Key results of COP 26 and implications on management and implementation of international carbon market mechanisms in Viet Nam

Part 1: Article 6.4 mechanism and transition of clean development mechanism (CDM) activities

The 26th Conference of Parties to the United Nations Framework Convention on Climate Change (COP26) recently held from 31 October to 12 November 2021 in Glasgow was assessed fairly successful with the conclusion of Glasgow Climate Pact including important Decision guiding the implementation of carbon market mechanisms under Article 6 of the Paris Agreement. We have summarized the key results of the COP and analyzed their implications on management and implementation of international carbon market mechanisms in Viet Nam.

The Decision of the COP has provided for the establishment and functions of a Supervisory Body (SP) as well as general rules, modalities and procedures guiding the implementation of the mechanism established by Article 6, paragraph 4, of the Paris Agreement. The main contents include:

• Crediting period: shorter than CDM. The Article 6.4 mechanism requires a maximum crediting period of 5 years, renewable a maximum of twice or a maximum of 10 years with no renewable. For activities involving removals, a maximum of 15 years renewable a maximum of twice. The crediting period shall not start before 2021.
• Methodologies: shall be developed and approved by SB, which are expected to be much stricter than existing methodologies for CDM projects. Article 6.4 will apply approaches based on best available technologies, ambitious benchmarks (at least at the average emission level of the best performing comparable activities), existing actual or historical emissions, adjusted downwards to ensure increased ambition over time.
• Levies: increased share compared to CDM. At issuance, the mechanism registry administrator will effect a first transfer of 5% and at least 2% of the issued A6.4Ars to the Adaptation Fund and to the cancellation account for delivering overall mitigation in global emissions respectively.
• Role of the host country: approve the activity prior to the registration request, including: i) confirmation of the contribution of the activity to sustainable development; ii) approval of any potential renewal of the crediting period; and iii) explanation of the relation of the activity and the NDC and its expected contribution to the NDC. Besides, the host country will need to perform corresponding adjustment if authorizing the A6.4ERs towards NDCs or international mitigation purposes.
• Transition of CDM activities:  CDM registered activities may transition to Article 6.4 mechanism when submitting request to the secretariate and the host country by no later than 31 December 2023. The activity may continue to apply its current approved CDM methodology until the earlier of the end of its current crediting period or 31 December 2025, following which, it will need to apply the methodologies approved for Article 6.4. Prioritization will be given to small-scale activities and the issued credits will be subjected to corresponding adjustment as well as other relevant requirements adopted by CMA/SB.
• Use of CERs towards first NDC: CERs from CDM from CDM activities registered on or after 1 January 2013 may be used towards achievement of the first NDC. The CERs need to be identified as pre-2021 emission reductions. The host country does not need to apply corresponding adjustment of the CERs and is not subject to the share of proceeds for adaptation and administrative expenses required for Article 6.4 mechanism as mentioned above.

It is necessary to have follow-up meetings for SB to further develop and finalize methodologies and procedures for Article 6.4.

Viet Nam, as a host country for potential activities and credits under Article 6.4, will need to be pro-active in developing domestic guidance and building capacities for active participation in Article 6.4 mechanism. The following should be taken into considerations:

• Agree on directions and arrangements for operationalize Article 6.4 (including authorization of public or private entities for participation; opinions related to transition of CDM activities and use of CERs towards NDC; opinions related to the use of A6.4ERs towards NDCs and international mitigation purposes; directions related to baseline approaches and other methodological requirements, crediting periods to be compatible with the NDC, etc;
• Reflect the COP 26 Decision on the development of new regulations and/or adjustment of regulations/draft regulations of Viet Nam related to carbon market;
• Develop domestic modalities, procedures and guidance for approval for transition of CDM activities and use of CERs towards NDC; domestic modalities, procedures and guidance for granting approval for A6.4 activities.

Project participants will need to review and evaluate their existing portfolio and project pipeline to identify activities that are potential for transition/development under Article 6.4 and regularly update international and domestic requirements and guidance in order to pro-actively participate in this mechanism.

Loan Nguyen (summarized and analyzed).

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