December 2024 VCM Updates: Section B

This article is an automatically translated version of the original Japanese article. Please refer to the Japanese version for the most accurate information.

This is a newsletter from sustainacraft Inc. This article is Section B (Trends in Major Overseas Regulations) of VCM Updates (Voluntary Carbon Market Updates).

This article covers the following topics:

• Agreements at COP29 and their analysis
• CORSIA Phase 1 eligible Methodologies

COP29, recently held in Baku, Azerbaijan, has concluded. Given the certain progress made concerning Paris Agreement Article 6 and its significant implications for businesses, we believe it is of high interest to our newsletter readers. sustainacraft Inc. will hold a seminar in January next year that will also cover the outcomes of COP29. Please refer to the section below for details.

Introduction

Following the adoption of the Paris Agreement at COP21 in 2015, and despite agreements on Article 6-related guidance and rules at COP26 in 2021 and COP27 in 2022, a final agreement to operationalize the Article 6 mechanism had not yet been reached.

COP29, held in Azerbaijan in November, saw certain advancements for the Carbon Credit market, including agreements concerning Paris Agreement Article 6. For an overview of these agreements, we recommend referring to this document from IGES, among others.

Specifically, detailed rules for cooperative approaches under Article 6.2 were decided, including government authorization by host countries and registry matters. For the Article 6.4 mechanism, two standards (Methodology and criteria for Removal/Sequestration activities) were approved. These standards were explained in detail in our December Methodology Updates (1/n, 2/n), which were recently distributed, so please refer to them.

In this article, after reviewing the highlights of the COP29 agreements, we will focus on discussing what Article 6.2 and Article 6.4 Credits mean for businesses in light of these agreements.

Seminar Announcement: Latest Trends in International Carbon Credits & Opportunities and Risks ~A Review of COP29 & the 2024 Market~

We will be holding an in-person seminar in the New Year, as follows:

• Date & Time: January 17, 2025 (Friday) 14:00-16:30
• Venue: fabbit Marunouchi (short walk from Tokyo Station)
• Details: Please refer to here

This seminar will review the Carbon Credit market in 2024 and the key discussions at COP29. It will also explain the unique risks associated with different types of projects and the emerging participation schemes for such projects.

Furthermore, we will introduce our strengthened team, with the participation of Odawara, who has many years of experience in sustainability implementation, including Carbon Credit utilization, at Mizuho Bank and INPEX, and Hamaguchi, who has extensive experience in the climate change field at JICA/World Bank and global consulting firms.

After the seminar, we will also host a reception where our members and participants can casually network and exchange opinions, so please feel free to join us.

* This seminar is an in-person, paid event. Due to limited venue capacity, please understand that your participation may not be guaranteed. We kindly ask you to include your company's policy and achievements regarding Carbon Credits as much as possible in the application form.

Depending on seat availability, we are also considering free participation for research institutions and NGOs. If interested, please submit your application first.

Agreements at COP29 and their Analysis

«Highlights of COP29 Agreements»

First, we will introduce the highlights of the key agreements regarding Article 6.2 and 6.4.

For Article 6.2, rules regarding the content and changes of government authorization for Internationally Transferred Mitigation Outcomes (ITMOs), as well as matters concerning the registry, were decided. It was specifically defined what government authorization entails (including information such as the date and authority of authorization, quantity of ITMOs, purpose of use for NDCs or other purposes, and the initiation of Corresponding Adjustment (initial transfer)). It was also decided that, in principle, changes to initially transferred ITMOs are not permitted unless stipulated otherwise in advance. This decision, that changes to authorization are generally not permitted even with conditions, is expected to provide a certain level of certainty to ITMOs transactions.

For Article 6.4, the following two standards concerning Article 6.4 (Methodology and criteria for Removal/Sequestration activities) adopted by the Article 6.4 Supervisory Body Meeting (SBM) in October 2024, just before COP29, were approved. These are based on the Article 6.4 RMP (The rules, modalities and procedures) presented at COP26. These were explained in detail in our December Methodology Updates (1/n, 2/n), which were recently distributed.

• 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

«Analysis ~What Article 6.2/6.4 Credits Mean for Businesses~»

From here, we will analyze what Article 6.2 and Article 6.4 Credits mean for businesses, from both the perspective of demand-side countries and supply-side countries.

Demand-side Perspective

On the demand side, it is fundamentally believed that the treatment of these Credits will depend on how they are handled in each country's or regional Carbon Tax or Emissions Trading Scheme.

Here, we will organize the current status of Article 6.2 and Article 6.4 Credits within major Carbon Tax and Emissions Trading Schemes, primarily in developed countries. Please note that these items currently have high uncertainty, and the content is not guaranteed.

First, let's look at the situation in Japan and the issues regarding Article 6.4 Credits.