Integrating Article 6 ITMOs into the EU’s CBAM

The Case for Integrating Article 6 ITMOs into the EU’s CBAM in Support of the Paris Agreement

August 18, 2024 – ITMO Ltd. > Research > Insights > Download the report >>

By Michael Mathres
Chief Marketing Officer, ITMO Ltd

As Carbon Credits from Article 6 of the Paris Agreement could be used in regulated carbon markets, a new report written by HFW and Climate Action Center of Excellence (CACE) proposes how these ITMOs could be integrated into the EU’s Carbon Border Adjustment Mechanism (CBAM). It also explains its challenges, which ITMO Ltd. addresses through the world’s first issuance of Article 6 Sovereign ITMOs. Download the report >>

A new paper “Bridging mechanisms for synergistic impact” by HFW and Climate Action Center of Excellence (CACE) explores the potential synergies between the European Union’s Carbon Border Adjustment Mechanism (CBAM) and Article 6.2 of the Paris Agreement to accelerate climate action. The CBAM aims to level the playing field for EU industries by imposing a carbon price on imports, aligning with the EU’s Emissions Trading System (EU ETS) prices. It seeks to shield EU industries from non-EU industries that externalize the carbon costs of production while encouraging non-EU countries to establish carbon pricing mechanisms in line with the Paris Agreement.

“Policymakers, governments, and the private sector are encouraged to begin promptly exploring the synergies between Article 6.2 and CBAM.” – “Bridging mechanisms for synergistic impact” by HFW & Climate Action Center of Excellence

CBAM & Article 6.2

Graph 1: CBAM & EU ETS timelines – Source: HFW & CACE

The paper details the operational aspects of CBAM and further delves into Article 6.2 of the Paris Agreement, which introduces a cooperative mechanism allowing countries to meet their climate targets by generating and selling Internationally Transferred Mitigation Outcomes (ITMOs), crucial for driving investments toward commercial activities that meet market needs while reducing greenhouse gas emissions globally.

ITMO Ltd. has helped source and is currently distributing the world’s first Article 6.2 Sovereign ITMOs of the Paris Agreement. Therefore such a co-operative mechanism and integration could already be implemented.

Furthermore, to maximize the effectiveness of CBAM-Article 6 integration, the authors considered several challenges which ITMO Ltd.’s first Article 6.2 carbon credits already address:

1. Ensure Robust Additionality: Sovereign ITMOs are part of the Paris Agreement and part of a country’s NDC, therefore they would not be issued unless the country went beyond its NDC and were additional.
2. Align with NDCs: Under Article 3 of the Paris Agreement, a country must align with its NDC, and this ensures that they contribute to its national climate goals.
3. Prioritize High-Impact Projects: Sovereign ITMOs are not projects as they can only be issued at the national level. Under the UN Climate Change Cancun Safeguards, Sovereign Carbon ITMOs offer other national impacts such as national biodiversity conservation UN Biodiversity Convention, addressing United Nations Sustainable Development Goals, and UN Climate Change Local Communities and Indigenous Rights.
4. Monitor and Adjust. Sovereign ITMOs are continuously monitored, reported and verified transparently as part of a country’s NDC under Article 13 of the Paris Agreement and adjusted in the Paris Global Stocktake under Article 14.

In conclusion, because the world’s first Sovereign ITMOs already tackle all these challenges posed in the paper, ITMO Ltd. strongly supports and encourages the integration of Article 6 carbon credit ITMOs into the EU’s CBAM.

As such the EU Environment and Climate Commission and its Commissioner Wopke Hoekstra should work on a pilot trade immediately to incentivise the success of the Paris Agreement Carbon Market.

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Key Insights

• 2026
  Starting year of the Carbon Border Adjustment Mechanism
• CBAM
  European Union’s Carbon Border Adjustment Mechanism
• Article 6.2
  Article 6.2 of the Paris Agreement allowing countries to issue ITMOs

Integrating Article 6 ITMOs into the EU’s CBAM

Download the report>>

References

1. HFW https://www.hfw.com/insights/bridging-mechanisms-for-synergistic-impact/
2. UN Climate Change Cancun Safeguards https://redd.unfccc.int/fact-sheets/safeguards.html
3. Paris Global Stocktake under Article 14 https://unfccc.int/topics/global-stocktake
4. UN Climate Change Local Communities and Indigenous Rights https://lcipp.unfccc.int/
5. United Nations Sustainable Development Goals https://sdgs.un.org/goals
6. UN Biodiversity Convention www.cbd.int
7. UNFCCC Paris Agreement https://unfccc.int/process-and-meetings/the-paris-agreement

Keyterms #

#Article6, #ParisAgreement, #EU, #EuropeanUnion, #ITMOs, #CarbonTax, #CBAM, #ClimateFinance, #CarbonCredit