December 2024 Methodology Updates (1/n)
This article is an automatically translated version of the original Japanese article. Please refer to the Japanese version for the most accurate information.
sustainacraft Inc. newsletter. Methodology Updates is a series covering carbon and biodiversity credit methodologies.
At COP29, which successfully concluded last month, Paris Agreement Article 6 (6.2) and Article 6 (6.4) were major topics, and given their significant impact on businesses, many readers of this newsletter have likely already seen an overview. Please note that **we will hold a seminar in January next year covering the outcomes of COP29**. For more details, please see below.
For an overview of Article 6 (6.2) and Article 6 (6.4), we recommend starting with this document from IGES.
This article will cover two standards related to Article 6 (6.4) – methodologies and criteria for removal/sequestration activities – adopted by the Article 6.4 Supervisory Body Meeting (SBM) in October 2024, just before COP29, and approved at COP29 in November. These are based on the RMP (The rules, modalities and procedures) for Article 6 (6.4) presented at COP26.
- Standard: Application of the requirements of Chapter V.B (Methodologies) for the development and assessment of Article 6.4 mechanism methodologies
- Standard: Requirements for activities involving removals under the Article 6.4 mechanism
*Due to the length of the explanation for the first standard, the explanation for the second standard on removal activities will be delivered separately.
Introduction
The two standards introduced here remain high-level and abstract in their overall writing style, as they describe requirements applicable to various activity types. It is expected that methodologies for specific activities such as REDD+, forest management, afforestation, Regenerative Agriculture, and Biochar will be established in the future, but uncertainty remains regarding how the requirements written here will be expressed.
Overall, the key challenge lies in how to strike a balance within a structure where trade-offs exist between elements: how to **ensure rigor** while maintaining **flexibility to account for the unique circumstances of each host country**, and how to provide a **more simplified approach for Least Developed Countries**.
Article 6 (6.4) aims to develop globally unified rules through multilateral consensus-building over time. This approach has its pros and cons (a notable drawback being the time required to reach agreement). In contrast, the Voluntary Carbon Market's strength lies in its ability to quickly incorporate the latest scientific knowledge without requiring such intergovernmental consensus.
Originally, Voluntary Carbon Credits began by utilizing CDM (Clean Development Mechanism) credit methodologies under the Kyoto Protocol, as seen in afforestation methodologies. Subsequently, leveraging the strengths of the voluntary market, revisions have progressed towards greater stringency, incorporating the latest scientific knowledge and addressing various issues that have arisen in practice.
Now, conversely, Article 6 (6.4) is expected to incorporate developments from the voluntary market. Indeed, following the discussions (public comments and subsequent revisions) throughout the process of developing these standards, it is evident that such a trend has already been occurring.
Furthermore, an analysis of the relationship between Article 6 (6.2) and Article 6 (6.4) is necessary. Article 6 (6.2) is entirely based on bilateral arrangements, and the requirements for methodologies can be considered somewhat flexible. However, if Article 6 (6.4) comes into play in the future, and both are expected to be used for countries' Nationally Determined Contributions (NDCs), a situation could arise where Article 6 (6.2) credits applying significantly different concepts from Article 6 (6.4) requirements might be subject to international criticism.
Finally, most of you reading this are likely considering the impacts on your own companies. For both Article 6 (6.2) and Article 6 (6.4), the biggest question will ultimately be how these credits are treated in national or regional carbon taxes and emission trading schemes (including broader mechanisms like CBAM).
These points will be discussed (including my personal views) at the seminar below, so interested parties are encouraged to attend.
For inquiries, please contact us here.
Seminar Announcement: Latest Trends in International Carbon Credits & Opportunities and Risks ~Reflecting on COP29 & the 2024 Market~
We will hold an in-person seminar early next year as follows:
- Date: Friday, January 17, 2025, 14:00-16:30
- Location: fabbit Marunouchi (short walk from Tokyo Station)
- Details: Please refer here
In this seminar, we will review the 2024 carbon credit market and key discussions at COP29. We will also explain the characteristic risks for each project type and the emerging participation schemes for projects.
Additionally, we will introduce our strengthened team, including Mr. Odawara, who has many years of experience in sustainability implementation, including the use of Carbon Credits, at Mizuho Bank and INPEX, and Mr. Hamaguchi, who has extensive experience in the climate change sector at JICA/World Bank and global consulting firms.
After the seminar, we will host a social gathering for casual networking and exchange of ideas with our team members and attendees, so we encourage you to participate.
* This seminar is an in-person, paid event. Please note that due to limited venue capacity, your participation may not be guaranteed in some cases. On the application form, please describe your track record in Carbon Credits and your company's policy as much as possible.
Depending on seat availability, we are considering offering free participation to research institutions and NGOs. If interested, please apply first.
Standard: Application of the requirements of Chapter V.B (Methodologies) for the development and assessment of Article 6.4 mechanism methodologies
(link)
This document describes requirements for "Principles (Section 4)" and specific items related to "Additionality (Section 5)", "Leakage (Section 6)", and "Non-permanence and Reversal (Section 7)".
Here, we will introduce the level of detail provided, following the flow of the original text as much as possible. Additionally, our company's comments on each item are provided in the block at the beginning. Content outside the block comments closely reflects the Japanese translation of the original text (Please note that this does not necessarily guarantee that the provided translations are correct or commonly used.) The numbers in parentheses for each sentence correspond to the original article numbers. As these numbers sometimes refer to each other, we have included the corresponding numbers for reference. The RMP is a separate document; the original text can be found here.
First, some comments on several topics:
The requirements regarding the Baseline (4.1 Encouraging ambition over time, 4.3 Setting criteria below BAU, 4.6 Setting the baseline, 4.7 Downward adjustment of the baseline, 4.12 Standardized baselines) appear to be relatively clear and stringent. This can be interpreted as a move towards greater stringency to appropriately include emission reduction projects, amidst criticism of such projects in recent years and a shift in demand towards removal projects.
While Emission Reduction and Sequestration are theoretically similar in their impact on climate change, the establishment of counterfactual baselines (which are not actually observable) for emission reduction projects – i.e., what would have happened in the absence of the project – has been the biggest cause of Carbon Credit over-issuance. For related topics, please refer to this article.
Regarding Additionality, the CDM additionality tool has often been subject to criticism. Verra, a Voluntary Carbon Credit standard, also previously used a CDM-based additionality analysis tool, but in September of this year, it announced its own stricter additionality tool and commenced public consultation (please refer to this article).
Moving forward, Article 6 (6.4) methodologies are expected to be established in a way that considers the criticisms and revisions that have occurred in the Voluntary Carbon Market to date. Furthermore, it has been pointed out that many existing CDM credits lack Additionality, and concerns are widely raised about the transfer of such projects to Article 6 (6.4) credits. In fact, recently, CDM renewable energy methodologies were criticized for issues with their additionality tool and were not recognized as Core Carbon Principles (CCP).
<REDD+>
REDD+ was not included in eligible activities for CDM credits. While the term "REDD" does not appear in the criteria issued this time, Section 6, under "Leakage," contains a description that states "for activities falling within the scope of Article 5.2 of the Paris Agreement." Article 5.2 is the article concerning what is commonly known as REDD+, which implies that REDD+ is expected to be included in Article 6 (6.4) credits.
Now, let's introduce the content of each item.
4.1. 野心の促進 / Encouraging ambition over time
SC Comments:
・Examples of "ambitious baselines" could include the method for setting ART-TREES baselines, which is the standard for Jurisdictional REDD+.
・Regarding what constitutes an "ambitious baseline," there are related requirements in "4.6 Setting the baseline" and "4.7 Downward adjustment of the baseline," but flexibility to account for the circumstances of each host country is considered.- (17/18) Ambition of activities must be encouraged by applying increasingly ambitious baselines over time, taking into account the circumstances of the host country.
- (19) The deployment of technologies and measures not widely used or available in a particular location must be encouraged, promoting knowledge transfer, reducing decarbonization costs, and fostering investment in low-carbon solutions.
- (20) Provisions must be included to promote the phased inclusion of more efficient and lower Greenhouse Gas (GHG) emission technologies, replicable and scalable mitigation activities, expanded user bases, broader geographical scope, and the dissemination of low-carbon solutions after initial deployment.
4.2. 現実性・透明性・保守性・信頼性 / Being real, transparent, conservative, credible
SC Comments:
・With this description, it is assumed that most methodologies currently used by Verra and Gold Standard would be acceptable.
・It will be interesting to see what specific requirements "user-friendly" Measurement, Reporting and Verification (MRV) entails (we believe a highly digitized approach would be crucial to ensure transparency, conservativeness, and credibility in a centralized registry).