Canada s Submission on SBSTA Item 11(a): Article 6, Paragraph 2 October, 2017

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1 Canada s Submission on SBSTA Item 11(a): Article 6, Paragraph 2 October, Canada is pleased to present views on the content of the guidance, including the structure and areas, issues and elements to be addressed under Article 6, paragraph 2 of the Paris Agreement with respect to cooperative approaches that involve the use of internationally transferred mitigation outcomes (ITMOs) towards nationally determined contributions (NDCs). Establishing effective avenues that enable Parties to leverage the great potential that market-based mechanisms represent for achieving the mitigation goals of the Paris Agreement is a unique and important part of implementing the Agreement. 2. Canada does not support the use of, or reference to, the informal information note generated at SBSTA 46, within SBSTA discussions, at COP23, or within any UNFCCC proceedings in the future. Canada affirms that the purpose of negotiations under SBSTA item 11(a) is to reach agreement on further guidance for the implementation of Article 6; it is not to renegotiate specific aspects of the Agreement, as many of the items listed in the informal information note would seek to do. 3. Parties should focus on issues germane to implementing Article 6, paragraph 2, consistent with what was established within the Paris Agreement. Recognizing that issues outside of the scope of SBSTA item 11(a) proceedings may well influence positions and views, Canada sees the items discussed in this submission in detail below as the priority issues and elements to be addressed in implementing the Work Programme regarding cooperative approaches. Governance of Article 6, Paragraph 2: Party-driven 4. The Paris Agreement is a bottom-up global approach to combat climate change. Its approach is to allow for national determination in conjunction with robust transparency. In keeping with this approach and while ensuring that certain requirements are met, Article 6, paragraph 2 is intended to create a flexible, evolving space that encourages the development of new and innovative bottom-up approaches and experimentation with a variety of methods. This includes promoting the participation in market mechanisms by non- Party actors, such as private sector entities and subnational governments, recognizing that the Parties involved in any international transfers are responsible for ensuring the requirements are met in order to include the outcomes in their NDC. 5. For instance, Québec, California and, starting in 2018, Ontario transfer mitigation outcomes under the form of compliance instruments as part of their Western Climate Initiative capand-trade regional program. Other examples of participation by non-party actors would be leveraging private sector investment in innovative mitigation technologies or providing incentives for private sector investment in emission reduction initiatives. 1

2 6. Subnational governments and other non-party actors, including those in the private sector and international organizations, play integral roles in carbon markets, and therefore should be consulted in the discussions. 7. Implementing Article 6, paragraph 2 should proceed in a practicable way that allows Parties to take action as they see fit and without delay. This will help encourage early action, send the right signal to the private sector, and help maintain the momentum generated in Paris. 8. Implementing provisions for accounting, environmental integrity, reporting, and transparency are necessary within Articles 4, 6, and 13 with respect to voluntary cooperative approaches. These provisions should avoid erecting potential barriers to initiatives that would otherwise achieve real outcomes. Canada considers that the Article 6, paragraph 2 guidance relates to robust accounting to ensure, inter alia, the avoidance of double counting, while promoting sustainable development and ensuring environment integrity and transparency. Guidance on Accounting and the Avoidance of Double-Counting 9. Consistent accounting provisions, including for corresponding adjustments, are needed under the Paris Agreement to ensure that Parties use of ITMOs contributes towards achievement of NDCs. Robust and common quantification, verification and reporting methods, and robust and consistent accounting of ITMOs will also help ensure environmental integrity, transparency, tracking, and allow for an accurate assessment and application of ITMOs towards Parties NDCs. 10. In Canada s view, accounting guidance for ITMOs under Article 6, paragraph 2 will be compatible and function in a complementary way to the applicable general accounting rules established under Article 4, in the context of the use of voluntary cooperative approaches that involve the use of ITMOs towards NDCs, as appropriate. The Article 6 accounting guidance would show how to produce, inter alia, figures for the net inflow/outflow of ITMOs transferred/used that would be used in the general accounting framework to track progress and demonstrate achievement of NDCs. These figures would include an account of all ITMOs transferred to and from the Party in applicable years, as well as reference to all ITMOs applied toward the Party s NDC in applicable years. 11. ITMOs would need to be quantified in terms of tonnes of carbon dioxide equivalent (tco 2 e), using common metrics corresponding to national inventories, consistent with the most recent reporting requirements adopted under the UNFCCC. 2

3 Avoiding double counting and corresponding adjustments 12. Canada views double counting as describing any situation where a single greenhouse gas (GHG) mitigation outcome (i.e., emission reduction, removal, or avoidance, as appropriate) is used more than once in accounting towards NDCs or when more than one unit is issued for the same mitigation outcome. 13. General guidance for the avoidance of double counting established under Article 4 will be applicable in the context of the use of voluntary cooperative approaches that involve the use of ITMOs towards NDCs. Further guidance under Article 6, paragraph 2 would address key risks of double-counting that are specific to ITMOs. For instance, in cases where multiple GHG emission reduction activities are aimed at the same emission source, these may increase the risk of double claiming, and thus double counting. 14. The corresponding adjustment should resemble double-entry bookkeeping. When ITMOs are used towards meeting NDCs, Parties should demonstrate through appropriate reporting instruments that both sides of the corresponding adjustment will be included in the accounting for NDCs of all Parties involved. 15. In accounting for the NDCs of Parties with economy-wide GHG targets, the corresponding adjustment should essentially be additions to (for host Party) and subtractions from (for receiving Party) emissions levels in tco 2 e. This could be done on its own line (entitled: net ITMOs transferred ) in the accounting for NDC section of the relevant reporting document. Depending on whether a net-outflow or net-inflow of ITMOs occurs, this figure would then be added to or subtracted from GHG emissions data corresponding to general and landsector inventories, in order to calculate the Party s ITMO-adjusted emissions level for NDC accounting purposes. 16. Canada supports the view that international carbon markets will function progressively better as the estimation methodologies of national emissions inventories improve over time, consistent with IPCC guidelines; as countries reporting capacities improve over time; and as Parties move towards NDCs with economy-wide emissions targets that correspond to their national inventories. However in the meantime, it is important to promote early action and increase ambition. Accordingly, Parties could explore how the accounting guidance related to corresponding adjustments might be designed to enable initiatives in the short term that generate additional emissions reductions while leaving room for continuing improvements in emissions inventories. 17. Parties should leave for future discussion (not immediate priority) consideration of how a corresponding adjustment might be applied in cases where ITMOs are derived from outside the coverage of host Party s NDC, as well as the implications thereof. 3

4 Ensuring Transparency 18. The bottom-up spirit of the Agreement also establishes transparency provisions that are of the utmost importance to the implementation of the Paris Agreement and its operation in support of the goals it espouses. Robust transparency provisions regarding the use of market mechanisms will provide necessary information to assess actions and generate the confidence that any emission reduction used towards achievement of Parties' NDC does not undermine the environmental integrity of what NDCs individually, or in aggregate, are intended to deliver. This requires transparent, understandable and publicly accessible information on the underlying integrity of the mitigation outcomes for transfer as ITMOs, and on the quality of the approaches used to estimate, measure, monitor, and report for these outcomes. Ensuring Environmental Integrity 19. While the Article 6, paragraph 2 guidance relates to accounting, including the avoidance of double counting, Parties remain bound by Article 6 to ensure the environmental integrity of any transfers under the article and the activities that lead to them. Ensuring environmental integrity in the context of market-based approaches means that the generation and use of ITMOs must reduce global emissions. In particular, each tonne of emissions reductions, removals or avoided emissions transferred must have resulted from, or must trigger, a real and lasting reduction, removal, or avoidance of at least one tonne in the transferring country. 20. More specifically, ensuring environmental integrity would: a. Provide confidence in the integrity of ITMOs, (e.g., standards for quantification, measurement, and verification, use of conservative baselines in estimations); b. Require robust tracking, reporting and accounting of ITMOs; and c. Not undermine the integrity of NDC achievement (e.g., achievement of NDCs not jeopardized through overselling emission reductions and removals). Promoting Sustainable Development 21. It is the prerogative of Parties to determine how cooperative approaches promote sustainable development. However, reporting requirements could include, for example, that Parties using ITMOs (net-outflow or net-inflow) provide text describing how the cooperative approach promoted sustainable development. 4

5 Future work on SBSTA Item 11(a) 22. Canada notes the important linkages of Article 6, paragraph 2, with specific provisions of Articles 4 and 13 (notably Article 4, paragraph 13 and decision 1/CP.21, paragraph 31, and Article 13, paragraphs 7(b) and 13, and decision 1/CP.21, paragraph 92). Canada suggests that work under SBSTA item 11(a) be taken into account within work on APA items 3 and 5, and vice versa. Given these important interactions, Canada recommends that the SBSTA and APA Chairs work to coordinate efforts on these areas of overlap, in order to ensure an aligned and coordinated approach while avoiding duplication of efforts. 23. It is desirable for Parties to move past general discussions and statements, and begin drafting guidance on accounting, including the avoidance of double counting, while ensuring environmental integrity and transparency, as well as promote sustainable development. There should be a call for the SBSTA Chair to begin the development of draft text on the guidance called for Article 6, paragraph 2 that can enable its operationalization. 5