What is a ‘mitigation outcome’?

The potential for carbon market development was included in the Paris Agreement, as Article 6, at the very last moment of the negotiations in December 2015 and up until that moment the text flipped from being in, to out, to in again. Yet Article 6 is potentially one of the most important aspects of the Paris Agreement in that it is there to catalyze and support cooperative approaches towards meeting the goals of independently established so-called “Nationally Determined Contributions” (NDC). In a recent post I noted the importance of this Article in the years to come as the world looks towards the goal of net-zero emissions, or the ‘balance’ required under Article 4 of the Agreement.

As negotiators have tackled the development of the so-called ‘Paris rule book’ over the past two years, they have had to agree on the meaning of and then implementation strategy for the many short paragraphs of the Agreement. Article 6.2 is no exception. It simply says;

6.2 Parties shall, where engaging on a voluntary basis in cooperative approaches that involve the use of internationally transferred mitigation outcomes [ITMO] towards nationally determined contributions, promote sustainable development and ensure environmental integrity and transparency, including in governance, and shall apply robust accounting to ensure, inter alia, the avoidance of double counting, consistent with guidance adopted by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement.

This paragraph could be interpreted in a variety of ways, but the broad understanding of its meaning and the basis for its implementation has been trade of carbon units across borders. In recent weeks negotiators released draft text covering the options they have been discussing, which runs to 29 pages.

The options that are outlined will need to be pared down at COP24 in Poland to the final text, but one aspect that is currently missing is a clear definition of the term ‘mitigation outcome’. This is important in that it is apparent from the text as it stands that there may be a range of views as to what is a ‘mitigation outcome’.

For example, under the heading “Vintage” there is the proposal that says, “The year in which the mitigation outcome took place”, which implies that a ‘mitigation outcome’ is an event, such as an observable decline in emissions from some activity. Elsewhere, the form of a ‘mitigation outcome’ is referred to as a unit with a unique serial number, but also a net flow between participating Parties or alternatively emission reductions and removals or emissions avoided. In the section on characteristics it is variously defined as real, permanent, additional and verifiable. Later in the text there is reference to “an ITMO that is achieved in its jurisdiction”. Achievement again implies that something has taken place, such as a reduction arising from a specific project.

Interpreting a ‘mitigation outcome’ as an event or a specific measured reduction from a project will likely limit the effectiveness of Article 6.2 and therefore reduce the scope for cooperative approaches. A project/event-based definition of a mitigation outcome will be too narrow to allow for the system benefits that are achieved in a carbon market. Governance arrangements in Article 6.4 should ensure integrity of the project and Article 6.2 should focus on the integrity of the accounting of the units in the system.

One potential use of Article 6.2 is to account for the flow of allowances between the NDCs of two Parties which have in place linked emissions trading systems. An example of this is the linkage between Norway and the EU. Under the linked arrangement, allowances flow back and forth throughout the year as ETS participants trade to achieve compliance. There will be a net country level exchange for the year which can then be used to make the necessary adjustments to the national NDC. But there is no specific project taking place or clearly defined mitigation event, rather the net transfer is simply the result of the linked cap-and-trade systems functioning efficiently and may comprise millions of individually traded emission allowances. But an emission allowance can still be considered a mitigation outcome, in that the ability to sell the allowance stems from the seller not requiring it for compliance, presumably because emissions are lower than initially expected when the allowance was acquired. But even then, the allowance may date from a previous year, having been initially banked by the seller.

This discussion points to the need for a much simpler structure to the Article 6.2 rule book, which includes a broad definition of ‘mitigation outcome’ and excludes several clauses currently proposed by the Parties that narrowly define the accounting around the transfer as if it stemmed from a defined emission reduction project. While the use of 6.2 may, in some instances, relate to units arising from specific projects, in other cases this will not be so.

A definition of ‘mitigation outcome’ included within the rule book could be structured as follows and appear upfront in the current Section III – Definitions.

Mitigation outcome” means units denominated as carbon dioxide that are held within the NDC and represent greenhouse gas emission, reduction or removal activities;

Such a definition, sitting alongside a clear but simple accounting framework that ensures adjustments are made to both the NDC emission accounts, would allow Article 6.2 to be used as a broad base for cooperative approaches.