EM Insights Webinar (Recording): Article 6 of the Paris Agreement and the Voluntary Carbon Markets

The webinar slides and recordings are available in the links below in both English and Spanish.

This virtual Ecosystem Marketplace Insights Briefing will feature speakers from The Nature Conservancy, Gold Standard, the Voluntary Carbon Markets Integrity Initiative (VCMI) to discuss how governments are engaging with carbon markets, in response to increasing interest around both Article 6 and voluntary carbon markets. The webinar will explore the role project developers and host countries can play, as well as identify insights from current pilots and legislation from around the world. Speakers will discuss the key findings and trends from guidance, reports and programmes they have implemented on these topics, followed by a Q&A session with the audience.

Speakers:

• Kelley Hamrick, Senior Policy Advisory, The Nature Conservancy
• Lydia Sheldrake, Director of Policy & Partnerships, VCMI
• Kavya Bajaj, Government Relations Manager, Gold Standard
• Stephen Donofrio, Managing Director, Ecosystem Marketplace (moderator)

Webinar recording (English version):

Webinar recording (Spanish version):

Webinar slides (English version):

The answers to audience questions from the session are provided in the text below:

General

Just wondering, are VCMs a real solution to climate change? looking at how climate change impacts tourism, there’s need for more effective efforts to that than just counting on business consciousness.

Absolutely there needs to be more than just the VCM, which is why approaches like SBTi are critical in ensuring that companies are doing real reductions within their own business. The VCM should only be used to complement real, ambitious and significant internal corporate emissions reductions.

Is there space for simplification of the A6 system? it seems incredibly complex and invites for further caution to trade…

Unfortunately… probably not. Article 6 represents an agreement by all countries in the world; it’s always going to be complex and difficult to interpret, solely from the fact that it stems from a negotiation text first and foremost.

I would be interested to hear from speakers how transparency of financial flows can be ensured in Article 6 + VCM implementation. There is legitimate concern that revenue generated from natural resources that are publicly owned are disappearing into private pockets or misappropriated corruption. Part of the concern is also due to the lack of obligation on part of project developers to conclude benefit sharing agreements.

I agree that we need more transparent financial flows. Additionally, we need better guidance and rulesets around benefits-sharing best practices (which is why we wrote a report about that!). I would also agree that we need to reduce any potential risk of corruption – unfortunately I have tried to conduct some research around corruption but it’s hard to find lessons learned or best practices, because corruption is the opposite of transparent. But agree that we need to figure out ways to minimize this risk.

Considering that countries are going to set the rules, how we Should Manage future volumes, we need to wait till new rules? Or we can set agreements on future volumes. Also if I have vintages 2021 and 2022 should they be considered on this new rules? Or only the vintages from the New rules and so on?

No easy answer here, unfortunately. I think most investors and developers have not decided to wait because there is no clear timeline for when some of these rules will be made. But there remains a risk, so it is up to each organization to figure out how much to wait or try and create contingencies to address these potential risks.

India is developing its own carbon market how it it going to affect the other international carbon market?

If it’s a domestic market, it won’t affect the Article 6. The only thing that might be impacted is overall supply and demand across different markets; at the moment, India is a large supplier for CDM and the VCM markets, but if more companies are purchasing credits domestically, that might mean VCM supply from India decreases. But maybe not – it all depends on a lot of market factors (for example, if the VCM pays more than the domestic Indian market, then maybe Indian project developers will still prefer to sell internationally)

TNC

Where do you expect to see data on trades once these are finally executed?

All Article 6 trades must be reported in the Article 6 database, found here: https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement/cooperative-implementation/centralized-accounting-and-reporting-platform#Submitted-initial-reports-and-updated-initial-reports. At the moment, there is only one submission, but that will change as more countries begin to trade.

Where do Switzerland’s transactions fit in this picture?

Sorry, I’m not sure which slide this comment is referring to. But we do include a summary of Switzerland’s approach to Article 6 on page 31 of this report: https://www.nature.org/content/dam/tnc/nature/en/documents/TNC_To_Trade_or_Not_to_Trade_150523.pdf

How would you distinguish Article 6 vs VCM credits?

Article 6 credits are those approved by governments under Article 6.2 bilateral agreements or by the Article 6.4 Supervisory Body. VCM credits are those approved by VCM standards, like ART, ACR, CAR, Plan Vivo, Verra, Gold Standard, etc. At some point, we may see countries using VCM standards as part of the Article 6.2 trades OR we may see the Article 6.4 Supervisory Body recognize some VCM methodologies as eligible for 6.4. But at the moment, there is not much overlap.

How do you see the role of exchanges like Xpansiv helping/hurting the VCM?

Sorry, I don’t have a lot of views on this – my primary focus right now is on tracking Article 6.

Kelley, in your view who pays for the 20% buffer in the case of Indonesia? If on the VCM buy side, is it conceivable that we may see an adjusted (higher) price floor?

I’m not sure – the Indonesian legislation is only written in Bahasa, and so I was using Google translate when reading it. My impression is that the project developer would submit the credits to the buffer, but I would not be surprised if that then drives up the price of credits that project developers are willing to sell at.

Can you please help to understand, does the additional regulation in Indonesia set a cap on all carbon credits internationally, or only those that will decrease the Indonesian NDC?

All credits being sold from Indonesia will have to contribute to the buffer. Credits from activities covered by the NDC must contribute 10-20% to the buffer; credits from activities outside the NDC must contribute at least 20%.

When we say REDD+ included in Article 6, does it mean VCM or UNFCCC REDD+?

This is a great question, and I was being intentionally vague. I’m not sure, to be honest. In my opinion (and I could be wrong) I think both could be eligible. Article 6.2 is really up to countries to decide: so if a buyer country is okay with purchasing VCM REDD+, then I think that would be eligible. Ditto if a buyer country wanted to purchase UNFCCC REDD+. But this is my personal read on the negotiation text as it is currently written (which is quite open).

What considerations are there for say multinationals in ensuring there is not double counting of voluntary carbon credits?

Due diligence when purchasing a credit. But I think most of the onus will be on the VCM standards to ensure this, not multinationals.

How can project participants get CORSIA authorization for ITMOs issued by Article 6.2 mitigation projects?

Host countries give authorization for ITMOs, either under Article 6.2 or Article 6.4. Under CORSIA, host countries will also need to give authorization to any CORSIA-eligible credits wishing to get a corresponding adjustment (which wasn’t required for the initial phase of CORSIA but is required now, I believe). Project participants will need to contact their host country about authorization and this will change per country (see the case studies on page 25-28 for information on who gives authorization in various countries: https://www.nature.org/content/dam/tnc/nature/en/documents/TNC_To_Trade_or_Not_to_Trade_150523.pdf).

Which mechanism accept Article 6 REDD+ methodologies? GS or VCS or?

At the moment, there are not Article 6 methodologies. Under Article 6.2, seller countries essentially can create their own methodologies or could approve pre-existing methodologies under the UNFCCC or VCM standards. Under Article 6.4, the UN Supervisory Body will determine what methodologies are eligible and right now they haven’t approved any methodologies yet (so it’s too soon to say which, if any, REDD+ methodologies will be approved).

How did you evaluate the aditionality of the measures that coudl goes to A6?

Under Article 6.2 both the seller and buyer countries must conduct their own evaluation; under Article 6.4, the Supervisory Body will determine what tests are needed to prove additionality for all of their approved methodologies.

Can you elaborate a bit more why Indonesia decided to place a freeze on VCM exports?

My understanding (not living in Indonesia) is that the government was concerned about VCM exports limiting their ability to make claims around their NDC achievement. So they placed a freeze on exports while they worked on legislation to finalize the rules around carbon credit sales within and outside of Indonesia.

For countries that have issued “rules, guidance, etc.” what is range of treatment for existing VVM projects already operating in a given country?

o Option 1, Authorization required for VCM credits: Some countries may mandate that all carbon credits exported to international buyers – be it for voluntary or compliance purposes – must have a corresponding adjustment. The Bahamas’ Climate Change and Carbon Market Initiatives Act, 2022 requires this.

o Option 2, Authorization not required for VCM credits: Some countries may not mandate the use of corresponding adjustments for voluntary purposes. Ghana, for example, states that VCM projects do not need a corresponding adjustment but may request one, if the buyer wishes to have a CA.

o Option 3, Authorization not required, depending on the type of claim: Some countries may wish to require authorization for credits used by voluntary buyers for offsetting claims, while credits used towards “mitigation contribution” or “beyond value chain mitigation” (a similar concept defined by SBTi) claims would not require a corresponding adjustment.

o Option 4 – most countries have given any indication about which option they intend to use yet. J

What are the implications for project developers if CAs are to be required for a given country?

This could mean that project developers must get permission from the host country, if a CA is required for their project. Some countries may have easier authorization processes than others, and there could be a risk of corruption (which some project proponents experienced under the Clean Development Mechanism, which also required projects to get host country authorization).

India has announced project types under Article 6. What happens next? What can private sector do to move things forward from here?

Probably wait for more guidance unfortunately. I know India announced the eligible project types, but I’m not sure if the government has announced how they will authorize specific projects yet. Additionally, India will need to wait for the 6.4 Supervisory Body to determine which methodologies are eligible under 6.4. See page 22 for more details about the 6.4 process: https://www.nature.org/content/dam/tnc/nature/en/documents/TNC_To_Trade_or_Not_to_Trade_150523.pdf

Can a project that started before 2021 get correspoding adjustment and become an ITMO for credits issued after 2021?

ITMOs, by definition in the Article 6 text, can only occur after 2021. So credits before 2021 will not be able to become an ITMO. That said, some pre-2021 credits can be used by host countries (but not as ITMOs). CERs from CDM projects registered (not issued) after 2013 can be used for the first NDC compliance without a corresponding adjustment by the host country. However, these transfers will only occur until a date limit, which will be negotiated in the future. It is important to consider that CERs used toward 1st NDC are not considered ITMOs (Article 6.2 units). ITMOs by definition are generated in 2021 or later, whereas eligible CERs are from 2013-2020.

Gold Standard

What is Gold Standard’s view on Mitigation contribution claims , should ITMOs be prefered ? What happens retrospectively if a country does not allow export of carbon credits ?

Mitigation contributions are not necessarily correspondingly adjusted, while ITMOs traded would be. There are different uses for each, and there may be more demand for correspondingly adjusted units. If a country decides not to sell ITMOs it has generated, it may use it for other purposes, with consideration to any bilateral agreement it has entered into and the terms of it. Read more on our take on mitigation contributions here.

How can I know if my country is already a host country?

If it has announced its projects/sectors/activities will be participating in Article 6.

How and when can we access Investment Fund provided by Gold Standard?

Please see the details for the impact fund here.

Just to clarify, according to Gold Standard’s interpretation then any financing of a country’s NDC via the VCM would require authorization under article 6?

If a mitigation outcome generated is used for any purposes under Article 6.2, then it would need to be authorized to do so and become an ITMO. This ITMO can then be used for different purposes, including the VCM. However, this does not mean any financing for NDCs via the VCM require authorization.

What is the current status for GS credits issued from Zimbabwe, and what is the path forward for allowing the trade of Zimbabwe-based credits on the GS registry?

After the new regulations were released by the government on Friday, we are internally consulting on our next steps. The status has not changed since July.

Does GS plan to introduce IFM methodology for AFOLU projects?

Yes, IFM is an eligible category and we welcome submission of new methodologies by developers. There has not been a methodology proposal under consideration yet.

Does Gold Standard issue biodiversity and water credit other than carbon credits?

You can find information on our registries and credits here.

How is the carbon price set in bilateral cooperation projects?

It depends on the bilateral agreement and dictating clauses, if any. However, prices are set depending on the project. The host country decides to authorize the project/activity for the bilateral agreement trade considering all information they have (collected) on the project.

Is the early mover programme available on online to the public?

Yes, please find it here. The Programme was concluded in June 2023, and paves the way to our future work.

Can I assume that there are two types of GS credits; credits with corresponding adjustments and credits without corresponding adjustments? If a developer requests corresponding adjustment, who makes the request to the host country, the GS or the developer?

Yes. The developer makes the request to the host country.

Can you explain a bit more the term Domestic infrastructure?

To participate in Article 6, Governments may choose to develop/have in place their own domestic national infrastructure (e.g. registries), or use external third-party infrastructure, such as from the UNFCCC or standards such as Gold Standard. You can read this more in detail here.

Will the Gold Standard impose more stringent standards for issues such as historical baselines for REDD+ than are required by the UNFCCC rules?

Gold Standard does not issue standards for REDD+, and has not planned to issue such standards.

I think it is important to involve the private sector in the host country. Profit sharing will also be important. Will credits be shared with the host country? If so, does GS have rules in place? Also, what are your thoughts on SOPs?

This really depends on host country regulations, e.g. through share of proceeds of credits for administrative fees or national funds. Through our Registries Terms of Use, we are required to comply with national rules and regulations. Share of proceeds are necessary, but need to strike the right balance to ensure it does not disincentivize market activities.

North America capacity building:

Is there focus on capacity building for carbon markets in North America?

There hasn’t been as much focus on capacity building for Article 6 for Canada or the United States. However, that’s because most capacity building is focused on supplier countries and I haven’t heard Canada or the US mention any interest in selling carbon credits yet.

Article 6.4

When do we expect trades under Article 6.4 to start given how slow the enabling under UN has taken.

For the Article 6.4 mechanism to be up and running, a separate body called the Article 6.4 Supervisory Body needs to develop rules on methodologies, baselines, safeguards, guidance on removals, etc. Even if the Supervisory Body develops such guidance quickly, the countries need to “approve” them at COP28 in 2023, so the best-case scenario is that these trades begin to take place in 2024. Likely, the first methodologies developed will be adaptations from the CDM.

How exactly is Article 6.2 different from 6.4?

Article 6.2 is based on bilateral agreements, which provide countries with more flexibility to design their preferred rules and establish quality controls and safeguards, as long as they comply with the Article 6.2 guidance. Moreover, countries that aim to move quickly may prefer to use Article 6.2, as the Article 6.4 mechanism may take longer to be up and running. Also, Article 6.2 has no mandatory fees, while Article 6.4 has mandatory monetary contributions and automatic cancellations. On the other hand, establishing bilateral agreements under Article 6.2 comes with a transactional and political cost, which requires additional time and capacity compared to a more standardized mechanism. All units generated under Article 6.4 go through a centralized body with pre-approved methodologies, making the process and eligibility of these units more predictable. Lastly, the Article 6.4 framework is an update from the Kyoto Protocol’s CDM, so some countries could use an updated version of already existing infrastructure to engage.

Will there be a global registry for AR6.2 and 6.4?

There will be multiple registries. Article 6.2 will set up an Article 6 database where countries will report their trades. However, countries can use their own registry, another country’s registry or the Article 6.2 international registry (which still needs to be developed), so there will not be a single registry that countries must use. Instead the Article 6 database will provide a yearly snapshot of all trades across all registries (for 6.2). In contrast, Article 6.4 will have a centralized registry. The negotiators are still discussing whether the Article 6.2 database (with reports from the to-be-developed “international registry” or country registries) and the Article 6.4 registry will be able to transfer credits or if you can look at both dataset at the same time (the technical language here is around the “inter-operability” of the registries in the latest negotiation text.) Please read pages 20-22 for more detail here:

VCM guidance

What is the mandate for VCM guidance to set standards for demand-side? Will investor acceptance and uptake be the deciding factor as to whether any guidance sticks.

This is an open question. Standards could start to regulate demand-side activities, but I think most of the supply-side standards (Verra, CAR, ACR, Gold Standard, etc) don’t intend to. Instead I think demand-side standards like the Science-based targets initiative and VCMi are more likelyto provide regulation here. Then, as you mention in the comment, there may investor or buyer norms – these are different than requirements by standards, but are still powerful in shaping the VCM.

Re: Article 6 and Corresponding Adjustments in the VCM. Currently, most governments don’t even have a process in place for authorizations. VCM projects are selling credits and these are being retired by corporates for their ESG commitments (both within the country of the project’s origin and outside of it). Is the country where the projects originate ultimately responsible to account for VCM action that cannot be legitimately claimed in the country’s NDC? Should the default assumption not be that all VCM credits are ‘authorized’ – should the onnus not be on the government to make adjustments?

The default should not be that all credits are authorized. Authorization, by definition, requires a government approval. That said, there is a debate about whether authorization is needed for the VCM; for example, some people and organizations would say that a non-authorized credit is better for the VCM than an authorized one.

Corporates / SBTi / investment / buy side

What can the speakers tell us about the implications for corporate investment in nature-based solutions should the latest versions of the Science Based Target’s Initiative’s Beyond Value Chain Mitigation and Criteria & Recommendations for Near Term Targets be finalized as currently drafted?

I haven’t been following SBTi decisions recently, so I don’t have any comments at this time.

What is the incentive for corporates to invest in carbon offsets if they cannot obtain a corresponding adjustment and claim an offset?

I think there is currently a difference between a corporate claiming an offset and a corporate purchasing an offset with a corresponding adjustment. At the moment, corporates can make offsetting claims without a CA. If standards decide to change the claim and/or require a CA, then I do think more market research is needed to better understand why corporates would want to make a non-offsetting, non-CA claim.

If a company has several investments made to source carbon credits for reaching their Net Zero target (e.g. developed an afforestation project in sub-sahara Africa), and the host country its projects are located in is expanding their NDC to cover the activity of the project, would the company not lose the right to claim Net Zero through these credits?

Not at the moment, because currently VCM standards do not require these credits to have a corresponding adjustment. However, in the future, if a company wishes to buy credits with a CA and the host country is not on target to meet its NDC (or expands its NDC), then the corporate may not have the ability to purchase those credits with that claim. There is a separate interesting discussion here: what if a country agrees to make a CA for those credits, but then changes its mind because it is not on track to meet its NDC? The negotiators are discussing whether or not authorizations for a CA can be revoked or amended; these negotiations are not yet final, but will be important to watch in the future.

How can future-proofed strategies in this case be built that help companies hedge against future price increases and supply shortages under such a risk of force-majoure?

I think the first step is making sure companies realize there will be price increases and likely supple shortages. The VCM at the moment isn’t really working as intended – if the world was truly on the path to 1.5C, all of the cheapest abatement options should already have been done by now. We live in an imperfect world, so we still have a lot of “low hanging fruit” in terms of emissions reductions and removals, which is why companies are able to still buy offsets at <$10/t for the last few years. But that is not where the world is going. Companies should be using things like the social cost of carbon and other metrics to better predict where the market will head over the next decade.

How is Article 6 aligned with programs like the SBTi considering the ‘restrictions’ placed on carbon credit offsetting?

Article 6 is an agreement by all of the world’s countries – SBTi is a non-profit initiative that is trying to provide guidance to companies about what “ambitious” climate targets look like. They don’t overlap at all. The Article 6 negotiators are not looking to align anything with SBTi; if anything, it should and will be the other way around.

 

Authorization

Re. authorized vs. non-authorised transfer under Article 6 – my understanding is that the rules will be finalised at COP28 – is this the case and what will the negotiations cover if so? Will non- authorized transfer to private sector buyers be allowed, and will this lead to double counting?

Most of the rules have already been finalized. Additional rules around reporting and tracking of Article 6 trades still needs to be finalized. These might be finalized at COP28 but will *all* of the Article 6 rules be finalized at COP28? Probably not. Negotiators will always find something new to discuss. J As far as I know, the Article 6 negotiations will only regulate authorized or non-authorized Article 6 credits (ITMOs). They are not going to opine on VCM credits that have authorization for a CA (or not).

I’d like to know more about “No Authorization”.

Article 6 establishes countries’ right to authorize any credits for international trades under Article 6.2 or 6.4, or for “other international mitigation purposes” (OIMP). These other purposes include an umbrella of objectives, including use in the CORSIA, domestic markets, and the VCM. The decision of whether to require authorization, and thus a corresponding adjustment, for these other purposes is left up to individual countries and will likely lead to a variety of approaches dependent on specific country circumstances. Here are how countries are currently considering whether to regulate – or not – the VCM:

o Option 1, Authorization required for VCM credits: Some countries may mandate that all carbon credits exported to international buyers – be it for voluntary or compliance purposes – must have a corresponding adjustment. The Bahamas’ Climate Change and Carbon Market Initiatives Act, 2022 requires this.

o Option 2, Authorization not required for VCM credits: Some countries may not mandate the use of corresponding adjustments for voluntary purposes. Ghana, for example, states that VCM projects do not need a corresponding adjustment but may request one, if the buyer wishes to have a CA.

o Option 3, Authorization not required, depending on the type of claim: Some countries may wish to require authorization for credits used by voluntary buyers for offsetting claims, while credits used towards “mitigation contribution” or “beyond value chain mitigation” (a similar concept defined by SBTi) claims would not require a corresponding adjustment.

Providing authorizations and approvals for correspoding adjustments will require significant institutional/ procedureal and policy investments from host country governments. Some countries are also asking if this will be worth it. Thoughts?

Agreed, this will require a lot of thought. Any country that wishes to participate in Article 6 trading will need to figure this out, otherwise they cannot make an A6 trade. However, countries may wish to wait or see how others’ experiences are first – or countries may not wish to participate in Article 6 at all. These are all options.

Can the panelists give insight into how interested investors/buyers are in ‘mitigation contributions’ instead of an actual emission reduction unit? Is there a risk that by tightening accounting rules, we too tightly restrict credit transfers back to the private sector and kill growth?

I’m not sure. At the moment, I haven’t seen too many investors or buyers mention interest in this claim, but I also have seen many credits marketed with these claims either. I do think that is starting to change – I believe Myclimate and South Pole have both started to provide more restrictions around buyer claims of their credits, so it would be interesting to ask them about their experiences.

EU ETS

Will article 6 mean that some of the VCM projects will become equivalents of compliance credits like EU ETS for example?

No. Think of Article 6 as a new market, not a replacement for the VCM. Some VCM credits are eligible for compliance markets (like the Colombia and South African markets, for example) while others are not (VCM credits are not allowed in the EU ETS). In a similar way, some VCM methodologies may be accepted in Article 6.4 but many might not. These are all separate markets with separate rules.

Would article 6 credits be accepted in EUETS?

That is up to the EU to decide. They may allow all Article 6 credits (from 6.2 and 6.4) or they may reject or limit Article 6 credits. The EU ETS used to allow all types of credits under the UN’s Clean Development Mechanism, for example, but then started to limit credits to specific project types and locations as time went on.

Is it possible to transition credits from the VCM to the compliance market ? For example Voluntary credits from a non EU LDC to the be sold in the EU ETS ? If so, under which standards, and how ?

It could be possible but that is up to each compliance market to decide if and how any transfers can happen. At the moment, the EU ETS does not allow for any transfers from the VCM. Colombia, South Africa, South Korea and and Singapore do allow for some VCM credits into their compliance markets though.

 

Benefit sharing:

Some countries such as Zimbabwe and others are setting costs and benefits-sharing rules for VCM activities in-country without sufficient details on the mechanisms of benefits sharing or how costs will be levvied. This threatens to scare off VCM activities. Do the panelists have experience with such costs and benefits sharing rules and can provide insight on how they see it unfolding, and how investors will react?

This is a huge issue. I think it’s unsurprising more countries are trying to understand this space, but more work could be done to come up with solutions that don’t scare off VCM investment while ensuring more benefits remain on the ground. It’s a priority for TNC to work on but we don’t have any answers yet! If you have thoughts, please reach out to us – we are hoping to conduct some research on this topic in the fall.

NDCs

Re. the case of Ghana and selling ER units for conditional targets, does this mean that Ghana cannot fulfill its NDC, as they will make a corresponding adjustment for tranferred units generated under the conditional sector? Or how will they meet their NDC targets through the VCM?

This is a great question and one without a good answer. Ghana will meet its unconditional NDC target without selling credits. However, if Ghana makes a corresponding adjustments for credits from activities under their “conditional” target, then that might mean they don’t actually meet their conditional target because they are transferring those claims outside of the country. The reason this is so confusing is because “conditional” targets aren’t actually part of the Paris Agreement – countries came up with this idea but its not something ever envisioned by the Paris Agreement. The PA only wants targets (it doesn’t care if they are conditional or unconditional). I would guess Ghana is treated the unconditional target as the actual target, and thus isn’t worried about not meeting its conditional target because they already said that additional mitigation requires additional finance.

In reference to Latin American countries, at this point is it feasible for them to comply with the NDC?

In the current scenario it would be better to attract private investment to guarantee the sustainability of forests or improve production. Each country has made its own unique NDC, so I don’t know how feasible it is for each country in Latin America to meet their NDC. Theoretically, every country should meet their NDC and their NDC announcement usually has a lot of political and scientific considerations behind it – they aren’t made lightly.

What if the credits from a RE Project are not pledged towards the NDC?

You mean, if a VCM project is not part of a country’s NDC (and in this case, is an RE project)? At the moment VCM projects do not need a CA, so nothing would change until/unless VCM standards start to require something different.

How should countries make these decisions, where the NDC does not stipulate conditional/ unconditional targets/ activities?

That’s the big question. They will likely need to consider the risk of selling a credit now if they aren’t sure about meeting their NDC, and they will want to consider whether to restrict sales to specific sectors, prices, etc. There’s no easy answer here.

As regards countries waiting to see whether they are on track with their NDCs (and then deciding to trade), let’s not forget that BTRs, starting from 2024 will mean biennial NDC reporting, so they should know whether they are on track quite soon.

Yes, they should so we might see some more trades under Article 6, especially for those countries with a five-year (2025) target.

Will we see a convergence of voluntary and compliance markets moving forward?

Given that article 6 is likely to increasingly be impacted by Article 6 and NDC’s. I think so, but it likely won’t be a clean overlap. Some compliance markets may allow more overlap than others. It’s going to be a patchwork of various eligible rather than a single blanket approach unfortunately.

To what extent do you think the government’s involvement with VCM is successful currently?

Honestly I think most governments have not paid attention to the VCM until recently. I’m not sure I’ve seen any approaches that are super successful here but we are still in early stages of government involvement with the VCM in most countries.

How would you recomment Countries incorporate Short Lived Climate Pollutants into their Article 6 NDCs?

It depends on the country. A country could try to sell SLCP mitigation under an Article 6.2 trade, if they could find a buyer interested in purchasing it.

Corresponding Adjustment

What is the incentive for countries to require Corresponding Adjustments for both VCM and A6 credits?

I’m not sure yet. Some countries see this as an environmental integrity requirement – they would agreement with the argument that all credits (VCM or A6) need an adjustment. I believe the Bahamas falls under that category. But many countries haven’t taken a position on this yet.

How should voluntary market project developers account for the corresponding adjustments in the future? Enhance buffer account withholdings in the interim? Difficult implications for longer term financial feasibility …. more like guesstimations at this point. How can we overcome these risks and barriers to investment?

I’m not sure, but a few ideas could include better protections for yourselves and communities in any long-term contracts signed with buyers; making sure to engage with the host government whenever possible (though many governments don’t have clear opportunities for engagement here); and yes, maybe consider things like insurance or additional buffers. It’s a real problem and a real risk without great solutions at the moment.

Is a CA a adjustment on the amount of carbon credits that is counted/split towards the host country and buyer country like the Japanese system. or is the adjustment on the host country’s NDC itself?

Theoretically it will be an adjustment towards the NDC (through the biennial transparency reports) but I’m not sure how this will actually look in practice. Since we haven’t seen this actually happen yet, it’s difficult to say exactly how the adjustment will look.

If A6.4 will be replacing CDM, more like compliance market, will there be need for CA?

Yes, a corresponding adjustment is legally required for all Article 6.2 and 6.4 transactions (with some minor exceptions in 6.4 – read more here on page 17: https://www.nature.org/content/dam/tnc/nature/en/documents/TNC_To_Trade_or_Not_to_Trade_150523.pdf)