Country Perspectives: Opportunities and Challenges for International Voluntary Carbon Markets in the context of the Paris Agreement Partnership for Market Readiness | April 2021 © 2021 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org   This work is a product of the staff of the World Bank with external contributions. The findings, interpreta- tions, and conclusions expressed in this work do not necessarily reflect the views of the World Bank, its Board of Executive Directors, or the governments they represent.   The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Cover design: simpelplus Acknowledgments This report summarizes the findings and insights gained through a series of regional consultation sessions with Partnership for Market Readiness (PMR) country experts, convened and organized by the PMR Secre- tariat from July to September 2020. The summary report "Country Perspectives: Opportunities and Chal- lenges for International Voluntary Carbon Markets in the context of the Paris Agreement" was prepared by Andrew Howard (under an assignment commissioned with International Carbon Reduction and Offset Alliance (ICROA), a program within the International Emissions Trading Association (IETA)) and the guidance and input of Harikumar Gadde, Namrata Rastogi and Marcos Castro of the PMR Secretariat. PMR expresses its gratitude to the several country experts who contributed to their time and expertise for the regional consultations. These include Akibi Tsukui (Japan), Carolina Urmeneta (Chile), El Hadji Mbaye Diagne (Senegal), Felipe DeLeon (Costa Rica), Juan Carlos Arredondo (Mexico), Kentaro Takahashi (Japan), Mandy Rambharos (South Africa), [Muslim Anshari Rahman (Singapore)], Rajani Ranjan Rashmi (India) and Sebastian Carranza (Colombia). In addition, several World Bank colleagues provided substantive feedback and input. These include Matthew David King, Rachel Chi Kiu Mok, Rama Chandra Reddy, Klaus Opperman and Simon Whitehouse. 2 Contents Executive Summary 5 1 Introduction 9 2 Defining voluntary markets 10 3 A changing international context 12 4 Host country perspectives on the role of voluntary markets 14 4.1 Context 14 4.2 Experts’ perspectives on the role of voluntary markets 15 5 Accounting issues 17 5.1 Context 18 5.2 Experts’ perspectives on corresponding adjustments 22 5.3 Experts’ perspectives on finance contribution claims 25 5.4 Experts’ perspectives on managing a transition 25 6 Support and facilitation by host countries 27 6.1 Context 27 6.2 Experts’ perspectives on host country guidance 29 6.3 Experts’ perspectives on approval and authorization processes 30 6.4 Experts’ perspectives on host country oversight 31 7 Conclusions 34 Annex: Questions addressed during consultations 36 References 37 3 List of Figures and Boxes Figure 1 Annual voluntary market issuance and retirement of credits Figure 2 Corresponding adjustments conducted in accounting for Article 6 and NDCs Figure 3 Simplified voluntary market scenarios Box 1 Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) Box 2 Key issues in adopting a transition periods Box 3 Integrated systems for oversight over market-related activities List of Acronyms BTRs biennial transparency reports CDM Clean Development Mechanism CMA Conference of the Parties serving as the meeting of the Parties to the Paris Agreement CORSIA Carbon Offsetting and Reduction Scheme for International Aviation CPLC Carbon Pricing Leadership Coalition CSR corporate social responsibility ESG environmental, social and governance ETS Emissions Trading System ICAO International Civil Aviation Organization ICROA International Carbon Reduction and Offset Alliance IETA International Emissions Trading Association ITMOs internationally transferred mitigation outcomes MRV measurement, reporting and verification MtCO2e million tons of carbon dioxide equivalent NDCs nationally determined contributions PMR Partnership for Market Readiness SBTi Science Based Targets Initiative SINAMECC Sistema Nacional de Métrica de Cambio Climático TSVCM Taskforce on Scaling Voluntary Carbon Markets UNFCCC United Nations Framework Convention on Climate Change VCS Verified Carbon Standard 4 Executive Summary The Paris Agreement, with its universal requirement In particular, the consultations with experts on all countries to submit nationally determined focused on three questions from the perspective contributions (NDCs), marks a significant change for of potential host countries: the framework of international cooperation through carbon markets. With all countries committing ⚫ What role can international voluntary carbon themselves to climate action to reduce emissions markets play in a post-2020 world? and achieve their NDCs, the ability to exert exclusive claims over the emission impact from carbon mar- ⚫ How can voluntary markets operate in the ket investments and count them towards emission context of Article 6 and NDCs under the Paris targets is becoming increasingly complicated. Agreement, in particular in relation to accounting at the national level? This study seeks to understand perspectives of potential host countries on the role international ⚫ How may interested countries support and voluntary carbon markets might play in the context facilitate international voluntary markets? of their NDCs and the Paris Agreement. In doing so, it explores emerging issues and challenges these The study takes voluntary carbon markets to refer to markets may face and clarifies key aspects host carbon market transactions that are undertaken by country governments may need to consider in rela- entities on a voluntary basis and not as a result of any tion to their market participation. policy-related regulatory requirements. Recent years have already seen traditional distinctions between While the role of the private sector, standards voluntary and regulatory markets break down as organizations, project developers and others in vol- standards bodies and the push for environmental untary carbon markets have been explored in rela- and social co-benefits begin to cross the old bound- tive detail in several studies, the specific role and aries. And increasingly, companies are adopting net- perspectives of host countries has been lacking. To zero emission targets, which has been accompanied address this, the study sought the perspectives of by a surge of interest and investment in the voluntary experts engaged in their countries’ consideration of carbon market. Indications are that voluntary action carbon markets from across three regional groups and voluntary demand for credits is on an upward and reflects perspectives and views gathered and trajectory and expected to witness substantial exchanged among them. The intention of this study growth in the coming years. A greater understand- is not to present the perspectives and views of ing of host countries’ roles in international voluntary certain host countries or to make specific recom- carbon markets, aligned with the Paris Agreement, mendations. would help to build on this momentum. 5 What role can international voluntary carbon markets play? Benefits traditionally associated with the volun- Voluntary markets are valued for their continued tary carbon market, such as access to private emphasis on a broad range of sustainable develop- sector finance, sustainable development gains ment benefits, in addition to their drive to reduce and others, remain key reasons for host country emissions or increase removals, in ways that can interest in these markets. Most importantly, vol- reinforce host countries’ own priorities. They can also untary carbon markets could become channels of improve access to considerable volumes of private increasing mitigation ambition that extend beyond sector investment finance, with the value placed on levels planned and regulated by governments. sustainable development in the past often resulting A host country can tap into this and guide that in higher and more stable credit prices than in reg- ambition towards mitigation opportunities it iden- ulatory markets. tifies as high priority for the voluntary market and in need of international funds and support, while Overall, the experts contributing to this study val- at the same time focusing its domestic mitigation ued voluntary carbon markets as an option within effort in areas it considers most suitable for the the range of market opportunities available to them country to undertake on its own. in the future. They also emphasized that the volun- tary markets should engage in a way that maximizes benefits and drives more ambitious levels of climate action in their countries. How can voluntary markets operate in the context of Article 6 and NDC accounting? The international rules being developed for Article What is less clear is whether host countries should 6 focus largely on accounting, and in particular on also make these accounting adjustments when enti- the principle that the emission impacts of mitiga- ties, or individuals, in other countries purchase mit- tion efforts should not be ‘double counted’ towards igation outcomes from activities implemented that more than one emissions target. Allowing tons of are on their territories. While some countries have mitigation outcomes to be double counted can lead sought to have this recognized in the Article 6 rules, to overestimating how much mitigation is actually the interaction between national level NDC account- being achieved and ultimately weakening the level of ing and entity-level accounting for voluntarily set mitigation effort that is being pursued. targets is not well understood. Should it be called double counting if the counting occurs in two sys- Article 6 accounting makes ‘corresponding adjust- tems that are not connected? ments’ in the level of emissions read from national emissions inventories to show the impact of miti- The consultations with experts highlighted that the gation occurring in one country but being counted term is less important than its impact on the goal against the NDC of a second country. The negotia- of mitigating climate change. If two actors consider tion of the rules has already expanded this concept they have both achieved their emission targets, they to include mitigation outcomes that are transferred may slow or stop their mitigation efforts. Any such to airlines covered by the Carbon Offsetting and displacement of mitigation effort would undermine Reduction Scheme for International Aviation (COR- the well-intentioned mitigation already achieved SIA), as it is recognized that such mitigation should and would be detrimental to global efforts to miti- no longer count towards the achievement of the gate climate change. transferring country’s NDC. 6 Whether the actors would in fact change their crediting has an impact on host country emissions behavior, or slow the introduction of new policy ini- and, increasingly, the achievement of NDCs. Differ- tiatives, is not clear and would in practice depend entiation in accounting treatment would be difficult on many different factors. The experts considered to enforce and may open the way to greater risk of that applying accounting adjustments in host coun- inadequate environmental integrity. tries can counter the risk of displacing mitigation effort in their countries and remove any disincen- At the same time, it was recognized that neither tive to rely too heavily on voluntary market activ- countries nor voluntary markets are yet ready to ities of others to achieve their NDCs. This would require accounting adjustments of hosts, which strengthen the integrity of mitigation outcomes may be detrimental to the strong current momen- available through the voluntary market and serve tum of the market. Experts discussed the possi- to protect their market value. bility of a transition period as a means to bridge the time needed for host countries and voluntary Many experts also saw benefit in having a common market entities and services to prepare to work approach to accounting across all carbon markets, with a new transfer model involving corresponding irrespective of whether credits are to supply volun- adjustments. During this transition period, voluntary tary or regulatory compliance markets, or whether market activities and transactions could continue they are generated from emissions covered by without host countries accruing obligations to make unconditional or conditional NDC pledges or are not corresponding adjustments when they submit their covered by NDCs at all. Ultimately, they argued, all NDC accounting under the Paris Agreement. How may interested countries support and facilitate international voluntary carbon markets? Engagement by host countries in the voluntary mar- If host countries are to effectively engage and make ket may strengthen their attractiveness towards corresponding adjustments, they may decide to put in investors and buyers but would need to be under- place systems that provide an overview and oversight taken in an effective and facilitative manner. They of all market activities on their territories. This would can provide guidance to the market that gives clarity need to include information on the crediting activities and certainty while at the same time guiding mar- themselves and the transactions they lead to. ket investment towards national priorities. This can address countries’ priority sectors and activities, Countries can rely to a degree on information from any preferences for independent standards or how the independent standards that register activities mitigation outcomes are to be assessed, as well as and carry out the measurement, reporting and ver- any specific modalities for how mitigation outcomes ification (MRV) of the mitigation results. In time, should be transferred or shared. however, in order to have oversight over all relevant activities, countries may need to see how they can Countries may wish to support this guidance through integrate information from all sources and contexts. processes to approve or register crediting activ- Some countries are already making strong progress ities. If host countries are to make corresponding in this, including by integrating the needs of track- adjustments, they would need processes to provide ing activities and transactions with the recording of authorization in the context of Article 6.3 of the approvals, authorizations, emission inventories, and Paris Agreement that the mitigation outcomes may national reporting under the transparency frame- be used by others towards emission goals. work of the Paris Agreement. 7 Suggestions from country experts Country experts considered that several measures ⚫ Host countries can establish oversight over could support the development of international vol- the mitigation activities taking place within their untary carbon markets through strengthening the jurisdictions, including those supported through environmental integrity of mitigation outcomes and voluntary markets and other means of funding, serving to protect their market value. These markets and can begin by exploring ways to collate could, in the long term, facilitate both the transfer of information from various sources and build claims to mitigation outcomes for use against enti- systems for tracking activities and transactions; ties’ emission targets, backed by the incorporation of transactions into host countries’ accounting for Arti- ⚫ Host countries can collaborate with inde­ pendent cle 6 and NDCs, and through claims to have made a crediting standards to incorporate effective financial contribution to mitigation in a host country. interactions between their processes, particularly in relation to approval of activities and authori- It will be important to manage this changing envi- zation of mitigation outcomes for use towards ronment for international voluntary carbon mar- NDCs, and to ensure effective information flows kets, in particular so as to not risk disrupting the on activities and the robust accounting of miti- considerable surge in demand and investment that gation outcomes; voluntary markets are currently experiencing and to reflect the fundamentally cooperative nature of ⚫ Countries, independent standards and stake- carbon markets. For cooperation to be effective, it holders can develop concepts and arrangements needs to serve and facilitate the needs of all partici- for a possible transition period before a require- pants, including private sector stakeholders engaged ment to apply corresponding adjustments takes in the implementation of voluntary carbon markets. effect. This would need to resolve several issues, in particular the length of the period, whether It appears that several routes forward would be helpful: it should be the same for all countries, where it should be decided, and the appropriate form, ⚫ Potential host countries can identify priority such as a standard, code of practice, national areas for voluntary market investments and be policy or decision under the United Nations aware of how these may align best with their Framework Convention on Climate Change NDCs and broader sustainable development; host (UNFCCC). countries can provide supplemental guidance for crediting activities and ensure that approval and authorization processes are objective, stream- lined and well communicated; 8 1 Introduction The context in which countries engage in carbon reductions pursued and transacted by entities are not markets has changed substantially with the Paris required by any specific domestic regulation, or go Agreement. It brings a universal obligation on all beyond the emission reductions required by regulation. country Parties to declare their plans for climate Nevertheless, voluntary market activities will have an action through nationally determined contributions impact on the same national emissions as compliance (NDCs). In contrast to the Kyoto Protocol, under markets and NDCs and will increasingly interface with which only a limited number of countries adopted host countries’ growing international commitments. such targets, many developed and developing coun- tries have now placed their greenhouse gas emis- So how might potential host countries view the sions under national mitigation targets for the post- recent resurgence in voluntary market interest? Vol- 2020 period. With submissions of updated NDCs untary carbon markets, backed by tangible invest- every five years expected to demonstrate greater ment and knowhow and with transaction volumes ambition in combating climate change, the propor- and values reaching into the hundreds of millions, tion of global emissions covered by evermore strin- have to date been a key vehicle for the private sector gent country targets and regulation is set to expand. to contribute to climate change mitigation. Although voluntary markets have in the past been consider- This new context of the Paris Agreement raises ably smaller than compliance markets, corporates issues for countries that may host mitigation activi- are now increasingly setting themselves ambitious ties with the participation of other countries or enti- net-zero emission commitments that are expected ties. In particular, any sharing of emission reductions to drive reductions in their emissions and seek to in return for such participation potentially com- extend climate action beyond their own activities. petes with the host country by impacting its ability to demonstrate the achievement of its NDC.1 This The Partnership for Market Readiness (PMR) Secre- presents a significant challenge for many countries tariat convened a series of regional expert discus- currently considering how to engage in international sions in the second half of 2020 seeking to better cooperation and the consequent transfers of mitiga- understand perspectives of potential host countries tion outcomes under Article 6 of the Paris Agreement. on the role international voluntary carbon markets might play in the context of their NDCs and the Countries can directly promote international trans- Paris Agreement. This report offers a summary of fers through compliance market policies under which these discussions: it explores emerging issues and entities must manage their emission levels, such as challenges these markets may face and clarifies through emissions trading systems (ETSs) or pro- key aspects host country governments may need to visions that allow emission or carbon tax obliga- consider in relation to their market participation. It tions to be offset by emission reductions achieved in builds upon discussions at the PMR Technical Work- other countries. Entities may also engage in volun- shop in 2018 on options for increased voluntary tary carbon markets at the international level. These action by non-state actors through international lie outside compliance markets in that the emission voluntary carbon markets. 1 ‘Emission reductions’ in this study refer to mitigation generally, including enhanced removals or avoidance. 9 Three questions from the perspective of potential To explore these questions, three regional groups host countries form the core of the assessment:2 were informally assembled with experts who have been engaged in their countries’ consideration of ⚫ What role can international voluntary carbon how carbon market instruments and activities on markets play in a post-2020 world? their territories can contribute to mitigation efforts. The consultations and review by these country ⚫ How can voluntary markets operate in the experts from the Africa, Asia, and Latin America and context of Article 6 and NDCs under the Paris the Caribbean regions took place in their personal Agreement, in particular in relation to accounting capacities and views expressed are not attribut- at the national level? able to their countries or affiliations. Needless to say, there were differences of views among experts ⚫ How may interested countries support and on some issues. This study seeks to identify the facilitate international voluntary markets? overall perspectives and directions taken within the discussions. 2 Defining voluntary markets Voluntary carbon markets refer to carbon market USD 790 million before falling in the following transactions that are undertaken by entities on a vol- years of global recession. Information for 2019 untary basis and not as a result of any policy-related indicates a resurgence in voluntary markets on regulatory requirement. Such voluntary carbon mar- the back of new interest innature-based solutions, kets predate the emergence of compliance carbon with partial information for the year indicating an markets but have subsequently been active alongside annual transaction volume for the year of well these regulatory efforts to pursue climate action. over 100 MtCO2e again. Levels at which voluntary credits have been issued and retired – direct par- Carbon credits issued in voluntary carbon markets allels to supply and demand – have been rising for emission reductions have been transacted to sharply beyond earlier peaks experienced in vol- fulfil a range of voluntary, non-regulatory purposes. untary markets (Figure 1).3 Traditionally these have focused on offsetting carbon footprints of individuals and companies, reducing the The predominate volume on voluntary markets in the emissions impact of specific products or activities, future is expected to be increasingly driven by net with travel being a prominent example, or enabling zero emissions targets being established across cor- corporates to hit emission targets they set them- porate operations. Over 1 000 corporates are work- selves for corporate social responsibility reasons. ing with the Science Based Targets Initiative (SBTi)to adopt net zero goals.4 The SBTi calls for companies Voluntary markets reached a high point in 2008 to reduce emissions from their value chains to a net with an estimated 135 million tons of carbon dioxide zero level, defined as a level consistent with a 1.5 °C equivalent (MtCO2e) being traded at a market value of pathway, and allows the purchase of offsets as 2 The full set of questions addressed during consultations is contained in the annex. 3 All data drawn from Forest Trends’ Ecosystem Marketplace (2020). 4 https://sciencebasedtargets.org/companies-taking-action/ 10 part of the transition to that level and to neutral- deepens the mitigation beyond the level of an enti- ize residual emissions as part of maintaining that ty’s compliance obligation set under, for example, an level of emissions thereafter (i.e., emissions that ETS or a carbon tax. cannot be reduced any further).5 While it is diffi- cult to predict volumes, such initiatives signal that This distinction of voluntary action from that driven voluntary market transactions are likely to continue by compliance obligations is important. Entities, tak- growing. This view is also held by the Taskforce ing account of their policy obligations in the jurisdic- on Scaling Voluntary Carbon Markets (TSVCM).6 tions under which they operate, can publicize how far they voluntarily exceed the climate action they These transactions are expected to be voluntary in are legally obliged to perform. Conversely, reducing nature in the sense that they fall outside the scope emissions to compliance levels indicates the impact of regulatory emissions obligations set at national of policy instruments that governments implement or subnational level. It may be that no compliance and that they can unquestioningly count towards obligations are in place or that the voluntary action their NDC achievement. Figure 1 Annual voluntary market issuance and retirement of credits 150 142.0 135 120 Volume (MtCO2e) 105 90 75.7 75 69.8 62.7 60 52.6 48.6 46.9 44.6 45 41.4 36.8 42.7 40.0 39.5 35.6 32.8 33.4 30 26.7 30.5 19.7 15 3.7 7.6 12.8 5.9 0.3 1.1 0 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Issuances Retirements Source: Forest Trends’ Ecosystem Marketplace (2020) 5 Science-Based Targets Initiative (2020). 6 TSVCM (2021). 11 Finally, it is worth stressing that it is the ‘use’ of standards now often considered to provide the same carbon credits that may be referred to as ‘volun- or greater quality assurance than some compliance tary’. There is nothing inherently ‘voluntary’ about counterparts, and with the credits they generate the credits themselves or the standards under now also being accepted for use in regulated carbon which monitoring, reporting and verification (MRV) markets. This is already the case with carbon taxes occurs. Standards initiated by non-governmental in Colombia, Mexico and South Africa. Similarly, organizations (NGOs) such as the Gold Standard, credits may be generated under a government-reg- Verified Carbon Standard (VCS) and Plan Vivo were ulated standard in the context of Article 6.2 or the once associated exclusively with voluntary markets Article 6.4 crediting mechanism and still be used for but this is steadily breaking down, with independent voluntary purposes. 3 A changing international context Prior to the Paris Agreement, the international cli- that these credits may be retired only once. With- mate regime was defined by the Kyoto Protocol, out host country targets under the UNFCCC regime, under which only developed country Parties (Annex there was no national-level accounting and no need I Parties) had emission targets while developing to question whether the emission reduction would country Parties (non-Annex I Parties) did not. Cred- remain counted in the host country for purposes of iting activities in developing countries under the UNFCCC reporting by the host country. Clean Development Mechanism (CDM) gave rise to carbon credits that could be transferred to devel- However, the country context of carbon markets has oped countries for use against their Kyoto targets now changed considerably under the Paris Agree- without any risk that the emission reductions might ment. In accordance with Article 4, all country Parties be double counted towards emission targets in both – both developed and developing – now have a uni- the host and acquiring countries. versal obligation to submit emission reduction goals or actions via their NDCs. Developed countries are to To support voluntary action by the private sector submit economy-wide absolute emission reduction and to ensure the integrity of emission reductions, targets while developing countries are encouraged voluntary markets also instituted robust account- to move towards economy-wide targets over time if ing measures. For emission reductions in coun- these are not yet in place. All countries are to submit tries without Kyoto targets, registries introduced new or updated NDCs every five years, each time rep- by independent standards focus on ensuring emis- resenting a progression beyond its earlier NDC and sion reductions are only issued once as credits and reflecting the highest possible ambition.7 7 Least developed countries and small island developing States may instead communicate strategies, plans and actions for low greenhouse gas emissions development reflecting their special circumstances. 12 The presence and increasing scope of emission tar- this be considered double counting? If yes, should gets in host countries increase the risk that carbon host countries apply corresponding adjustments? markets will count emission reductions towards If not, are there adverse impacts on mitigation and more than one target. By default, lower emissions incentives to expand NDCs over time? These criti- recorded in host country emission inventories will cal issues were discussed at length by experts, as help them achieve their NDCs. The accounting provi- reflected in Section 5. sions for Article 6 are to address this at the national level by requiring double-entry bookkeeping among A number of initiatives are now underway to explore all countries – mitigation outcomes sent to another and promote options for how voluntary markets country to lower the emissions counted against its may progress going forward. These are typically NDC must be added back to emissions in the origi- launched by civil society but often with the sup- nating country. In the accounting for Article 6, this port and participation of governments. SBTi con- double-entry bookkeeping is referred to as ‘corre- centrates on target setting among companies and sponding adjustments’.8 also has a focus on considering the role of offset- ting.9 The Gold Standard Foundation has convened The prospect that this accounting means host a working group that envisions how voluntary car- countries will not benefit from emission reductions bon markets could operate post-2020.10 The Envi- occurring on their own territories results in many ronmental Defense Fund, on behalf of the High Tide being cautious about what is transferred. Host Foundation, has convened an initiative on voluntary countries also need to implement climate action carbon markets and their alignment with the Paris and demonstrate mitigation results. They will most Agreement. The TSVCM, initiated by Mark Carney likely wish to ensure that any transfers result from (United Nations Special Envoy for Climate Action), mitigation efforts that are truly additional to the recently released its final report and recommenda- effort they committed themselves to in their NDCs tions for scaling voluntary markets to help meet the and are therefore not attributable to their own poli- goals of the Paris Agreement.11 The Carbon Pricing cies and measures. If this can be assured, transfers Leadership Coalition (CPLC) has established a Task may still be beneficial for host countries. Force on Net Zero Goals and Carbon Pricing, which aims to explore the nexus between net-zero com- These developments in the Paris Agreement and its mitments and strategies of national governments Article 6 open numerous questions. Emission reduc- and those of other actors, in particular, the private tions achieved through international voluntary car- sector, and examine the role and contribution of bon markets are used at the entity level – primarily carbon markets in this regard.12 The Gold Standard private sector buyers – and not for the NDC pur- Foundation has also recently convened a partner- poses of the countries in which they are based. If ship with the support of the German Ministry for activities lower emissions and help a host country the Environment to develop a framework to tran- achieve its NDC while also generating credits that sition voluntary markets to rules under the Paris are counted towards an entity-level target, should Agreement.13 8  The international rules for Article 6, including for how corresponding adjustments are to be implemented, have not yet been agreed and are to be adopted at the next Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA) in November 2021. For the latest draft of the rules concerning accounting under Article 6, see: https://unfccc.int/sites/default/files/resource/DT.CMA2_.i11a.v3_0.pdf. 9 https://sciencebasedtargets.org 10 https://www.goldstandard.org/our-work/innovations-consultations/envisioning-voluntary-carbon-market-post-2020 11 TSVCM (2021). See also https://www.iif.com/tsvcm 12 https://www.carbonpricingleadership.org/task-force-on-net-zero-goals-and-carbon-pricing 13 https://www.goldstandard.org/blog-item/press-release-german-ministry-environment-supports-gold-standard-frame-transition 13 4 Host country perspectives on the role of voluntary markets To date, voluntary markets have sought out and regulation of entities’ emission abatement and that pursued mitigation opportunities relatively inde- credits have not been transferred between any pendently, with few governments setting condi- national accounts. tions or promoting their countries as destinations for voluntary market activities. There have generally With this in mind, the study explored how host coun- been no requirements to seek country approvals, as tries may view international voluntary markets and was done with projects under the CDM, or report on what benefits they may offer within the new context their progress. This is perhaps not surprising, given set by the Paris Agreement and operating alongside that voluntary markets have operated beyond the compliance markets. 4.1 Context Many countries have distinguished unconditional and to other countries. This would include compliance conditional components of their NDCs, although the markets, where the demand for credits is driven by Paris Agreement itself makes no reference to such a compliance obligations in other countries, such as separation of targets. Pledges of unconditional tar- under an ETS or carbon tax, and the acquisition of gets and actions are made on the basis that they mitigation outcomes in those countries would be will be undertaken with domestic resources. Cred- used there towards their NDCs. It is worth noting iting activities that address emissions covered by that the rulebook for the Paris Agreement does not unconditional pledges may therefore have difficulty address what is specifically required to demonstrate in demonstrating they are additional, unless they achievement of a conditional pledge and it is not can show that the activities or level of reductions go clear that host countries need to maintain a claim to beyond what was committed unconditionally. Such these emission reductions in order to demonstrate crediting activities can therefore still go ahead but achievement of their NDCs. generally will need to either supplement other mit- igation effort that already achieves the host coun- Lastly, for host countries that do not have econ- try’s unconditional NDC pledge or can generate suf- omy-wide NDCs, some emissions in host countries ficient credits to satisfy both the host country’s will fall outside the scope of NDCs. Crediting activ- unconditional NDC needs and the crediting needs of ities relating to such emissions leverage mitigation participating countries. that is beyond NDC levels. As they would not impact the achievement of host countries’ NDCs, there is In contrast, pledges of targets and actions made no risk that double counting could occur between a on a conditional basis make clear from the out- host country’s NDC and the NDC of another country. set that international support is needed. The term ‘conditional’ is not defined in the Paris Agreement In practice, it can be difficult to assess whether and countries would be able to determine for them- crediting activities are inside or outside the scope of selves what sources of international support may NDCs. This can be because NDCs may include activ- facilitate these pledges. Where countries choose to ities rather than sectors or because activities may accept support through Article 6 for reducing emis- impact emissions in multiple sectors. It is also not sions that are covered by conditional NDCs, they always clear what degree of emission reductions are would be required to make corresponding adjust- considered a part of the NDC and what is beyond the ments for mitigation outcomes that are transferred NDC. A simplified approach may be that only sectors 14 with no activities mentioned in the NDC should be The question therefore arises as to whether cred- considered to be outside the NDC. iting activities under voluntary markets should also require host countries to make correspond- However, as there is concern that benefiting from ing adjustments. If this is not the case, this may be market activities outside of the scope of NDCs may seen as an advantage for host countries that choose isincentivize countries from expanding the scope of to limit the use of compliance markets or to adopt their NDCs in the future, it has been proposed in NDC pledges that are less ambitious. This issue is the negotiation of the Article 6 rules that mitiga- discussed in Section 5. What is interesting however, tion outside of the scope of NDCs should be subject putting aside the issue of corresponding adjust- to the same accounting rules as for unconditional ments for a moment, is whether there are inher- and conditional pledges. This may in fact incentivize ent advantages or disadvantages in host countries emissions being brought within the scope of condi- attracting investment via voluntary markets rather tional NDC pledges. than compliance markets or climate finance. 4.2 Experts’ perspectives on the role of voluntary markets To probe deeper into this issue, experts discussed Experts generally viewed voluntary markets posi- questions concerning the role that international vol- tively and supported that countries should consider untary carbon markets can play in the post-2020 how activities under international voluntary carbon context and, in particular, how they might relate markets may play a role in promoting mitigation. This to countries’ climate action under NDCs and what would need to be done without jeopardizing host advantages voluntary markets may hold for host countries’ abilities to meet their NDCs and without countries beyond what might be expected from adding undue implementation complexities or strain compliance markets. on domestic capacity. There are several areas in which investment from voluntary markets may offer The country experts were generally of the view stronger benefits than investment from compli- that host countries need to treat carbon markets ance markets, although how well these benefits are as a whole rather than tailoring treatment to spe- realized in practice may depend on the nature and cific types of markets, the different sources of effectiveness of guidance and oversight provided by demand, or how the emissions addressed by mar- host countries. ket activities fit in relation to host countries’ NDCs. This is a marked change from the way markets First, providing they are established well, volun- were seen prior to the Paris Agreement and the tary markets are able to increase mitigation ambi- advent of NDCs. Experts identified a need to pur- tion beyond regulated or planned levels by identi- sue a long-term development of carbon markets fying and supporting mitigation opportunities that and to consider how countries may continue to are additional and demonstrate full environmental use these markets over time. While there may be integrity. The voluntary market represents demand shorter-term concerns, such as the time required for carbon credits that exceeds any emission-re- to build adequate capacity or the strong desire to ducing regulation that buyer entities are subject to not hinder the growing demand on voluntary mar- in their home countries. Such regulations, through kets, they considered that countries need to take for example ETS or carbon tax obligations, establish a long-term view and build carbon markets in a a base level of international credit demand that is manner that will facilitate support for mitigation associated with the NDCs of buyer entities’ home action that enjoys full confidence of environmen- countries. Voluntary demand adds to these expecta- tal integrity. tions of compliance demand and increases the over- all market demand felt by host countries. 15 On the side of host countries, strong environ- as ‘co-benefits’ of activities in addition to the carbon mental integrity should channel this increase in benefits of reduced emissions, in some cases they credit demand into additional activities that would may form the centerpiece of the activity. Sustainable not otherwise have been implemented. Experts development benefits may be features of how the expressed the view that voluntary market demand crediting activities are set up, what stakeholders are can be considered an opportunity and activities involved, and what benefits are subject to MRV. should be guided to areas the host country is not itself addressing through climate action and that In contrast, compliance market demand has in the promote host country priorities for sectors, activ- past tended to prioritize the volume and price of ities, technologies, location or abatement costs. It credits. This can be expected to persist as a general was also noted that voluntary market incentives trend, though may blur over time as buyers link CSR have been relied upon as an alternative to policies and reputational priorities to their compliance mar- that would have required more intervention and ket purchases. Host countries may also increasingly regulation from governments.14 set sustainable development requirements as pre- requisites for activity approval. Country experts con- It would however be important that this additional sidered it would be beneficial if there was more align- mitigation in host countries through international ment across voluntary and compliance markets with voluntary markets does not displace mitigation regard to sustainable development requirements. activities that were considered necessary to imple- ment host countries’ NDCs or other policies and Third, a distinguishing feature of voluntary demand plans. If such displacement were to occur, it would would be improved access to private sector finance. undermine the value and the results of the voluntary Effectively addressing climate change requires market activity. access to the considerable volumes of investment available to the private sector and greater flows of The increase in mitigation ambition may therefore this climate finance towards countries needing sup- be seen on different levels. It raises ambition among port for ambitious climate action. Voluntary mar- corporates and other entities to invest in mitiga- kets can unlock private sector investment beyond tion beyond their own regulatory obligations. It was amounts provided through compliance markets. The noted as well that the increased credit demand from emphasis placed on sustainable development ben- some corporates, such as those with net zero tar- efits in voluntary markets has resulted in them typ- gets through the SBTi, comes in addition to pursuing ically experiencing a greater willingness to pay than internal emission reductions that are also beyond their carbon-only counterparts through higher and regulatory obligations. This also represents a rise in more stable credit prices. mitigation ambition in the host country, as long as the extra mitigation effort flowing into the country An issue stressed by experts was that investment do not displace other mitigation effort. At a global and finance through both voluntary and compliance level as well, voluntary markets supplement the markets is an opportunity that host countries are mitigation effort set through NDCs. able to guide towards areas of greater value for the country and that align with their own mitigation Second, voluntary markets tend to emphasize a planning. Experts were generally of the view that broad range of sustainable development benefits, governments would wish in the future to be open given its link to corporate social responsibility (CSR) to the range of market opportunities and engage in and reputational priorities. This can support host such markets to maximize benefits and drive more countries’ own priorities. Though often referred to ambitious climate action at the domestic level. 14 The specific example raised was the effectiveness of crediting provided for under Colombia’s carbon tax in addressing deforestation. 16 Many country experts were of an overall view that consideration that all carbon market activities in a it is not helpful for countries to adopt different country impact on its national emissions and that regulatory or accounting approaches across differ- any differences in treatment would open the door to ent carbon markets, for example on the basis of complexities that will at some point lead to incon- whether emissions are covered by unconditional or sistent incentives or a lack of environmental integ- conditional NDCs or are not covered at all, or on the rity. Related to this was also the view that it is in basis of whether the demand for the mitigation out- fact often challenging to distinguish what emission comes is driven by compliance or voluntary moti- reductions should be considered inside or outside vations. This overall view was based primarily on a the scope of NDCs. 5 Accounting issues The universal nature of NDCs under the Paris Agree- the mitigation results towards its NDC but, when it ment now defines the overall context of mitiga- comes to claims by entities in voluntary markets, tion ambition and also the accountability of coun- it is not clear how these claims interact with host tries for their contributions to it. Future NDC cycles country obligations and requirements. The way in are expected to broaden countries’ contributions which voluntary markets need to interact with the as well as deepen them. The study explored with accounting for NDCs needs therefore to be resolved experts whether double counting – a situation in one way or another. which the emission impact of a mitigation effort is counted towards more than one emissions target – Countries have not yet adopted the international is an issue in the context of voluntary markets and rules for Article 6 and their negotiation continues what should be the relationship between accounting under the UNFCCC. The considerable technical work at the national and entity levels.15 undertaken to develop the accounting rules for Arti- cle 6 and NDCs means however that what is needed The most fundamental issue concerning host coun- at a technical level to give assurance of environ- try perspectives in relation to voluntary markets is mental integrity and avoid double counting between whether there should be an expectation or require- countries is now well understood. What is less clear ment on these countries to make corresponding is whether and how voluntary, entity-level trans- adjustments for mitigation outcomes generated on actions that are not motivated by compliance with their territories and transferred abroad. This would government policy should be integrated in country- be required if the receiving entity’s country counts level Article 6 accounting. ‘Double counting’ can take different forms. ‘Double issuance’ refers to the same mitigation outcome being issued as a credit more than once and can be addressed 15  through robust issuance processes. ‘Double use’ refers to the same credit or allowance being counted more than once towards an emissions target and can be addressed through robust transaction tracking. ‘Double claiming’ is the most relevant in terms of accounting for Article 6 and NDCs and refers to the same mitigation outcome being claimed towards more than one emission target, once as a credit for the buyer or once as lower emissions recorded in a country’s emission inventory. 17 5.1 Context Accounting in the context of an emission target from it. The accounting for Article 6 makes ‘cor- refers to the tracking of progress toward reaching responding adjustments’ in the level of emissions it. The accounting for the Paris Agreement therefore taken from the inventory to show the impact of mit- deals with how countries are to demonstrate they igation occurring in one country but being counted have achieved the mitigation targets or actions set against the NDC of a second country. While the out in their NDCs, including by taking into account data on information is supplied by inventories, the the impact of internationally transferred mitigation accounting and its corresponding adjustments are outcomes (ITMOs) under Article 6 that are used to be applied separately and reported in countries’ towards achieving NDC targets and for other uses. biennial transparency reports (BTRs). Targets for reductions in greenhouse gases are An acquiring country will wish to make a subtrac- achieved when emissions for the relevant sector or tion from the level of its accounted emissions for activity, as recorded in the country’s national emis- the mitigation outcomes it acquires, thus helping it sions inventory, are reduced to the target emission achieve its NDC emissions target (see Figure 2). This level either set out directly in the NDC or derived makes the accounted emissions less than inventory Figure 2 Corresponding adjustments conducted in accounting for Article 6 and NDCs ITMOs NDC Inventory level emissions Accounted emissions NDC level Accounted emissions Inventory emissions Accounting must also Accounting shows show the transferring the acquiring country´s country´s emissions level emissions level adjusted upwards, otherwise adjusted downward, countries would be double helping to meet its NDC counting the mitigation Acquiring Transferring country country 18 emissions. To balance this, the seller country must ing. The voluntary market purchase therefore has no make an addition in its NDC accounting by adjusting impact on the NDC achievement of the country in its level of emissions upwards. This ensures there is which the buyer entity is based. no double counting between countries by reflecting that the reductions are used by the acquiring coun- In the first scenario, the carbon credits are drawn try to achieve its NDC and are no longer used for this from a project inside the scope of country B’s NDC. purpose by the seller country. The 20 tCO2e is reduced from the country’s emis- sion inventory and that portion of its emissions The negotiation of the Article 6 accounting rules has that are relevant to the achievement of its NDC. broadened the concept of ITMOs beyond those used This host country therefore receives a ‘windfall’ towards the achievement of NDCs. Specifically, they benefit of 20 tCO2e with respect to its NDC posi- include mitigation outcomes used for mitigation tion. In the second scenario, the carbon credits are purposes under other international agreements such drawn from country C, where the project originat- under the Carbon Offsetting and Reduction Scheme ing the emission reductions falls outside of the for International Aviation (CORSIA), as described in country’s NDC scope; while the project impacts Box 1, and ‘for other purposes’, which could poten- the national emission inventory by 20 tCO2e, the tially include mitigation outcomes used in volun- emissions are not part of the NDC calculation and tary markets.16 In these cases, there is no acquir- the reductions do not impact the country’s ability ing country that would count the ITMOs towards an to achieve its NDC. NDC but the fact that the mitigation outcomes are no longer usable towards the transferring country’s These scenarios offer a simplified view of who ben- NDC would be included. efits for accounting purposes from the offsetting activity. Where the project falls inside the scope of The sectors in which the emission reductions are the host country’s NDC, both the buyer entity and made can result in different impacts on countries’ the host country benefit to the level of 20  tCO2e NDC accounting. Figure 3 sets out two simplified each and count these against their emission targets. voluntary market scenarios in which a buyer entity in country A has already reduced its internal emis- Lastly, it is important to note that corresponding sions from 80  tCO2e to 40 tCO2e and now wishes to adjustments are likely to be based on total annual offset a further 20 tCO2e through credits from proj- volumes of relevant transactions for a country rather ects abroad. This would allow it to claim – within its than for each individual market transaction. The own accounting – to have reduced emissions by a question of applying adjustments to voluntary mar- total of 60 tCO2e. However, only the initial 40 tCO2e ket transactions is therefore not an issue of individ- reduction in internal emissions is picked up in coun- ual activity participants securing adjustments, but try A’s emission inventory and NDC accounting, as rather whether host countries should incorporate voluntary market offsets purchased by entities are these transactions in their national accounting and not reflected by the country in its national account reporting under Article 6. 16 https://unfccc.int/sites/default/files/resource/DT.CMA2_.i11a.v3_0.pdf. See paragraph 1(f) of the annex. 19 Box 1 Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) Established by the International Civil Aviation Organization (ICAO), CORSIA is a recently commenced market-based measure with an aspirational goal of maintaining carbon neutral growth in emissions from international aviation from 2020 onwards. Airlines may offset the growth in their international aviation emissions using credits for reductions and removals in emissions that fall under the Paris Agreement. For credits to be eligible, the ICAO Assembly Resolution requires the rules under the Paris Agreement to ensure the avoidance of double counting.17 The emission unit criteria under CORSIA state that crediting programs should ensure that units and their ownership are tracked in registries and provide information on “how they address double counting, issuance and claiming”.18 The rules for the transparency framework under Article 13 of the Paris Agreement require accounting to include mitigation outcomes used for CORSIA and any other international mitigation purposes other than NDC achievement. The draft rules for Article 6 also include provision for such uses of mitigation outcomes to be included in the accounting for Article 6 and NDCs. 17 ICAO (2016), paragraph 21. 18 CAO (2019), paragraph 11. 20 Figure 3 Scenario 1 Simplified voluntary market scenarios Country B (host) 800t - 20t 780t 400t - 20t 380t - 20t Country A (entity´s home country) 1.000t Energy - 40t efficiency 960t project NDC emissions (unconditional/conditional) 80t - 20t National emissions inventory 40t - 20t 20t Buyer entity sets its target at 20tCO2e Scenario 2 Country C (alternative host) 1.100t - 20t National emissions inventory 1.080t and economy-wide NDC - 20t Cookstove project NDC emissions (unconditional/conditional) National emissions inventory 21 5.2 Experts’ perspectives on corresponding adjustments The issue of corresponding adjustments attracted Different views emerged from experts on whether the most attention during the consultations with the situation illustrated in the first scenario should country experts. They discussed questions regard- be described as ‘double counting’. Some consid- ing how voluntary markets may operate in the con- ered this to be double counting because the sce- text of the climate action and accounting for Article nario clearly involves a single mitigation outcome (20 6 and NDCs under the Paris Agreement, in particu- tCO2e) being counted towards two emission targets lar the relationship of accounting at the entity and – the host country’s NDC and the buyer entity’s car- national levels. bon neutrality or net-zero pledge – despite these targets not being part of a single accounting system. Many experts noted that potential host countries This view places greater emphasis on the volume of are currently reluctant to engage with voluntary emissions entering the atmosphere than the specific markets due to uncertainty as to whether they will system under which it is accounted. need to apply adjustments for transfers made from mitigation activities on their territories. In prin- Others argued that the scope of the accounting ciple, if the mitigation is additional to what would system is important for the use of the term and otherwise occur, host country adjustments only that Article 6 is only concerned with emission tar- add back the emissions that were reduced by the gets set at a country level through NDCs. From this crediting activity, returning the host country to the viewpoint, there can be no double counting as the same position vis-à-vis the achievement of its NDC mitigation outcome remains counted only once at as it had before. But uncertainty over the necessity the country level – in the host country’s emission of adjustments may impact the choice between dif- inventory. The fact that the credits are also counted ferent funding sources and, as was also stressed by by the buyer entity in its own portrayal of carbon experts, many countries currently lack the capac- neutrality does not constitute double counting, in ity, systems and legislation to be able to commit to this view.19 undertaking corresponding adjustments. It is apparent, therefore, that whether the term Experts appreciated the simplified scenarios in set- ‘double counting’ is appropriate is dependent on ting out the accounting issues. One early area of the chosen frame of reference. Irrespective of the convergence was that voluntary market transactions label, however, experts discussed the impact of should not be reflected in the Article 6 accounting mitigation outcomes being counted against multi- of the country of the buyer entity, and hence should ple targets as follows: not be used towards achieving its NDC target. If the buyer entity’s acquired credits were to help its coun- ⚫ It may create a false impression of how much try achieve its NDC, this might lead to a reduction, mitigation is being achieved; or ‘displacement’, of mitigation effort in that coun- try, which would in turn undermine the buyer entity’s ⚫ It may weaken mitigation effort in the host original intent in increasing the level of mitigation. country because the windfall reductions in its This contrasts with the situation in compliance mar- inventory may prompt it to slow or halt its mitiga- kets, in which the acquisition of mitigation outcomes tion action; the windfall reductions could in effect is driven by government policy, making it appropriate displace the need for other mitigation effort that that they may be accounted for NDC purposes. would have occurred to achieve the NDC. 19 It was also pointed out that voluntary action undertaken domestically by entities to reduce their own emissions is counted at both entity and country levels – and yet this is not described as double counting. 22 Such weakening of mitigation in host countries Many experts expressed this need for correspond- could lead to activities implemented in good faith ing adjustments as the application of a common by voluntary market entities being undermined and approach to accounting across all carbon markets their emission reductions cancelled out. The coun- – irrespective of whether credits are supplying vol- try may not even be aware of its improved NDC posi- untary or compliance markets and whether they are tion, especially if the impact is small. Without such generated among emissions covered by uncondi- knowledge, it is not able to take measures to safe- tional or conditional NDC pledges or are not cov- guard the emissions impact of the mitigation out- ered at all in the current NDC. They argued that all comes. That said, it is not clear how much displace- crediting activities have an impact on emissions in ment might occur. This may depend on the clarity the host country, and increasingly will impact on the of NDCs, the status of policy implementation, how achievement of NDCs, and so should be subject to often climate policies are reviewed, the willingness the same accounting treatment. They argued that to change policy course, and of course the quantities any distinctions made in accounting treatment will of voluntary emission reductions being transacted. be difficult to apply and enforce, and ultimately will open the way to greater risk of inadequate environ- As a result, despite differences in how double mental integrity. counting may be perceived, experts considered it necessary for host countries to apply correspond- It was also noted that this accounting treatment of ing adjustments for mitigation outcomes that are voluntary market transfers would be the same as is internationally transferred through voluntary car- required for mitigation outcomes authorized for use bon markets. Some further clarified that – even if under CORSIA (Box 1). As international aviation emis- such adjustments are not needed to counter dou- sions are not included in national inventories under ble counting in a strict sense between NDCs – they the UNFCCC, there is no acquiring countries that can are needed to counter the risk of displacing host make an adjustment under the accounting for Arti- country mitigation and to safeguard both the emis- cle  6 and an adjustment at country level is made sion impact and the financial value of voluntary only by the country hosting the crediting activity. market transactions. If such adjustments are not As such, the adjustment for mitigation outcomes required, this may even create a perverse incentive used under CORSIA is not justified by double count- that hinders the growth of NDC ambition in coun- ing between two countries but is justified by double tries that can benefit from international voluntary counting between two emission targets that span carbon markets. different accounting systems. Furthermore, this adjustment counters what would otherwise be a risk There were however differences among experts as that lower emissions in host countries could prompt to when corresponding adjustments should become reduced mitigation effort that would undermine the a requirement for voluntary market transfers. Those use of the mitigation outcomes within CORSIA. experts emphasizing the displacement risk argu- ment over a strict double counting argument consid- A further parallel with CORSIA is that mitigation ered the application of corresponding adjustments outcomes used by that system may not involve an to be an ‘end point’ towards which the system needs actual transfer of credits outside of the registry they to evolve over time. Experts that saw this issue as are issued in. This is because there is no techni- being primarily about double counting between cal link established between the originating regis- emission targets – albeit not at the country level try and a CORSIA registry, with the credits used for of NDCs – considered it ideal that corresponding CORSIA instead being cancelled in the originating adjustments would be applicable immediately but registry. Voluntary markets have to date operated were generally open to the idea of such a require- registries in the same manner, with carbon credits ment being delayed for a period of time in order being issued and retired in the same registry. Never- to ensure a smooth transition and build capacity theless, both CORSIA and voluntary market transac- (see Section 5.4). tions involve a transfer of a claim to the underlying 23 mitigation outcomes from a host country to a buyer ⚫ Through a governance body established for the entity, even if a transfer of an actual credit between voluntary market. While no overarching gov- registries does not occur. ernance body currently exists, the TSVCM has recommended that governance structures be Experts also considered whether there is a need to developed that address, among other issues, regulate the application of corresponding adjust- principles for suppliers of credits to the volun- ments for voluntary market transactions and, if so, tary market. Such structures may include an where and how this should be done. There appear to umbrella governance body; 21 be several options for such regulation: ⚫ Through guidance by individual host countries or ⚫ Through the international rules for Article 6. alliances of participating countries. This would There is currently provision for this in the inclu- amount to a voluntary undertaking by govern- sion of ‘for other purposes’ when setting the ments to make corresponding adjustments, scope of mitigation outcomes in latest draft rather than the setting of a requirement. There rules for Article 6.2, although it does not specif- is single no coordination mechanism across all ically mention voluntary market transfers.20 This countries – other than the UNFCCC process – option would be the most authoritative approach but some alliances or ‘clubs’ of countries are if it were made specific, especially given that emerging that in future may represent a signifi- corresponding adjustments are a country-level cant portion of participants, such as the Climate responsibility, and the issue is relevant to the Market Club and Climate Warehouse established broader accounting framework of Article 6 (as by the World Bank.22 mitigation outcomes used for CORSIA are also); It is important to note that voluntary market ⚫ Through independent standards. These currently transactions are not always readily visible to host provide for coverage of much of voluntary mar- countries, making the application of correspond- kets, although there could be a future transition ing adjustments challenging. This approach would to more use of the Article 6.4 mechanism or ETS necessitate a level of oversight over voluntary mar- allowances. There is however no current coordi- ket transactions that host countries currently do not nation mechanism across these standards; have. This issue is further discussed in Section 6.4. 20 https://unfccc.int/sites/default/files/resource/DT.CMA2_.i11a.v3_0.pdf. See paragraph 1(f) of the annex. 21 TSVCM (2021). 22 https://www.worldbank.org/en/programs/climate-warehouse 24 5.3 Experts’ perspectives on finance contribution claims The discussion of corresponding adjustments in the sions through contributing finance or other sup- preceding section focuses on claims to the mitiga- port, allowing the claim to the mitigation outcomes tion outcomes arising from voluntary market activ- themselves to remain with the host country to be ities, which have to date been the aim of offset- accounted towards its NDC. This finance contribu- ting with voluntary markets. The new context of tion claims model may therefore operate similarly the Paris Agreement means that host countries also to results-based climate finance. need to demonstrate certain levels of emissions in order to achieve their NDCs, thus creating compe- A key advantage of this model is that it avoids tition for mitigation outcomes that was previously issues of double counting and possible displace- not a concern in voluntary markets. In light of this, ment of host country mitigation effort. As mitiga- country experts also discussed a possible alterna- tion outcomes are not transferred, there is no need tive in the form of claims to have provided valuable for corresponding adjustments. However, experts private sector finance to support host countries in also recognized that such claims may be of con- implementing their climate action. siderably less tangible and marketable benefit for entities in voluntary markets. Without offsetting, Experts recognized during the consultations that entities’ emissions would remain fully on their this alternative model needs further explora- books and they would be less able to market them- tion. Entities would claim to have provided volun- selves as having reached net zero status or their tary financial contributions to support mitigation products and services as being climate neutral. The in other countries. Entities would only claim they incentives for entities to participate may therefore have enabled the host country to reduce emis- be considerably weaker. 5.4 Experts’ perspectives on managing a transition The discussion among country experts, as reflected beneficial in clarifying and harmonizing approaches above, highlighted two potential models for accounting for how it may be operationalized, it is a model that in relation to international voluntary markets: (a) claims can in principle already be implemented. to mitigation outcomes with corresponding adjustments and (b) financial contribution claims with no corre- Experts discussed however several factors that sponding adjustments. Country experts discussed the could hinder the implementation of the correspond- implications of a move towards these models, in partic- ing adjustments model in the short term: ular with regard to timing and the levels of capacity and institutions needed for the first of these models. ⚫ In many countries, corresponding adjustments remain poorly understood and there is as yet The two models take account of the broader con- still no formal mandate or clarity as the Article 6 text set by NDCs and the Paris Agreement at country rules are not yet finalized; level. The first model would be closer to a contin- uation of the current offsetting model in voluntary ⚫ Many countries still lack the capacity, systems, markets but the corresponding adjustments by programs and legislation to support processes host countries would add safeguards for the integ- for authorization, transfers, accounting and rity and value of mitigation outcomes by eliminat- reporting; ing any risk of double counting or displacement of host countries’ own mitigation efforts. The second ⚫ Many potential host countries are not yet clear of the models does not interact with the accounting in which sector and activities they are able to for Article 6 and NDCs. Although more work may be consider transferring mitigation outcomes or how 25 they should prioritize activities. To resolve this corresponding adjustments. It would involve a spe- would require further development of an Article cific period for which voluntary market transac- 6 strategy or NDC implementation plan; tions may be made without a requirement on host countries to make corresponding adjustments.23 ⚫ Many potential host countries do not yet have The period could be used for countries interested in an overview of voluntary market activities on hosting voluntary market activities to build capacity, their territories or the systems in place to record systems and legislation, taking account of broader them as they are initiated. development under Article 6. Box 2 sets out several issues that would need resolution. At the same time, the experts were aware of the rapidly growing private sector interest in voluntary A transition period would entail accepting some markets and did not wish this interest in contribut- degree of risk that double counting or displacement ing to global mitigation to be hindered. If possible, of mitigation effort may occur between buyer enti- approaches should be considered that might pre- ties and host countries, but would not risk double serve the ability for new activities to commence. counting between two countries’ NDCs, given that voluntary market transactions are not counted by The possibility of a transition period was discussed the countries of buyer entities towards their NDCs. as a means to bridge a period in which host coun- As such, the strict requirement of Article 6 that tries and voluntary market entities and services there must be no double counting between NDCs prepare to work with a new transfer model involving would be met even during the transition period. Box 2 Key issues in adopting a transition period Several issues would be important to resolve in clarifying the nature and implications of any transition period in which no obligations to undertake corresponding adjustments would accrue for host countries for international transfers made through the voluntary market: ⚫ The length of the transition period, until a certain year or until specific conditions are met (for example, the implementation of NDCs or establishment of required capacity, systems and legislation); ⚫ Whether the period should apply to all countries or be the same length for all countries; ⚫ Whether international transfers of all emission reductions, or only of emission reductions from outside the scope of NDCs, do not require corresponding adjustments during the transition period; ⚫ Appropriate form and status of guidance on a transition period, such as a standard, code of practice, national policy or UNFCCC decision (taking account of how corresponding adjustments for the voluntary market are regulated (section 5.2)); ⚫ Possibilities for collaboration and capacity building to enable work with corresponding adjustments and manage the interface between national and entity-level accounting. 23 It was also discussed whether the in-built time lag in reporting corresponding adjustments may be sufficient, given that their reporting through BTRs may commence as late as the end of 2024. This would however not stop the obligation to make corresponding adjustment from accruing from the start. 26 6 Support and facilitation by host countries Countries wishing voluntary markets to under- The study explored with experts three particu- take activities on their territories may take steps lar areas in which host countries may guide mar- to support and facilitate such action. Engagement ket activities taking place on their territories, with may enhance the attractiveness of host countries a view to enhancing their offer as a destination of to voluntary market investors and buyers, if it is international carbon finance and encouraging align- undertaken in an effective and facilitative manner. ment with their own development priorities. Providing clarity and certainty will be of paramount importance to private sector engagement. Well Measures to facilitate markets are generally relevant informed and designed measures can support and to all types of carbon markets and international coop- facilitate voluntary market transactions, protect eration under Article 6 more generally. However, this national interests and direct investment in support section seeks to set out measures specific to volun- of national priorities. tary markets and place them in this broader context. 6.1 Context Providing guidance to crediting activities can help regulations. Guidance may be integrated in broader host countries ensure strong contributions that mitigation policies or institutions, systems and pro- support their mitigation policy and own mitigation cesses established to implement them. effort. Any guidance provided by host countries would need to perform dual purposes of: Such supplementary guidance would need to be sta- ble and known in advance of commencing the devel- ⚫ Providing clarity and certainty for market par- opment of activities. Care would also be needed to ticipants, in particular in knowing what activities ensure supplementary guidance is not in conflict and transfers of emission reductions that host with requirements established by the independent countries will accept; standards available for use. ⚫ Directing crediting activities towards miti­ Two key avenues available to host countries to sup- gation opportunities that are aligned with the plement their guidance are approval and authoriza- implementation of NDCs and, where available, tion processes. While these are in some ways simi- low-emission development strategies. lar, and could potentially be integrated into a single procedure, the two purposes are distinct: This is not a unique need for voluntary markets and host countries may wish to consider guidance to ⚫ Approval or registration processes are domestic voluntary market activities along with their broader in focus in that they signal the host country’s planning for Article 6 engagement – including acceptance of the crediting activity and its par- potentially development of their own policy instru- ticipants against requirements and guidance that ments for crediting, emissions trading or integra- it has set out. Where guidance is made manda- tion of crediting within carbon taxes – and guidance tory, approval processes can form an enforce- to crediting that is driven by compliance demand ment tool, in that crediting activities would need sources, including ultimately from NDCs and other to be brought into alignment with the guidance international agreements such as CORSIA. Potential in order to be approved. vehicles for such guidance may be national laws and 27 ⚫ Authorization under Article 6.3 of the Paris Authorization can potentially be given with condi- Agreement is international in focus in that it tions or limitations. For example, use may be limited concerns countries authorizing the use of miti- to a proportion of the mitigation outcomes from an gation outcomes – that have been internationally activity or may be subject to a maximum limit, in transferred – for use towards other countries’ order to share the mitigation benefits with the host NDCs. This gives host countries authority over country. Limitations may also be set in relation to the accounting consequences of transfers that specific vintages of emission reductions or specific are made. The concept has been broadened recipient countries. Such limitations may help host through the negotiation of Article 6 rules to countries manage the impact of activities on their encompass mitigation outcomes used for non- NDCs achievement but depend on the capacity of NDC purposes, including other international market participants to assume this additional risk. mitigation agreements such as CORSIA and Any reduction in the volumes of emission reductions potentially other purposes such as to meet available to market participants, or any risks aris- voluntary commitments. ing from uncertainty or delay, may impact particu- larly heavily on private sector entities engaged in the These purposes arise from different drivers. While crediting activities. voluntary markets have in the past tended not to require it, host country approval processes have Some host countries may consider measures to become familiar from the CDM, where host coun- make transfers conditional, at least in part, on the tries provide approval of CDM activities and con- achievement of their NDCs. Such approaches would firmation that they contribute to their sustainable need to be balanced against uncertainty and risk for development. The concept of authorizing mitigation investors and buyers in markets. Private sector enti- outcomes to be used towards NDCs emerged from ties need sufficient certainty of transaction volume the negotiations on the Paris Agreement and was and timing, backed by clear contractual commit- included in Article 6 out of a concern that activities ments and definable risks, and may be in less of a may occur without national governments’ awareness position to work with conditionality provisions than or control over impacts that these would have on governments or public sector entities. their NDC positions. Approval processes, but in par- ticular authorization processes, are therefore nec- Transparency and robustness in voluntary mar- essary if corresponding adjustments are to be per- kets are currently supported through registries formed for voluntary market transfers. that record information on voluntary market proj- ects, issue credits on the basis of verified emis- An example can be seen from the latest draft sion reductions, track credit trades and retire the rules for the Article 6.4 mechanism, which would credits when entities claim or ‘use’ them as offsets strengthen the type of approval processes familiar against their emissions. These registries have there- from the CDM by requiring host countries’ national fore tended to be implemented in conjunction with authorities to approve each activity and its partic- specific MRV standard bodies, given that the credi- ipants, clarify how the activities relate to the host bility of the standards is dependent on guaranteeing country’s NDC, and provide its authorization for the the single retirement of each credit. These registries credits to be used towards other countries’ NDCs.24 operate however as unlinked, isolated systems and The draft rules additionally provide for national no actual transfer of credits from one registry to authorities to optionally specify methodologies and another takes place. crediting periods that are to apply to activities that they intend to host.25 24 https://unfccc.int/sites/default/files/resource/CMA2_11b_DT_Art.6.4_.pdf. See paragraphs 39-41. 25 https://unfccc.int/sites/default/files/resource/CMA2_11b_DT_Art.6.4_.pdf. See paragraph 27. 28 Countries have a need at the national level to main- tice, however, it is challenging to identify and track tain oversight over national emissions and specific all voluntary market activities and all transfers of mitigation and crediting activities, as well as their mitigation outcomes, and therefore to have compre- progress in achieving their NDCs. Host countries may hensive and accurate information on corresponding also have a specific interest in tracking their access adjustments they will need to make. to finance, technology and other support. In prac- 6.2 Experts’ perspectives on host country guidance A recurring theme during the consultations was the of different mitigation measures and the supporting benefit of ensuring market activities are aligned policies needed to implement them. Where NDC with host countries’ development priorities, and in accounting requires corresponding adjustments, particular the implementation of NDCs and, where it will be necessary to determine what volume of available, low-emission development strategies. transfers can be made before the host country risks Questions were discussed by experts, especially on not being able to demonstrate the achievement of the nature of guidance that host countries might its NDC. provide and how they may wish to implement it. Such guidance could comprise mandatory or optional Experts generally viewed guidance provided by components in order to convey host country priori- host countries as an opportunity to ensure that the ties. It would be important to strike an appropriate inflow of finance, technology and capacity through balance between facilitating market actors in dis- voluntary markets is well aligned with countries’ cli- covering and pursuing useful mitigation opportuni- mate action and development needs. They stressed ties for themselves and directing activities into areas the importance of planning that builds on country that host countries consider to be of highest priority. assessments of the potential and opportunities for mitigation. This can provide a basis for directing Independent standards for crediting, such as the support towards activities that bring the greatest Gold Standard, VCS and Plan Vivo, provide oppor- benefit and away from the ‘low-hanging fruit’ that tunities for a robust and independent operation of has often been the focus of much market-based voluntary crediting. It is anticipated that the Arti- cooperation in the past. Support is likely to be most cle 6.4 mechanism will also provide such services beneficial in areas which the host country will have in the future. Host countries therefore do not need greater difficulty in addressing on its own. In partic- to provide the full spectrum of guidance for market ular, host countries may wish to guide market sup- activities. It is in fact beneficial that issues be regu- port towards higher cost or more complex abate- lated by the independent standards where they are ment opportunities, with a focus also on meeting not country-specific, as this would promote com- sustainable development priorities. monality in crediting approaches. Host countries can then instead focus on specific areas of supplemen- Experts stressed that host countries need to iden- tary guidance that would apply on their territories tify where they are able to generate emission reduc- over-and-above that provided by independent stan- tions that they can make available for international dards. It would be useful for independent standards transfer. This assessment will need to be rooted in to include touchpoints in their processes that check an understanding of the unconditional and condi- to ensure that host country guidance has been taken tional pledges made in NDCs, the abatement costs into account. 29 Experts discussed a number of areas in which host would be value in the choice of standards being countries could beneficially provide supplementary consistent across voluntary and compliance guidance towards voluntary market activities: market, or at least for provisions impacting on the quality of mitigation outcomes to be aligned ⚫ Priority sectors and activities. This might clarify across different standards used. priority sectors, activities, technologies, locations or cost ranges where investment would be bene- ⚫ Operation and MRV of crediting activities. This ficial for national efforts to reduce emissions may include guidance on assessing environmen- and promote low-emissions development. It tal integrity, methodologies for setting crediting could clarify what mitigation activities are being baselines and monitoring emission reductions, implemented nationally and where voluntary crediting periods and possible renewals, and markets could strengthen ambition beyond desired sustainable development benefits. national efforts and NDC needs. It could further set out any information or support available, ⚫ Modalities for transfers. This may include for example to identify local partners, national processes for issuing approvals for crediting policies, national priorities for emissions and activities and authorization for use of mitigation sustainable development, or synergy with other outcomes towards NDCs and other emission national or international initiatives. commitments, taking into account the appro­ priate legislative basis in the country for approv- ⚫ Preferred or eligible independent standards. This als and transfers, as well as any preferred con- may involve an assessment of which independent ditions for the sharing of mitigation outcomes in standards are considered to meet what the host order that a portion may be accounted towards country considers to be acceptable environmen- achieving the NDC of the host country. tal, social and governance (ESG) criteria. There 6.3 Experts’ perspectives on approval and authorization processes In this context, country experts also considered how ship to conditional or unconditional NDC pledges approval and authorization processes can be used or whether they are to be supplied to voluntary or by countries. Experts stressed in the discussions compliance markets. the need for host countries to use processes for giving approvals or authorizations to voluntary mar- It would help secure the overall robustness of ket activities to reinforce the guidance they provide. approval and authorization processes if these pro- It can be made clear that only activities that meet cesses at host country level were taken into account the guidance – for example in relation to priority by processes enacted by the independent stan- sectors, activities, technologies, locations or cost dards. There could be a requirement in independent ranges – would receive authorization and be backed standards, for example, that they check to ensure by corresponding adjustments. These processes that host countries have provided their approval and therefore can be designed to offer host countries authorization to activities as part of their registra- more influence over market activities on their terri- tion. Some independent standards already institute tories while also giving entities clarity on what con- such checks. ditions they need to meet in order to confidently claim the emission reductions. It was raised during the consultations, for example, that poverty eradication is a key priority in South The implementation of approval and authorization Africa but that this is not sufficiently guaranteed by processes would be eased if they are applied to all independent standards alone. This suggests it may crediting activities, irrespective of their relation- be beneficial for host countries to develop supple- 30 mental guidance to embody their crediting priorities Voluntary market participants will generally need to and work with independent standards to strengthen know, at the point of receiving approval, the pros- the way that this is taken into account. pects for receiving emission reductions within rea- sonable bounds of uncertainty. This clarity and pre- It will however be important that host countries’ dictability can impact the market value of mitigation approval and authorization processes are consistent outcomes and hence the uncertainty and risk asso- in the criteria they apply. It may in fact be beneficial ciated with activities. The criteria for authorizing for host countries to explore synergy and streamlin- mitigation outcomes would usefully be made public ing between approval and authorization processes. and kept stable. 6.4 Experts’ perspectives on host country oversight Experts consider it important for host countries for providing guidance and issuing approvals and to implement systems that enable them to have authorization, host countries will need to maintain an overview and oversight with regard to all mar- ongoing oversight over voluntary market activities in ket activities on their territories. Voluntary market operation on their territories. This will be especially actions and investment form part of the broader important with host countries due to any impacts mitigation effort occurring in countries, irrespective of voluntary market transactions on corresponding of whether they count towards NDC achievement. adjustments in their Article 6 and NDC accounting. Countries may wish to include such information as This can support host countries in understanding part of their broader overview and reporting pro- the full impact of the carbon market activities on cesses, including in order to identify gaps in support their territories and which need to be reflected in or mitigation action that may need to be addressed their accounting. or to monitor the impact of any guidance they have provided to voluntary markets. Depending on how voluntary markets and Article 6 cooperation develop, there is likely to be greater Host countries need to provide for two different need in the future to link transaction registries. types of tracking: Registries provided by independent standards could be integrated more with the emerging landscape of ⚫ Activity tracking, to provide a comprehensive national registry services under Article 6 to enable and up-to-date record of crediting activities, more comprehensive tracking of international trans- including all activity documentation, partici- fers and assurance of no double counting. There pants, funding, intended and verified emission may also be a need to track claims to finance con- impacts, and the status of approvals and tributions on voluntary markets. authorization; Establishing a full country-wide overview is chal- ⚫ Transaction tracking, through a transaction- lenging, given the number of mechanisms opera- oriented registry to record the ‘chain of custody’ tional in carbon markets. Systems for recording and of credits through issuance, transfer, cancelation tracking carbon market activities and transactions and or surrender processes and to ensure the are generally implemented for each mechanism: avoidance of double counting. ETSs, carbon taxes with offset provisions, credits generated under the CDM, Article 6.4 mechanism and The current systems implemented by independent each independent MRV standard, credits used under standards are likely to continue. The question arises CORSIA, and potentially systems for other cooper- however as to whether and how their information ative approaches under Article 6.2. Host countries and functions should be integrated with systems will need a means of consolidating information on operated at a country level. In addition to processes transactions across all such systems if they are 31 to understand the impact on their NDC positions, ⚫ Tracking transactions, such as the determine appropriate corresponding adjustments issuance, cancellation, transfer, and surrender to make, and fulfil reporting obligations on Article 6 or retirement; results under the Paris Agreement. ⚫ Recording issuance of approvals and Some countries are already making strong progress authori­zations; in implementing integrated systems to provide an overview and oversight over market-related activi- ⚫ Systems for preparing the national inventory ties by consolidating activity and transaction infor- reports and BTRs under the enhanced trans­ mation into a single, authoritative location, and parency framework of the Paris Agreement. ensuring they are linked to other information on emissions, mitigation actions and reporting (Box 3). Ultimately, all transferred mitigation outcomes that The scope of such systems is necessarily broad, are accounted under Article 6, as well as the mecha­ encompassing a horizontal dimension across dif- nisms that facilitate them, will need to be reported ferent policy mechanisms and a vertical dimension under the Article 6 rules. These rules are expected to encompassing entity and country-level information, elaborate on reporting and review processes estab- including: lished under the enhanced transparency framework. If voluntary market transactions are to be included ⚫ Systems for voluntary and/or regulated entity- in the calculation of corresponding adjustments, level emission reporting; they will also need to be included in these reporting processes for host countries. ⚫ Tracking mitigation activities and their carbon as well as non-carbon impacts; 32 Box 3 Integrated systems for oversight over market-related activities In Costa Rica, the Sistema Nacional de Métrica de Cambio Climático (SINAMECC) or National System of Metrics in Climate Change is a vertically integrated system that includes modules for the national emission inventory, the entity-level carbon neutrality program (including information on entity inventories, emission reductions and offsets) and the climate action registry (including information on specific actions, their status and documentation, and their impacts on mitigation, adaption impacts and sustainable development impacts). The system also has a registry module that does not itself process transactions but instead compiles information from other registries (e.g., the mercantile exchange for national units and inter- national registries such as that for the Forest Carbon Partnership Facility). Nevertheless, the registry module is the authoritative record of transactions. All transfers for which corre- sponding adjustments are relevant need to be recorded on this system. A similar process has been underway in Mexico. The national emission registry system is being extended to capture verified annual emissions for over 2000 companies as well as mitigation activities and outcomes. The registry for Mexico’s pilot ETS is also under develop- ment. Current work focuses on being able to record all relevant information sources with an emphasis on ensuring common metrics across all systems to ensure consistent and com- parable information. It is intended that the information will be fed back into the national emission inventory to improve its estimates of emissions and will provide a robust basis for the issuance of emission reduction units or credits, as well as for determining corresponding adjustments which are traceable to mitigation activities. In South Africa, the Carbon Offset Administration System facilitates the listing, transfer and retirement of carbon credits that may be used to offset tax liabilities under the carbon tax. The system tracks activities approved under independent standards, for example, the CDM, VCS and Gold Standard, as well as managing letters of approval, tracking credit listings in an ownership repository, tracking credit transfers and retirement to implement the offsets, and submission to the tax authorities. 33 7 Conclusions NDCs and the Paris Agreement mark a significant Experts therefore saw two potential models through change in the operation of international volun- which international voluntary carbon markets may tary carbon markets as host countries increasingly work in the future in the context of the Paris Agreement: bear accountability for their emissions and climate action. Nevertheless, interest from the private sec- ⚫ Claims to mitigation outcomes, that have been tor to use these markets is not relenting and is in generated in other countries, against an entity’s fact growing considerably. emission target, backed by the incorporation of the transaction in corresponding adjustments This study has sought to understand perspectives applied by the host country in its accounting for of potential host countries on the role international Article 6 and NDCs; voluntary carbon markets might play in the context of their NDCs and the Paris Agreement. In doing ⚫ Claims to have made a financial contribution to so, it has explored emerging issues and challenges mitigation in a host country; as no claim to the these markets may face and clarified key aspects mitigation outcomes is made, this avoids any host country governments may need to consider concerns that need corresponding adjustments. in relation to their market participation. It worked with experts engaged in their countries’ consider- The experts considered that host countries need to ation of carbon markets from across three regional make accounting adjustments when claims to mitiga- groups and reflects views gathered and exchanged tion outcomes are made in order to counter the risk of among them. displacing mitigation effort and to remove any disin- centive to rely too heavily on voluntary market activ- The experts are positive about the ability of ities in achieving NDCs. This would strengthen the voluntary markets to contribute to the global effort environmental integrity of mitigation outcomes avail- on climate change but see a need for a common able through the voluntary market and serve to pro- treatment of different carbon markets that does tect their market value. This was perhaps the key issue not focus on distinctions between them. Mitigation discussed by experts, who see a need for host coun- programs and crediting activities all impact on host tries to work towards incorporating voluntary market country emissions and, increasingly, the achieve- transactions within the framework of their accounting ment of NDCs. For this reason, as well, host country under Article 6 and NDCs under the Paris Agreement. governments can be expected to increasingly engage in guiding and overseeing crediting activities, includ- It will be important to manage this changing envi- ing in voluntary markets, if they are to make the ronment for international voluntary carbon markets, best use of opportunities to receive support. in particular to not risk disrupting the considerable surge in demand and investment that voluntary markets are currently experiencing, and to reflect the fundamentally cooperative nature of carbon markets. For cooperation to be effective, it needs to serve and facilitate the needs of all participants, including private sector stakeholders engaged in the implementation of voluntary carbon markets. 34 It appears that several routes forward would be helpful: ⚫ Potential host countries can identify priority ⚫ Host countries can collaborate with inde­ pendent areas for voluntary market investments and crediting standards to incorporate effective be aware of how these may align best with their interactions between their processes, particularly NDCs and broader sustainable development; in relation to approval of activities and authori- Host countries can provide supplemental zation of mitigation outcomes for use towards guidance for crediting activities and ensure NDCs, and to ensure effective information flows that approval and authorization processes are on activities and the robust accounting of mitiga- objective, streamlined and well communicated; tion outcomes. ⚫ Host countries can establish oversight over the Countries, independent standards and stakeholders mitigation activities taking place within their can develop concepts and arrangements for a possible jurisdictions, including those supported through transition period before a requirement to apply cor- voluntary markets and other means of funding, responding adjustments takes effect. This would and can begin by exploring ways to collate infor- need to resolve several issues, in particular the mation from various sources and build systems length of the period, whether it should be the same for tracking activities and transactions; for all countries, where it should be decided, and the appropriate form, such as a standard, code of prac- tice, national policy or UNFCCC decision. 35 Annex: Questions addressed during consultations 1. What role can international voluntary carbon 3. Where countries see a role for international markets play in a post-2020 world? What key voluntary carbon markets, how could they objectives for such markets may be useful from support and facilitate them? What are possible a host country perspective? roles for host countries in voluntary markets? 1.1. From a host country perspective, do 3.1. For countries that envision a role for voluntary markets add advantages beyond international voluntary carbon markets, what compliance markets offer? can national guidance for voluntary markets encourage private sector 1.2. Can voluntary markets contribute engagement? to host country NDCs? 3.2. Are approval and authorization processes 1.3. Is there scope for host countries to needed and would they encourage private guide the use of voluntary markets? sector engagement? 1.4. Are there particular considerations for 3.3. What tracking and transparency are countries implementing domestic carbon needed for the voluntary market? pricing instruments? 1.5. Should transactions be made conditional on NDC achievement? 2. How can voluntary markets operate in the context of Article 6 and NDCs under the Paris Agreement? What issues and challenges arise with regard to accounting at the national level and how may they relate to incentives for private sector participation? 2.1. Who may claim the emission reduction and are accounting adjustments needed to implement this? 2.2. Can finance contribution claims replace the need for emission reduction claims while still maintaining private sector interest in voluntary markets? 2.3. 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