February 2025 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.
sustainacraft Inc. newsletter. This article is Section B (Trends in Major Overseas Regulations) of VCM Updates (Voluntary Carbon Market Updates).
This article covers the following topics:
- Developments on Paris Agreement Article 6 Post-COP29
- Trends towards SBTi Corporate Net Zero Standard V2
Introduction
- Developments on Paris Agreement Article 6 Post-COP29
As reported in our December 2024 article, there have been developments concerning Paris Agreement Article 6 around COP29. Regarding Article 6.4, the Methodology Standard / Removal Activity Standard has been agreed upon, and Methodologies will be developed going forward.
While there is significant uncertainty regarding the potential supply under the Article 6.4 mechanism at present, some useful information already exists to shed light on this.
In this article, we will introduce two types of information submitted by national governments and Project Developers regarding Article 6.4 Credits:
- Participation Requirements: What activities national governments envision under Article 6.4
- Prior Consideration: The pipeline of Article 6.4 projects submitted by Project Developers to the UNFCCC
Regarding the former, activity content anticipated for Credit Issuance under Article 6.4 has been submitted by 14 countries: Bangladesh, Benin, Bhutan, Chile, Dominican Republic, Ghana, India, Mali, Morocco, Myanmar, Nepal, Sri Lanka, Togo, and Uganda.
As for the latter, **977 projects** have been submitted, and the estimated annual Greenhouse Gas Emission Reductions / Removals from these projects amount to **830 million tCO2e**(*). India accounts for the majority of these. However, various uncertainties exist, such as whether these projects will be eligible activities under the Article 6.4 mechanism to be developed, and even if they are, whether generating Credits under Article 6.4 will be the best scenario given the prescribed Methodologies. In particular, the majority of projects submitted to date are energy-related, such as energy efficiency and renewable energy. It is unlikely that all of these will be eligible activities under Article 6.4 Methodologies, which are expected to have stringent Additionality requirements.
For Japanese companies, the direct relevance of Article 6.4 Credits is not very clear, partly because their use in GX/ETS is not currently permitted. However, they are thought to have a significant impact on the supply potential of Joint Crediting Mechanism (JCM) Credits. This is because, from the perspective of partner governments, it becomes a resource allocation issue of whether to pursue Article 6.4 Credits or JCM, and furthermore, there is a kind of competition between the two schemes for which to use to advance projects.
Furthermore, the eligible activities submitted by national governments for Article 6.4 Credits provide useful input when considering which activities host governments will target for JCM Credits. This is because, from the perspective of Carbon Credit exporting countries, it indicates which activities they intend to utilize for their own Nationally Determined Contributions (NDCs) and which activities they consider for export to other countries.
(*) The scale of 830 million tCO2e is close to Japan's total emissions. On February 18th this year, the Japanese government submitted its 2035 and 2040 NDCs to the UNFCCC, with the following content (Source):
We aim to reduce Greenhouse Gases by 60% (to **570 million t-CO2**) in FY2035 and 73% (to **380 million t-CO2**) in FY2040 compared to FY2013 levels.
Incidentally, the 2030 NDC submitted in 2021 was as follows:
We aim for a 46% reduction (to **760 million t-CO2**) in FY2030 compared to FY2013 levels.
Furthermore, regarding the Emission Reduction potential under the cooperative approaches of Article 6, this research estimates approximately **2.5 billion tCO2/year** from land use alone by 2030, suggesting that the potential for Article 6 Credits is much larger than the current Pipeline.
- SBTi Corporate Net Zero Standard V2 Trends
As the second topic, we will introduce the trends towards SBTi Corporate Net Zero Standard V2. The "Corporate Net Zero Standard," known as **CNZS (Corporate Net-Zero Standard)**, is progressing towards its Version 2 revision. A public comment period of about 60 days is expected to start in March 2025.
What topics are planned for this revision? In addition to **Scope 3 target setting**, which was released as the "Scope 3 Discussion Paper" in July 2024, the introduction of **Interim Removal Targets** for neutralizing Residual Emissions is reportedly being considered. The introduction of these **Interim Removal Targets** has become a hot topic in the industry, and players specializing in Carbon Dioxide Removal (CDR) welcome it.
Previous announcements regarding the Version 2 revision include research findings on Environmental Attribute Certificates (EACs), including Carbon Credits, and the Scope 3 Discussion Paper. A detailed explanation of these topics is provided in this seminar; if interested, please register for the archived broadcast.
This article will introduce the revision content and public comment scope for V2.