NEW ZEALAND. Submission to SBSTA on Article 6.4 of the Paris Agreement October 2017

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1 NEW ZEALAND Submission to SBSTA on Article 6.4 of the Paris Agreement October 2017 Context New Zealand welcomes the opportunity to respond to the invitation to Parties to submit their views, inter alia, on the content of the rules, modalities and procedures, including the structure and areas, issues and elements to be addressed, including those raised by parties at SBSTA Article 6 of the Paris Agreement acknowledges Parties ability to cooperate and thereby enhance ambition. New Zealand wishes to emphasise the importance of operationalising this aspect of the Paris Agreement without delay. Without Article 6 cooperation, Parties are unable to surpass the emission reductions available through their domestic policies and actions. Through cooperation we have the opportunity to ramp up climate action by encouraging Parties to share the costs and opportunities for climate action. This is essential if we are to hold the increase in the global average temperature to well below 2 C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 C above pre-industrial levels. 3 Article 6 of the Paris Agreement includes three elements that recognise and provide for voluntary cooperation between Parties to allow for higher ambition: a. a bottom-up world of cooperation in which mitigation outcomes are transferred from one Party to another and used towards the achievement of that other Party s Nationally Determined Contribution (NDC); b. a top-down mechanism established under the guidance and authority of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA) with a supervising body designated by the CMA; c. a framework for non-market approaches to sustainable development, to promote non-market approaches that will assist in implementing NDCs. This submission addresses the second of these three elements. 4 Decision 1/CP.21 requests SBSTA to work on a different task for each of the three elements of Article 6. For the top-down Article 6.4 mechanism (the 6.4 mechanism) the COP: recommended the CMA adopt rules, modalities and procedures; and requested that SBSTA develop and recommend these for consideration and adoption at the CMA s first session. This submission addresses this task.

2 2 5 The informal information notes by the co-facilitators contain their reflections on the discussions on Articles 6.2, 6.4 and 6.8 at SBSTA 46. The lists contained within these notes include many items that are not included in the Paris Agreement because we did not collectively agree at the time of the adoption of the Agreement that these matters should be included. 1 A consequence of their not being included is that there is no request by the COP for work on these matters. Diffusion of our effort beyond the matters specified by the COP in Paris reduces the amount of time we have to spend working on the tasks we are mandated to complete. Therefore, we should focus on elements clearly within the mandate as the basis for our urgent and important work over the coming year. New Zealand s understanding of the 6.4 mechanism 6 The 6.4 mechanism, which is available to all Parties, can play a central role in emissions reduction programmes in countries while supporting sustainable development. The mechanism will enable countries to collaborate, and achieve greater emissions reductions collectively than they each could alone. To capture these potential emission reductions, it is important to operationalise the 6.4 mechanism as soon as possible. 7 In our view, the 6.4 mechanism should be designed to support various scales of emissions reduction activity with environmental integrity. Designing the mechanism to support different scales of activity will create the flexibility necessary to deliver the greatest possible volume of emissions reductions. We should therefore design the mechanism with a view to supporting projects, programmes of activities and sectoral approaches to reducing emissions. 8 We should also design the mechanism to enable countries with limited capacity to establish channels of voluntary cooperation with others, so as to harness the emission reduction potential of collaboration. The 6.4 mechanism should champion transparency - disseminating knowledge about how eligible activities are designed and credited. Its bureaucracy should be standardised and streamlined, to minimise the overhead costs associated with participation. In our view these features will help to open up the possibility of cooperation to a much wider range of countries. New Zealand s understanding of the Article 6.4 work programme 9 In New Zealand s view, SBSTA s current work, developing rules, modalities and procedures for the 6.4 mechanism, has the objective of establishing the broad parameters of the mechanism to the point where the supervisory body can oversee putting it into effect; drawing on the technical expertise of its members with additional guidance from SBSTA and the CMA as and when required. 1 For example the following matters were not agreed in Paris: supplementarity, transitional issues

3 3 10 This way of proceeding has a clear precedent for example, decision 17/CP.7 of the Marrakech Accords simultaneously: recommended Modalities and procedures for a clean development mechanism 2 created the CDM s Executive Board and tasked it to develop rules of procedure to recommend to the COP for adoption; and requested SBSTA to conduct further work on activities that were not at that time covered by the modalities and procedures (e.g. for including afforestation and reforestation project activities). We encourage SBSTA to follow this model for establishing and tasking the Article 6.4 supervisory body. Enabling progress 11 New Zealand recognises a number of key issues identified in the Paris Agreement that underpin the development of agreed rules, modalities and procedures. Arriving at a common understanding on our approach to these issues is necessary to allow agreement on the technical details of SBSTA s work. We propose that SBSTA prioritises reaching consensus on these matters at its next session. We see the key issues as comprising: environmental integrity overall mitigation in global emissions scope of activities share of proceeds supervisory body. Environmental integrity 12 Article 6.1 of the Paris Agreement recognises that Parties that choose to pursue voluntary cooperation must (amongst other things) promote environmental integrity. 13 New Zealand considers that all double-counting is inconsistent with either ensuring or promoting environmental integrity the avoidance of double counting in all forms (including double issuance, double usage, and double claiming) is critical. Furthermore, any double counting of emissions reductions related to the 6.4 mechanism would be inconsistent with its aims of promoting the mitigation of greenhouse gas emissions as expressed in Article 6.4, sub-paragraphs (a) to (d). 14 Any use of emissions reductions from activities in a host Party towards the NDC of another Party constitutes the international transfer of a mitigation outcome: whether the emissions reductions are generated under Article 6.2 or under the 6.4 mechanism. Therefore transfers of emission reductions generated under the mechanism will also be subject to the guidance on accounting for use of markets developed under Article 6.2. To ensure environmental integrity, the rules, modalities and procedures for the 6.4 mechanism must reflect the need for host countries and purchasers of emission reductions generated 2 a draft decision that would be adopted in 2005 as 3/CMP.1;

4 4 under the mechanism to make corresponding accounting adjustments that reflect any such transfers. 15 Decision 1/CP.21 paragraph 37 also specifies a number of additional aspects of environmental integrity that the rules, modalities and procedures for the 6.4 mechanism will need to address: real, measurable, and long-term benefits related to the mitigation of climate change; reductions in emissions that are additional to any that would otherwise occur; and verification and certification of emissions reductions resulting from mitigation activities by designated operational entities. 16 Paragraph 37 1/CP.21 recommends we adopt rules, modalities and procedures for the mechanism on the basis of experience with and lessons learned from existing mechanisms. There is a connection here with ensuring environmental integrity: we need to take on board what will work but avoid carrying across MPGs that are not appropriate to Article 6.4. In New Zealand s view the difference in the operating context between the 6.4 mechanism and Joint Implementation or the Clean Development Mechanism is very significant, in that: under the Paris Agreement all Parties make mitigation contributions; Article 4.3 requires progression and highest possible ambition in all NDCs; and Article 4.4 encourages developing country Parties to move towards economy-wide emissions reduction or limitation targets. 17 In order to ensure environmental integrity, it will be important for Parties to take account of these contextual differences. In particular, long crediting periods or crediting against BAU will be inappropriate given the Paris Agreement s requirements for all Parties to make mitigation contributions and to demonstrate progression, alongside the goal of net zero global emissions in the second half of this century. New Zealand would expect to see this new context reflected in the new mechanism s approach to additionality, baseline setting and crediting length. 18 Lastly, the 6.4 mechanism should not disincentivise progression in the ambition of NDCs nor broadening the scope of NDCs over time. Overall mitigation in global emissions 19 Article 6.4(d) states that the mechanism shall aim to deliver an overall mitigation in global emissions. However, Parties have different understandings of the concept of overall mitigation in global emissions, and consequently how to deliver it. Parties will need to converge on an understanding of the concept, before it can be reflected in rules, modalities and procedures. 20 In the context of the 6.4 mechanism, New Zealand understands the concept to mean the emission reductions achieved by an activity (project, programme of action or sectoral approach) should exceed the emission reductions actually credited to the activity. In our view this can be delivered through the use of conservative baselines, reference levels etc.

5 5 Scope of activities 21 New Zealand considers the 6.4 mechanism should support multiple approaches to reducing emissions. Projects, programmatic activities and sectoral approaches to reducing emissions should all be provided for by the mechanism. To future-proof the mechanism, it should also allow for new activities to be added in the future (subject to Parties agreement). 22 We recognise development of rules, modalities and procedures for different categories of activity is a significant task that may exceed the time available to SBSTA prior to COP24. Staging the development of rules, modalities and procedures may be a solution, to ensure the 6.4 mechanism is operational for at least some types of activity as soon as possible. Rules, modalities and procedures for activity types covered by existing mechanisms may require less up-front effort than for newer types of activities (e.g. sectoral approaches. Therefore SBSTA might prioritise as its first task development of generally applicable rules, modalities and procedures, and those specific to project-based activities. Rules, modalities and procedures specific to other types of activity (e.g. sectoral activities) could be developed subsequently, drawing on the expertise of the supervisory body. 23 While pragmatism may require prioritisation of some activities, New Zealand reiterates that using the Article 6.4 mechanism to catalyse emissions reductions from all types of activities is valuable and urgent. Supervisory body 24 The composition and functions of the supervisory body will need to be decided in 2018, so it can assume its task of overseeing the mechanism s operationalisation. 25 New Zealand considers the composition of this body should be broadly and equitably geographically representative to align with inclusive participation in the mechanism. Participation is open to all Parties, and therefore all Parties should share responsibility for supervision. 26 Two examples of bodies under the Paris Agreement, constituted on the basis of broad and equitable geographic representation, are the Paris Committee on Capacity Building and the Article 15 Committee. These examples are useful modern 3 precedents. 27 New Zealand therefore proposes that membership of the supervisory body is constituted in the same way as these two bodies. The 6.4 mechanism s supervisory body should comprise of two representatives from each UN regional group, 1 representative from Small Island Developing States and 1 representative from Least Developed Countries. Each representative should be selected by the relevant group. 3 Composition of the Paris Committee on Capacity Building was agreed by Parties at COP 21; the Article 15 Committee was agreed at COP 22.

6 6 28 We consider it will be necessary to make general stipulations about the members to serve on the body. In New Zealand s view members should: be technical experts; serve in their personal capacity; have no financial interest in any activities of the 6.4 mechanism; and recuse themselves from any matters in which they have a personal relationship or perceived conflict of interest. 29 New Zealand considers that the supervisory body could be tasked with developing its own rules of procedure. However, because early decisions by the supervisory body may set precedents for the mechanism s operationalisation, the basis for decision-making by the supervisory body should be specified in the rules, modalities and procedures adopted in The supervisory body should take decisions by consensus, with the rules also allowing for decision-making by a supermajority if all efforts to reach consensus fail. 30 The rules, modalities and procedures for the 6.4 Mechanism will need to specify the functions of the supervisory body. The full suite of functions will emerge from the negotiations in due course. New Zealand notes these will include: ensuring the development and maintenance of a publicly available and transparent database of all activities (whether projects, programmes of activities, or sectoral approaches) occurring under the 6.4 mechanism; and ensuring the development and maintenance of a publicly available and transparent register of all emissions reductions credited under the 6.4 mechanism. CDM activities 31 New Zealand does not interpret the Decision 1/CP.21 recommendation to adopt rules, modalities and procedures for the mechanism on the basis of experience with and lessons learned from existing mechanisms as providing for the transition of Kyoto Protocol activities or rules. Had that been Parties intention, the decision would have said so explicitly. However, we understand certainty about ongoing CDM projects is a concern for some Parties. 32 In our view, accepting ongoing CDM activities have any status under the 6.4 mechanism would be contingent on being able to confirm those activities both serve the aims of the 6.4 mechanism and are consistent with environmental integrity as understood in the context of the Paris Agreement (see paras above). This implies a reassessment of CDM activities would be necessary. Next steps 33 We propose that the next SBSTA session be structured around the five areas discussed: environmental integrity; overall mitigation in global emissions; scope of activities; share of proceeds; and the supervisory body. These concepts are significant for operationalisation of the 6.4 mechanism, stem directly from the Paris Agreement itself, and

7 7 are as yet undecided. In our view, reaching outcomes on these concepts will enable meaningfully progress on development of the rules, modalities and procedures for the 6.4 mechanism. 34 Our 2018 deadline is fast approaching, but we tend to spend a great deal of time debating each next step in our work programme. New Zealand recognises the urgent need to make progress and the corresponding need to use all opportunities and avenues available to us to expedite the work and deliver complete rules, modalities, and procedures at COP New Zealand wishes to state again that the experience of non-state actors and observers can contribute greatly to our work and we ask SBSTA to invite them to make that contribution. Structure and content of the rules, modalities and procedures 36 While New Zealand is open to other ideas about the structure of the rules, modalities and procedures for the 6.4 mechanism, we propose headings for their possible content in the Annex to this submission for Parties consideration. Conclusion 36 New Zealand looks forward to discussing these matters at the coming presessional roundtable and SBSTA 47.

8 8 Annex possible structure and elements of the rules, modalities and procedures for the 6.4 mechanism I. Purpose context overarching issues This section should be preambular in nature recalling the Paris Agreement, the purpose of Article 6 as expressed in Article 6.1, the aims of the 6.4 mechanism as expressed in Article 6.4, and pointing to links to the transparency system (Article 13.7(a) and (b)). This section should not introduce new elements. II. Definitions Share of proceeds Overall mitigation in global emissions III. Governance Supervisory body relationship to CMA composition decision-making functions IV. Scope / categories of activity Projects Programmes of activities Sectors ability to add categories of activity in the future V. Operationalising activities Rules, modalities, and procedures for operationalising specific categories of activity could be organised in a number of ways. For example, by function (e.g. monitoring, verification, issuance etc.) or by scope (e.g. a projects section covering all aspects of activity relating to projects). VI. Transparency, accounting and review Links to Articles 4 and 13 (specifically including 4.13 and 13.7) Avoidance of double counting Interaction with Article 6.2 guidance on robust accounting