Elements of Non-Market Approaches

Moving outside of the legislative text and associated documents, the negotiation submissions, academic literature and previous experience with climate change policy mechanisms identify several key elements which should be considered in relation to the operation of Article 6.8. In particular, promoting genuine sustainable development and maintaining a high standard of environmental integrity have been repeatedly raised as critical issues.⁴⁰³ Unsurprisingly, the Kyoto Protocol MBMs have received significant criticism in failing to achieve both of these elements, highlighting where the current push for improvement arises from.⁴⁰⁴ With regard to contributing to sustainable development, for example, under the Kyoto Protocol this was left to the host government with little oversight, meaning that host governments were unlikely to protest projects and reject funding based on this point.⁴⁰⁵ Given that Article 6.8 notes both sustainable development and poverty

398 Ibid, p. 1.

399 FCCC/SBSTA/2013/INF.12.

400 Asian Development Bank 2018, Decoding Article 6 of the Paris Agreement, p. 51.

401 Ibid.

402 CMA 2019, p. 2.

403 Nishimura 2018, p. 52.

404 See e.g., Howard 2017, p. 183–184; Schneider and La Hoz Theuer 2018; Schneider 2013; Kollmuss et al.

2015.

405 Schneider 2013, p. 136–137.

eradication, this may require its own objective or international assessment standard to ensure it is incorporated appropriately.⁴⁰⁶

There are a wide range of matters which pertain to environmental integrity which would need to be considered when implementing projects under Article 6.8. For example, a conservative and dynamic baseline calculation, reliable data, and accounting techniques to deal with unknowns.⁴⁰⁷ An accurate and conservative baseline is particularly crucial. In the case of MBMs, it has been discussed that entities may have an incentive to overestimate current GHG emissions and inflate reductions undertaken, in order to generate more transferrable credits.⁴⁰⁸ There is a similar risk relating to NMAs, as baseline would be required to determine the amount of avoided emissions or emissions reductions and consequently, the corresponding amount of funding.⁴⁰⁹ After obtaining appropriately reliable baselines, additionality must be proven. The overall approach to determining environmental integrity under Article 6.8 will depend on how the provision is interpreted, the associated rules and procedures and the nature of projects implemented. For example, in relation to net-avoided emissions mechanisms, additionality may be contingent on whether the project reduced the demand for the emitting substance or whether it resulted in a more or less carbon intensive replacement.⁴¹⁰ Furthermore, if a resource would not have been exploited under a business-as-usual scenario, for instance due to extraction cost, then additionality is not met.⁴¹¹ In addition, Köhler and Michaelowa propose supplementary additionality requirements for net-avoided emissions mechanisms which address matters beyond direct emissions, for example, biodiversity protection and the wellbeing of indigenous communities and other vulnerable groups.⁴¹² This demonstrates how the design of a project can alter its additionality criteria. Other factors such as the level of ambition of a country’s NDC and whether a project can be implemented without international support are also likely to be important factors in determining additionality measures under Article

406 Ibid.

407 Environmental Integrity Group 2013, Framework for various approaches: SBSTA 39, p. 4–5; South Pole 2020, n.p.

408 Driesen 2012, p. 220.

409 Michaelowa and Butzengeiger 2017, p. 5.

410 Köhler and Michaelowa 2014, p. 58.

411 Ibid, p. 62.

412 Ibid, p. 62.

6.8.⁴¹³ Non-market mechanisms aims at producing adaptation outcomes under Article 6.8 will also provide a unique challenge in relation to determining environmental integrity and additionality. Finding answers to all these questions is crucial for the success of Article 6.8 because obtaining funding for NMAs will require that donors perceive that their funding is achieving real, additional climate change results.⁴¹⁴ Environmental integrity cannot, however, be achieved with only accurate baselines and additionality. Other matters such as methodology, monitoring and verification will play key roles to buoy the reliability of projects and the confidence of donors.

3.6.2 Methodology and Monitoring, Review and Verification

Calculating baselines and additionality require a methodology and monitoring, review and verification, all of which can impact environmental integrity. When reviewing the Joint Implementation mechanism in the Kyoto Protocol, for example, Kollmuss et al. state that

“only internationally accepted methodologies should be eligible”.⁴¹⁵ This means that when countries develop their own methodologies,⁴¹⁶ they should be verified and accepted by a centralised entity. The Joint Implementation mechanism also highlights the role of different monitoring, review and verification methods in environmental integrity, as it has two different tracks. A review of the two tracks found that 54% of track 2 projects could be classified as having “high” environmental integrity, compared to only 3% of track 1.⁴¹⁷ One of the major differences is that in track 1, countries establish their own methodologies which are verified by accredited independent entities whereas in track 2, the Joint Implementation Supervisory Committee, a UN entity, conducts the reviews and accreditation.⁴¹⁸ Circumstances which may negatively impact third party verification processes could include a lack of genuine independence, i.e., third party verifiers being paid by project developers, or inadequate information and training for staff.⁴¹⁹ In order to safeguard against these

413 Michaelowa and Butzengeiger 2017, p. 5.

414 Ibid, p. 9-10.

415 Kollmuss et al. 2015, p. 9–10.

416 Country developed methodologies was indicated to be the preferred approach for net-avoided emissions by the República del Ecuador, in its 2011 submission.

417 Kollmuss et al. 2015, p. 8.

418 Ibid, p. 8–9.

419 Schneider 2013, p. 137–138.

concerns, guidelines regarding these mechanisms should address transparency, training, conflicts of interest and accountability.⁴²⁰

Double counting has also been raised as a matter which requires attention during the planning and implementation of any new climate policies.⁴²¹ As noted, with NMAs concerns about double counting in relation to internationally transferred mitigation outcomes does not apply. Nonetheless, accounting rules are required, for example, to ensure that NMA projects are not also able to be counted as projects resulting in transferrable credits. Measures must also be implemented to ensure outcomes from NMA projects are permanent and are not double counted in the future. Permanence has been the subject of previous discussion in the international climate change policy field in relation to net-avoided emissions and REDD+

projects. Similar to additionality and baseline concerns, without certainty that avoided emissions or reduced emissions will be maintained, issues may arise in obtaining funding from donor countries.⁴²² Köhler and Michaelowa provide suggestions on how to ensure permanence is achieved, including through the use of trust fund instalments, economic disincentives and physically altering the natural resources to make them unsuitable for use.⁴²³

3.6.3 Duplication and Coordination

Moving away from environmental integrity, Party submissions raised concerns about NMAs under Article 6.8 duplicating work in the international arena. Accordingly, any planned implementation must address the threat of overlap and avoid inefficiency. During negotiations, Environmental Integrity Group repeatedly referred to this issue and submitted a review of potential NMAs including; progressive phasing out of subsidies for fossil fuels, promoting renewable energies, ecolabels, phasing down of the production and the consumption of hydrofluorocarbons and REDD+ and forest bonds.⁴²⁴ The conclusion of their analysis was that NMAs were already being addressed through various international

420 Schneider 2013, p. 137–140; Kollmuss et al. 2015, p. 10.

421 International Emissions Trading Association and Carbon Pricing Leadership Coalition 2019, p. 2.

422 Köhler and Michaelowa 2014, p. 62–63.

423 Ibid, p. 63. While physical alteration is noted here, there are significant concerns regarding the physical alteration of fuel as an option, which are detailed by Köhler and Michaelowa.

424 Environmental Integrity Group 2013, Non-market-based approaches: SBSTA 39, p. 5–10.

fora and any new mechanisms in the above areas would be a duplication.⁴²⁵ In addition, NMAs are already frequently used on national level, in the form of regulations, standards, information instruments and education.⁴²⁶ On the contrary, however, rather than duplicating, Article 6.8 could play a role in coordinating existing NMAs. Coordination can address issues associated with fragmentation, such as a lack of accountability, monitoring and verification challenges.⁴²⁷ In addition, coordination may encourage more radical measures, because countries working as a coalition will likely have greater protection against any economic loss or leakage.⁴²⁸ A coordination function could enable the sharing of best practices, streamline processes and general experience in this developing field.⁴²⁹ A recent report commissioned by the GCF and the Climate Investment Funds, for example, highlights numerous financial climate change mechanisms and funds in operation and the potential synergies between them.⁴³⁰ As noted previously, the aims of Article 6.8 stretch beyond coordination, to increased ambition and matters such as promoting sustainable development and poverty eradication. Accordingly, coordination should form only part of its overall role.