involving “the use of internationally transferred mitigation outcomes 32 towards nationally determined contributions”. Such use “shall be voluntary and authorized by participating Parties” (Article 6, paragraph 3 of the Paris Agreement (“Article 6.3”)). 33 Version 3 of 15 December 00:50 hrs. 28 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 2.4 To address the absence of an express 2. Legal authorization regime for Activity Participants in Article 6.2, we have proposed alternative approaches for how such an approval framework considerations might work (see Paragraph 7 of this User’s Guide). Under our proposed approach, a Party would authorize Activity Participants to participate in a Cooperative Approach and deal in ITMOs. The 2.1 The text of Article 6, paragraph 4(b) of the Paris aim is to create a legal relationship between the Agreement provides for “participation in the Party and an Activity Participant, where such mitigation of greenhouse gas emissions by an authorization regime has been accepted public and private entities authorized by a Party”. by another Party with whom the authorizing This provides the legal basis for public and Party is setting up a Cooperative Approach. private sector participation in an international treaty (that is the Paris Agreement), 2.5 Where the Cooperative Approach is legally where so authorized by a Party. binding between the Parties, this authorization should provide legal certainty to Activity 2.2 Notably, Article 6.2 and the Madrid Text omit Participants to deal in ITMOs as authorized any reference to participation by public and by a Party (and accepted by another Party to private entities authorized by a Party, which that Cooperative Approach). An authorization raises the question as to the legal basis for regime also gives the authorizing Party the their participation in a Cooperative Approach. A ability to control the use of its emissions Cooperative Approach requires the establishment reductions for the purposes of Article 6.2. of binding legal obligations between the Parties to a Cooperative Approach. The form of agreement 2.6 Given the diversity expected in the design necessary to establish such binding obligations of Cooperative Approaches, including their between two countries will be determined by the interaction with national registries and NDCs public international laws of the respective Parties among other things, we have sought to provide to the Cooperative Approach. We do not therefore for multiple options and customization, while prescribe for the legal form a Party will need to maintaining what we believe to be fundamental adopt to establish a Cooperative Approach. for a functional mechanism that adheres to the Paris Agreement. This User’s Guide therefore 2.3 However, if participation by public and highlights the key issues that we have considered, private sector entities in a Cooperative and that Parties should similarly consider, in Approach is to be facilitated, a robust legal the implementation of the Policy Framework. foundation will be required to give an Activity Participant (for example, from Party A) the necessary certainty around its own rights and obligations as an Activity Participant to that Cooperative Approach between two Parties (for example, Party A and Party B), including the ability to enforce cross-border contractual arrangements, where it is aggrieved. ARTICLE 6 APPROACH PAPER 4 29 Approach between two or more Parties, 3. The concept of a and the Policy Framework does not in itself create an effective and binding Cooperative Approach between Parties. Like all other unilaterally declared governmental policies, a Party would be able to unilaterally amend its Policy Framework Policy Framework as it deems fit. Until such time Parties have entered into such legally binding arrangement(s) (see also paragraph 2.2 above), a Party would not be bound to authorize any MO for 3.1 Article 6.2 provides that: “Parties shall, international transfer or use for international where engaging on a voluntary basis in mitigation purposes or other purposes. cooperative approaches that involve the use of internationally transferred mitigation outcomes towards nationally determined contributions ...”. The use of the word “Parties”, 4. Schedules in the plural, reiterates that a Cooperative Approach requires more than one Party. 3.2 The Policy Framework has been drafted on a unilateral basis for a Party to declare its preferred approach towards implementing 4.1 The schedules to the Policy Framework form a Cooperative Approach under Article 6.2. an integral part of the specific requirements to It constitutes a unilateral offer for potential that Policy Framework. It is intended that these buyers to accept or request additional changes/ contain the detailed technical information as criteria. However, the use and publication of to, among other things, environmental integrity the Policy Framework by a Party should not requirements, sustainability requirements, be construed as having successfully engaged approved sectors and activities, and approved in a Cooperative Approach, as more than one standards and methodologies, for purposes “participating Party” is required for a Cooperative of implementing a Cooperative Approach. Approach to exist. A “Cooperative Approach” 4.2 These may be as specific (for example, the is explicitly recognized in the Policy Framework methodology that MO activities must use) or as as “…arrangements outlined in a bilateral broad (for example, methodologies under the agreement as agreed and adopted by [Country X] CDM) as a Party deems fit. As we recognize and another Paris Agreement Party…” 34 the potential multiplicity in requirements, we 3.3 The Policy Framework is therefore merely have not sought to populate these schedules intended to facilitate negotiations and subsequent extensively. These are more appropriately agreement or acceptance of a Cooperative considered by each Party in light of their particular circumstances and climate strategy, with inputs from various technical experts and consultants, alongside the final Article 6.2 Guidance. See definition of “Cooperative Approach” in the Policy Framework. 34 30 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 5.4 The Madrid Text also appears to remove 5. Distinction any distinction between ITMOs that can be generated from sectors and GHGs covered by the host Party’s NDC compared to those between MOs that are not covered (the ‘inside NDC/outside NDC’ distinction). Since, in the Madrid Text, no and ITMOs distinction appears to be drawn based on whether the MO is in a sector or GHG that is within an NDC or not, any MO from all sectors or gases in the host Party have the scope of becoming ITMOs. 5.1 The Madrid Text provides that an ITMO is: Furthermore, the Madrid Text seems to oblige the host Party to make a corresponding adjustment a. from a Cooperative Approach, that “are when the MO from outside its NDC is used as an emission reductions and removals, …. ITMO. This would also be true where such MO, when internationally transferred”; and earmarked as a potential ITMO, was used for “purposes other than achievement of its NDC”.36 b. from a Cooperative Approach, that involves the “international transfer of mitigation 5.5 In order to ensure that the host Party achieves outcomes authorized for use towards an NDC”. its NDC, the country needs to establish its overall climate strategy that defines the role 5.2 Therefore, a distinction is drawn between those of Article 6 in its NDC achievement. Such domestic activities that generate an MO and the a clear strategy would prevent the country additional features needed to allow that MO to from transferring MOs in a manner that qualify as an ITMO. These additional features are: could compromise NDC achievement. a. that the MO has been authorized for use towards an NDC; and b. that there has been a “first transfer ” of that MO internationally. 35 5.3 Absent from these last two features, a unit representing a tCO2e (or in other non-GHG metrics) is an MO and not an ITMO. Except in the context of MOs authorized for other international mitigation purposes: see paragraph 6 below. 35 36 This argument over corresponding adjustment, however, is still under negotiation and requires further consideration from various angles, which is examined in a relevant Approach Paper. ARTICLE 6 APPROACH PAPER 4 31 6.3 On the other hand, under Part IIIB Authorization, 6. Authorization of successful validation 37 of the submitted document that has the minimum information required provides Activity Participants with certainty earlier Activity Participants in the implementation cycle of the MO activity. 6.4 Part III gives a Party better oversight and control over each MO activity and Activity 6.1 We have provided two routes for a Party Participants that can transact in ITMOs. to authorize participation by Activity Unless approved at the outset, no MO activity Participants in transactions in ITMOs: or Activity Participant can purport to deal in ITMOs under a Cooperative Approach. a. Approval of MO activities followed by Authorization for MO (“Part IIIA 6.5 However, a Party would need the necessary Approval and Authorization”); or institutional capacity and ability to properly review and manage eligibility of MO activities. b. One-step approval of MOs up to a specified volume from an identified MO activity (“Part IIIB Approval and Authorization”). These mechanisms differ in respect of approach and timing of approvals. 6.2 The disadvantage of Part IIIA Approval and Authorization is that Activity Participants would lack certainty until much later in the transaction process. For example, there would be uncertainty as to whether the MOs generated from the MO activity would actually be authorized for use as ITMOs. Activity Participants would also need to apply for authorization after each issuance of MOs. 37 Here, the term validation is not confined to its conventional meaning. It refers to checking that the document has the minimum information defined and required by the Party. 32 COUNTRY POLICY FRAMEWORK FOR COOPERATIVE APPROACHES UNDER ARTICLE 6.2 7. Other 8. Registry international infrastructure mitigation 8.1 An important consideration for the Policy purposes Framework is how Parties intend for their respective registries to function under a Cooperative Approach. The registry infrastructure underpins the creation of MOs, creation and 7.1 The Madrid Text, in the context of discussing tracking of ITMOs, and subsequent reporting by ITMOs, describes an ITMO, among other things, a Party under Article 13 of the Paris Agreement. as an MO authorized by a Party “for use for Issues to consider include the interaction between international mitigation purposes other than a national registry and other registries (for achievement of its NDC, or for other purposes, example, the counterparty’s national registry, Art including as determined by the first transferring 6.2 International Registry, etc.), and the design participating Party (hereinafter referred to as of how an ITMO is issued and transferred. other international mitigation purposes)”. 8.2 Parties will need to consolidate elements 7.2 The Madrid Text therefore recognizes of domestic legislation and/or regulation that the host Party to a Cooperative that support the Policy Framework, Approach is able to determine whether including, among other things: the ITMO, when first transferred is: a. legal title and ownership of an MO or an ITMO; a. limited to use towards another Party’s NDC; 38 or b. cross-border transfers of an MO and recognition of such MO as b. may also be used for other an ITMO thereafter 39; and international mitigation purposes. c. oversight and control over its registry.40 7.3 Therefore, the Policy Framework caters for this obligation by declaring the host Party’s position on the use of the ITMOs through the Policy Framework. 38 As authorized by Article 6.3. Alternatively, cross-border issuance of ITMOs, where the MO is created directly in an international registry. 39 40 This does not preclude the Party using third party registries (for example, the Verra registry or Gold Standard registry). ARTICLE 6 APPROACH PAPER 4 33 8.3 In respect of third-party registries (that is, other than a national registry or the Article 6.2 International Registry). Parties should consider 9. Non-GHG any potential issues that may arise, including: a. whether a Party has sufficient control metrics and ownership over the MOs created in the third-party registry; 9.1 The Madrid Text recognizes that ITMOs may b. whether the Party is able to comply with be measured “in other non-greenhouse its corresponding adjustment and other gas (GHG) metrics determined by reporting obligations when using a third- participating Parties that are consistent party registry (due to, for instance, timely with the nationally determined contributions access to relevant information); and (NDCs) of the participating Parties”.42 c. resolution in the event of the third-party 9.2 The Policy Framework similarly accounts for registry becoming insolvent or being dissolved. this possibility,43 and provides for MOs to be “capable in being represented in a form of a 8.4 These risks should accordingly be weighed unit of measure”.44 Parties should note that the against the creation and use of a domestic adoption of non-GHG metrics may necessitate registry for issuance of MOs, and in particular for different infrastructure (for example, registry and the use of such MOs as ITMOs. In the event of transfer) being implemented for each such metric, misappropriation 41 of MOs from the third-party unless a conversion factor has been agreed upon registry, Parties would need to consider whether to convert all units into a single metric unit. they remain bound to make a corresponding adjustment, or whether any remedies are available to discharge them from such obligation. 8.5 A broad diversity of infrastructure is likely to exist, and a Party may adopt a different but similar mechanism under each Cooperative Approach depending on its own infrastructure and the other Party to the Cooperative Approach. Parties should accordingly describe their intended registry structure in Schedule 13. 41 For example, where the third-party registry is acquired by a foreign Party and such Party now controls the registry and MO units. 42 See Part I, paragraph 1(c) of the Madrid Text. 43 See for example section 1.3 of the Policy Framework. 44 See definition of “Mitigation Outcome” in the Policy Framework.