✈️ICR Article 6 2 procedures v1.0
Summary
ICR serves as a framework for climate projects of any size, promoting environmental integrity through accelerating credible action and ensuring credibility, consistency, and transparency in quantification, monitoring, reporting, validation, and verification
Version no. | 1.0 |
Date of Version | 15. October 2024 |
Introduction
Article 6.2
Article 6 of the Paris Agreement addresses the cooperative approaches that countries can use to achieve their Nationally Determined Contributions (NDCs) to mitigate climate change. It is designed to promote cooperation in implementing NDCs, allowing for greater flexibility and efficiency in achieving climate goals.
Article 6.2 of the Paris Agreement facilitates international cooperation in achieving climate goals by enabling the transfer of internationally transferred mitigation outcomes (ITMOs). Article 6.2 allows countries to work together by transferring GHG emissions mitigations across borders, which can be counted towards their respective NDCs. The primary objective of Article 6.2 is to enhance the flexibility, cost-effectiveness, and ambition of global climate action. All cooperative activities need to contribute to sustainable development, reinforcing the Paris Agreement's broader goals of fighting climate change while promoting economic and social advancement. By leveraging Article 6.2, countries can meet their NDCs more efficiently and foster international collaboration in the overall aim of nations to meet the goals of the Paris Agreement and support sustainable development.
CORSIA
GHG emissions from international aviation are not included under the Paris Agreement goals set by nations as GHG emissions are not reported under national reporting of GHG emissions and thus excluded from NDCs set by nations. However, GHG emissions from international aviation account for ~2% of global GHG emissions. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) represents an effort by the International Civil Aviation Organization (ICAO) to address GHG emissions from international aviation and their impacts on climate change. In an effort to ensure carbon-neutral growth from 2020 onwards, CORSIA is a key component of the aviation industry's broader strategy to mitigate climate change from aviation, which also includes technological advancements, operational efficiencies, and the adoption of sustainable aviation fuels.
Central to CORSIA is the establishment of a baseline, defined as the average GHG emissions from international aviation in 2019 and 2020. This baseline serves as the reference point against which future GHG emissions are measured. To ensure transparency and accountability, airlines must adhere to a robust Monitoring, Reporting, and Verification (MRV) system involving annual monitoring and reporting of GHG emissions to national authorities, and having the data verified by independent third parties.
CORSIA's implementation is structured in phases to gradually bring the global aviation industry into compliance:
Pilot Phase (2021-2023): Participation is voluntary, allowing early adopters to begin implementing and refining the scheme.
First Phase (2024-2026): This phase also remains voluntary, providing additional time for states to join and participate.
Second Phase (2027-2035): Participation becomes mandatory for all ICAO member states, with exemptions for least developed countries, small island developing states, landlocked developing countries, and countries with minimal international aviation activity.
Airlines are required to offset their GHG emissions growth by purchasing eligible emission units (carbon credits) that follow the article 6.2 mechanism, preventing double claiming of the GHG emission mitigations. The offsetting requirement is calculated based on the difference between the airline’s annual GHG emissions and the established baseline. Only GHG emission units that meet ICAO’s criteria for environmental integrity, additionality, and transparency are eligible for compliance.
Voluntary compensation
Despite the fact that under the Paris Agreement, nations have committed to limiting global warming to 1.5 degrees Celsius and achieving a balance between GHG emissions and removals in the second half of this century, current mitigation commitments fall significantly short of the necessary scale and speed required to meet the long-term goals of the Paris Agreement.
To bridge this “ambition gap,” GHG emission mitigation efforts worldwide need to urgently intensify by accelerating GHG emission mitigations on an unprecedented scale and pace. Countries need to both implement their existing national targets and increase their ambition. Actions by organizations are crucial in achieving and enhancing national targets, and can also support efforts beyond current NDCs. Engaging the entire society in taking action and cooperating across boundaries is essential for success in this critical transformation.
The Paris Agreement recognizes that market-based cooperation under its Article 6 enables higher ambition in climate action. The Article 6 framework can be utilized for market-based cooperation to achieve national targets and for other purposes, such as the voluntary use of carbon credits.
Voluntary compensation involves the purchase and retirement of carbon credits generated from GHG projects. The core principle behind voluntary compensation is that these GHG emissions mitigations are additional—meaning they would not have occurred without the voluntary initiative.
Both at the national and the organizational level fully eliminating their GHG emissions is often not feasible and can be a time-consuming process. To complement efforts implemented by organizations, they can support GHG emission mitigations achieved outside their value chains and boundaries. This can be accomplished by purchasing carbon credits from projects registered with GHG programs. The voluntary purchase and use of such carbon credits enable entities to support greater, faster, and earlier mitigation than they could achieve through their own ambitious actions alone.
The support can assist the host country of the project in meeting its targets or help GHG emission mitigation globally beyond national targets, thereby contributing to global ambition-raising. Through the voluntary use of carbon credits, users can make public claims about contributing to national targets, counterbalancing specific GHG emissions, or supporting global ambition-raising.
To genuinely contribute to GHG emission mitigations, voluntary use of carbon credits needs to be of high integrity meaning organizations should use carbon credits only to supplement—not substitute—their efforts to reduce their own GHG emissions, and they should be transparent about their targets, emissions, and carbon credit use. They should utilize high-quality carbon credits that represent real, additional, permanent, and verified GHG emission mitigation outcomes. They may be purchased to support the host country to meet its NDCs or to increase ambition under the Paris Agreement preventing double claiming of GHG emission mitigations under the Paris agreement. This involves organizations to understand their claims regarding the use of carbon credits which should be truthful, clear and transparent.
Cooperation is a powerful tool for enhancing learning, scalability, and cost-effectiveness, which, in turn, can drive greater ambition.
Summary
Ensuring the quality and integrity of carbon credits is crucial. Robust standards and oversight are needed to prevent or identify issues such as double counting and to ensure that offsets represent genuine, additional GHG emissions mitigations.
These requirements and procedures are intended to ensure alignment with the requirements of decision 2/CMA.3, Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement (Article 6.2) and CORSIA eligibility criteria and are based on Guidelines on Avoiding Double Counting for the Carbon Offsetting and Reduction Scheme for International Aviation (GADCCORSIA).
Figure 1: Double claiming under the Paris Agreement
Scope
This document specifies requirements and procedures for projects intending to be eligible for issuing ICCs as internationally transferred mitigation outcomes (ITMO) at the time of registration and/or at the time of issuance of ICCs for international trading of carbon credits, Article 6.2 ICCs.
Normative references
ICR requirement document
ICR definitions
ICR process requirements
ICAO document - CORSIA Emissions Unit Eligibility Criteria
Guidelines on Avoiding Double Counting for the Carbon Offsetting and Reduction Scheme for International Aviation (GADCCORSIA)
The Paris Agreement
Decision 2/CMA.3
Decision 18/CMA.1
Definitions
For the purposes of this document, the terms and definitions given in the ICR definitions apply in addition definitions and acronyms from ICAO and UNFCCC relating to operation of ITMOs. In addition, the following definitions apply:
Double claim means in terms of this document, when two or more parties claim the same GHG emission mitigation outcome toward their national or sector-wide GHG emission reduction cap or target (e.g., mitigation targets/pledges under the Paris Agreement as formulated in the NDCs and/or aeroplane operators offsetting obligation under CORSIA).
Host country letter of attestation and authorization or letter of attestation and authorization means a letter issued by a designated national authority or designated focal point of host country of the GHG project confirming that a corresponding adjustment shall be applied by the host country.
Non-corresponding adjustment means where a host-country, that has issued a letter of attestation and authorization, and the host-country has failed to apply a corresponding adjustment over a period.
Non-corresponding adjustment event means an event where a host-country has failed to apply a corresponding adjustment over a period and initiates a compensation mechanism application.
General
The requirements presented in this document regarding double issuance, double use and double claiming are additional to requirements in section 3.8 of the ICR requirement document. This document presents additional requirements and procedures for GHG projects to demonstrate that project registration and issuances of ICCs are in conformity with article 6.2 of the Paris Agreement (Article 6.2) and CORSIA Emissions Unit Eligibility Criteria. The requirements will be updated regularly as the Article 6.2 mechanism evolves but should represent current best practice.
The applicability of this document limits to projects that intend to be eligible as ITMOs at the time of registration and/or at the time of issuance of ICCs.
ICCs that have been approved as ITMOs are identified specifically in the ICR registry and further, the serial identifier of the relevant vintage indicates if it’s eligible for international transfer[1]. The ICR registry and ICR requirements comply with the items identified in table 3 of Section III.2 in the GADCCORSIA, which details the provisions that need to be incorporated into the ICR program requirements, procedures and operations.
This document is intended for use by project proponents, host countries, insurance companies, VVBs and ICR and guidance for the UNFCCC and ICAO.
Prevention of double counting
Requirements for avoiding double counting are provided in section 3.8 of the ICR requirement document. ICR further has procedures to prevent issuance, double use, and double claims of GHG emission mitigations. ICR procedures also apply under double counting relating to CORSIA and Article 6.2.
To avoid double claiming in relation to countries' progress towards mitigation targets pledged in their NDCs, countries may authorize the use of carbon credits by other parties of the Paris Agreement to meet their NDCs, aeroplane operators under CORSIA or other use and ensure they report to the UNFCCC and make corresponding adjustments (CAs)[2]. Countries are required to report to the UNFCCC and make CAs as mandated by the UNFCCC[3]. ICR will seek evidence that these pledged CAs have been made.
For ICR, ICCs determined by ICAO to be CORSIA-eligible emissions units or eligible as ITMOs (Article 6.2 ICCs), the steps outlined in the flowchart below, adapted from the GADCCORSIA and adjusted for the ICR program including the compensation mechanism, shall be followed for projects and the ICCs to be eligible for use under CORSIA, under Article 6.2 or by voluntary means requiring the CAs to be applied by host country.
The project proponent is responsible for some steps while ensuring that ICR and VVBs will review, approve and report all determinations and associated documentation. Below are details for the numbered steps in Figure 1:
Figure 2: Steps for avoiding double claiming
Host country letter of attestation and authorization
The project proponent shall obtain and submit a letter of attestation and authorization from the host country confirming that the CA shall be applied by the host country (the Letter) to ICR. All Letters are publicly available on the ICR registry. ICR will only designate ICCs as eligible for Article 6.2, CORSIA or for voluntary claims requiring the CA to be applied by host country, once the Letter has been uploaded to the registry and reviewed by the ICR, only to any limit established in the Letter, and as long as all other ICR, CORSIA, Article 6.2 or applicable international requirements are met. The letter shall include:
ICR project ID
Title of project
Name of host country
Include a link to the project in the ICR registry
Acknowledge that the project has issued, or intends to issue, offset credits for the GHG emission mitigations that occur within the host country with the ICR program to which the letter is provided.
Authorize the use of the GHG emission mitigations, issued as ICCs by the project proponent, by a holder of such ICCs in order to meet offsetting requirements by an aeroplane operator under CORSIA, NDC targets under article 6.2 or by voluntary means requiring the CA to be applied by the host country;
Declaration that the host country will not use the project’s GHG emission mitigations to track progress towards its NDC and will account for their use for either international mitigation purposes or other purposes, by applying CA in B of Annex III of 2/CMA.3 in the structured summary (required pursuant to paragraph 77(d) of the annex to decision 18/CMA.1, as part of the biennial transparency report in C of Annex IV of 2/CMA.3 and the country’s annual information as referred in B Annex IV 2/CMA.3, and consistent with relevant future decisions by the CMA.
Definition of “first transfer” in terms of when a CA will be applied for other international mitigation purposes upon
Authorization
Issuance
Use or cancellation of the mitigation outcome
Declaration that the country will report on the authorization and use of the project’s GHG emission mitigations in a transparent manner as part of the biennial transparency report in C of Annex IV of 2/CMA.3 and the country’s annual information as referred in B Annex IV 2/CMA.3, and consistent with relevant future decisions by the CMA.
Signature and contact details of authorized signatory of designated national authority or designated focal point of the host country.
The letter may also include:
Include a request to ICR to provide information to the host country on the use of authorized ICCs.
Provide a limit for the maximum number of the project’s GHG emission mitigations, issued as ICCs, that the host country authorized for use, including any limits on the time period over which the host country provides such authorization and/or other limitations on use (e.g., only for CORSIA).
The project proponent shall use, or rely on the ICR letter of attestation template, or a market-standard letter of attestation template.
In addition to the above, ICR’s promotes that the project proponent and the national authorized entity consider that the letter and any agreements relating to the project activities should, where relevant:
Constitute a legally valid, binding and enforceable agreement against the contracting entity(ies) of the host government, under the laws of the host country. For this, the project proponent and/or other relevant partners to the project (such as investors) should seek a legal opinion from local counsel as to the validity and enforceability of its terms;
Contain clear governing law and dispute resolution provisions, including rights of recourse against the host government via arbitration, clearly outlining actions required by each party to the contract and under what circumstances each can terminate any agreements;
Clearly outline circumstances under which the host country’s government’s non-compliance with its terms constitutes a material breach of any agreements; and
The letter specifically should contain the appropriate provisions outlining the host country’s authorization regarding the use of ITMOs towards other international mitigation purposes, and its commitment to apply and report the CAs in its accounting for NDCs under UNFCCC Article 6.2 rules.
In this respect, ICR encourages project proponents and other stakeholders to adopt a market-standard letters template.[4]
Time of submission
Project proponents shall submit the letter together with the project documentation required for submission of request for pre-registration, see ICR process requirements, of the project with the ICR program to allow VVBs and ICR to assess the completeness and legitimacy of the letter. If the letter can’t be submitted by the project proponent as part of request for pre-registration, the letter shall be submitted together with monitoring and verification reports required for request for issuance of Article 6.2 ICCs. The project is not identified as Article 6.2 eligible until the letter has been received by the ICR and verified. The project may however be identified as in the progress of obtaining a letter.
Issuance and retirements
Issuance
Issuance of Article 6.2 ICCs follows the process outlined in section 4.3 and 4.4 in ICR process requirements. In addition to the process outlined the following applies.
Article 6.2 ICCs are not issued, i.e. with identifier for host-country approval until the project proponent has submitted the letter to ICR and uploaded to the registry and ICR has done due-diligence on the legitimacy of the letter.
In the case that a letter has not been submitted, and the project proponent intends to issue ICCs, ICCs are issued without permission for international transfer. When the project proponent has submitted the letter and the letter approved by ICR, remaining ICCs may be converted to Article 6.2 ICCs.
If any limitations are provided for in the letter on use, volume or other limitations ICR will respect any such limitations.
Any deductions due to adjustment deposits follow section 2.3.
Retirements
Any retirements of Article 6.2 follow section 5.2 of the ICR process requirements. In addition, the following applies.
Any retirements of Article 6.2 ICCs where ICR has not confirmed CA will be identified accordingly, i.e. pending CA. When ICR has confirmed application of CA any Article 6.2 ICCs that applies to the CA will be identified accordingly, i.e. CA applied. If ICR confirms that a non-CA event exists, Article 6.2 ICCs will be identified accordingly i.e. No CA applied.
ICR compensation mechanism under international transfers
The project proponent and/or other related partners (such as equity investors) shall compensate for, replace or otherwise reconcile instances of ICCs used for international transfers and claimed by the host country towards meetings of its NDC. Project proponents and/or other related partners shall present a compensation mechanism to compensate for any double claims of GHG emission mitigation units between aeroplane operators for the CORSIA, or other international transfers and host countries towards NDC achievement. Compensation is required in the event if CA has not been completed or credible evidence of intention of CA can’t be obtained by ICR within a year (12 months) after the CA was due (15th April, annually)[5] to be reported to the UNFCCC by the host country. See section 5 below on non-CA events.
The compensation mechanism includes the below options:
Insurance / Guarantee: A legally secure and binding guarantee and/or insurance policy that provides sufficient remedies in either financial value or replacement instruments to mitigate any non-CA events (a “Replacement Contribution”). Any replacement instruments shall be Article 6.2 eligible ICCs, or comparable Article 6 credit, that have not been transferred, retired or otherwise committed. The replacement contribution shall be used to mitigate the host country’s double claim of GHG emission mitigations under its NDC. This guarantee and/or insurance policy could be from an investment grade third-party providing guarantees or insurances meeting ICR insurance eligibility criteria. The third-party shall have an investment grade credit rating and valid regulatory license to operate in the applicable jurisdiction(s). The party that takes out and/or benefits from (as the “Loss Payee”) the compensation mechanism could be:
The project proponent
The related partner, investor, lender or buyer
ICR
Adjustment deposit: Contribution to an ICR Article 6.2 double claiming adjustment account as a safeguard to ensure replacement of Article 6.2 ICCs corresponding to the number of units that were double claimed by the host country. ICR will cancel Article 6.2 adjustment ICCs to compensate the host country’s double claim of GHG emission mitigations. The non-corresponding adjustment account (“Article 6.2 account”) contribution volume of Article 6.2 ICCs will be a percentage of issued Article 6.2 ICCs. To determine Article 6.2 account contribution ICR conducts a risk assessment of double claim risk. Risk factors considered include but are not limited to counterparty, host country and project specific risk that could result in a non-CA event, e.g. political and regulatory risk scoring tools. When reporting on non-CA risk, ICR risk assessment template shall be used. To conduct the assessment ICR may rely on external risk advisors from the insurance industry. The Article 6.2 account is managed according to section 4.4.3 in ICR process requirements. ICR will manage Article 6.2 ICCs deposited to the Article 6.2 account, based project types, i.e. is there a risk of reversal and follow procedures prescribed in section 4.4.1 of the ICR process requirements for such Article 6.2 ICCs.
ICR annual reporting
ICR will publish, and publicly disclose, annual reports that provide aggregated information related to any issuance and retirements of Article 6.2 ICCs. ICR will publish these reports within six (6) months after the end of each calendar year and will specifically submit the reports to ICAO, to all host countries related to issued Article 6.2 ICCs and the UNFCCC. Reported information will include:
Quantity of Article 6.2 ICCs issued by host country, calendar year, retired for different means of claims, e.g. CORSIA, NDC targets under article 6.2, for voluntary claims and for any double claims.
Quantity of Article 6.2 ICCs retired by aeroplane operator for each CORSIA compliance period.
The maximum number of GHG emission mitigations from ICR projects authorized by host countries for use by other countries or entities, by country and calendar year.
Corresponding adjustment confirmation
ICR will take action to obtain evidence of the appropriate application of CAs from host countries of projects holding letters on their GHG emission mitigations in the host country’s biennial transparency reports to the UNFCCC and annual information as referred in B Annex IV 2/CMA.3. The host country reports should clearly reference projects (e.g. IDs) and Article 6.2 ICCs (e.g., using unique identifiers, serial numbers) and a specific reference to the authorization letter for which the host country has applied the CA. Once evidence has been confirmed, ICR will report such evidence on the ICR registry and indicate that a CA has been applied for each project and vintage.
Non-corresponding adjustment events for Article 6.2 ICCs double claim
In the event that the CA has not been applied or credible evidence cannot be obtained within a year (12 months) after the CA was due to be reported to the UNFCCC by the host country (non-corresponding adjustment event (Non-CA event)), the project proponent and/or other related partner approved by ICR, or ICR shall compensate for the non-CA event for the double claimed volume following its compensation mechanism (see item 2 above). ICR will inform the UNFCCC and ICAO accordingly and will evaluate possible revisions to the host country’s risk classification or whether to cease designating as eligible Article 6.2 ICCs from the respective host country for Article 6.2 or CORSIA.
If ICR determines that a double claim exists of actual GHG emission mitigations issued as Article 6.2 ICCs, the double claim shall be compensated.
For Article 6.2 ICCs with insurance the following applies:
The approved insurance company shall compensate for the double claim as outlined under the terms and conditions of its insurance policy. This compensation may be financial compensation or in-kind. If in-kind insurance claim payment is provided, ICR shall determine fungibility to the affected Article 6.2 ICCs subject to the non-CA event and double claim.
For Article 6.2 ICCs with adjustment deposit to ICR Article 6.2 account the following applies:
For non-CA events where adjustment deposit has been applied the following sequential steps apply.
Where excess Article 6.2 ICCs remain in the Article 6.2 account that are not subject to the double claim, and it can be demonstrated that they have not been used for compensation purposes, immediate cancellation by the ICR of the Article 6.2 ICCs.
Where excess Article 6.2 ICCs from other projects remain in the Article 6.2 account that are not subject to the double claim, immediate cancellation by the ICR of the Article 6.2 ICCs.
The project proponent and/or other related partner shall deposit Article 6.2 ICCs to ICR's Article 6.2 account for the same amount as the double claim or remaining amount which shall be cancelled.
Purchase by the project proponent of an equivalent number of replacement Article 6 credits and cancellation of the same within 60 business days of receiving formal ICR notification of such required action.
Replacement of Article 6.2 ICCs through immediate cancelation from subsequent issuances of Article 6.2 ICCs from the project subject to no double claim exists. If the project proponent has no holding of Article 6.2 ICCs on its registry account, deductions shall transfer to the subsequent issuances of Article 6.2 ICCs.
For projects that have been exposed to non-CA events ICR may suspend any further Article 6.2 ICC issuances of the project until ICR has prior confirmation of a CA has been applied and reported and previous non-CA events been rectified.
Appendix – Document history
Version | Date | Comment |
1.0 | 15.10.2024 | First version. Minor changes made after public consultation. |
See ICR process requirements section 4.1. ↑
III. B Decision 2/CMA.3 of the UNFCCC ↑
IV. Decision 2/CMA.3 of the UNFCCC ↑
ICR understands that further developments in this respect will be announced by key market stakeholders soon ↑
IV. B Decision 2/CMA.3 of the UNFCCC ↑
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