Nat Keohane

ICTSD WorkshopSeptember 10, 2016

Accounting

Outline

• What do we mean by accounting?

• What does it matter (an ENGO’s perspective)?

• What is the goal of accounting for transfers?

• Key issues

• Four approaches: A pictorial interpretation

• What does the UNFCCC need to do and what rolecan Parties themselves play?

What do we mean by accounting?KP had a comprehensive and unified accounting system thatcombined national-level accounting and accounting for transfers.

What about the Paris Agreement?

• Article 4.13/¶31 “accounting for anthropogenic emissions andremovals corresponding to their nationally determinedcontributions…”

• Article 6.2/¶36 accounting for transfers between Parties “onthe basis of a corresponding adjustment…”

• (Note: Art 9.7/¶57 discusses accounting for finance — separateissue.)

Focus here on accounting for transfers. More precisely, accountingfor use of ITMOs toward NDCs.

NB: Relevance of Art 13.3/¶92? (“Information necessary to trackprogress made in implementing and achieving” NDCs)

Why does it matter?Why markets?

• Markets can enable greater ambition, by promoting cost-effectiveaction, channeling capital, and spurring innovation.

• To realize that vision, critical to ensure integrity.

• Accounting is a key part of the broader framework needed toensure efficient functioning and environmental integrity.

How does that relate to Article 6?

• Article 6.2-3 does not create markets: it concerns transactions.

Critical points:

• Markets are much more than transactions.

• Not everything needs to be (or can be) done in the UNFCCC.

What is the goal?• Instill confidence:

– among Parties, that other Parties are makingprogress toward fulfilling their NDCs;

– among investors, that there is a solid foundation fora return on their investment;

– among civil society and the public, that the systemhas integrity and is contributing to addressingclimate change.

• Ultimately, enable greater ambition through use ofmarket-based approaches

Accounting for use of ITMOs: Key issuesAt a very high level:

• Maximalist vs minimalist approach.

– Should focus be on ensuring avoidance of doublecounting, or broader issues?

– What constitutes “robust” accounting?

• Relationship between accounting and reporting

– Accounting more rules-based, prescriptive

• Commonality vs. flexibility

• Role of UNFCCC/CMA vs Parties (including small troups)

A pictorial representation

The Kyoto Protocol

The Paris Agreement

National accounting (Art 4.13)

?What about trading?

Four basic approaches1. Eligibility: Establish criteria for participating in trading

2. Conformity, e.g.a. Establish some means of deriving quantified budgets on

the basis of disparate NDCs;

-or-

a. Account for all transfers in NDCs regardless of origin

3. Transparency: Include comprehensive reporting ontransferred units (where and when generated,baselines, crediting protocols, etc.)

4. Laissez-faire.

1. Eligibility

Four basic approaches1. Eligibility: Establish criteria for participating in trading For example: Only Parties with absolute, economy-wide NDCs

may engage in trading

Challenge: How does this square with “nationally determined”?Where does the CMA’s authority come from?

2. Conformity Transparency: Include comprehensivereporting on transferred units (where and whengenerated, baselines, crediting protocols, etc.)

3. Laissez-faire.

Four basic approaches1. Eligibility: Establish criteria for participating in trading

2. Conformity: Rules to ensure comparability of unitsludecomprehensive reporting on transferred units (whereand when generated, baselines, crediting protocols,etc.)

3. Laissez-faire.

2. Conformity

Four basic approaches1. Eligibility: Establish criteria for participating in trading

2. Conformity: Rules to ensure comparability of unitsludea. Establish some means of deriving quantified budgets on the

basis of disparate NDCs;

b. Account for all transfers in NDCs regardless of origin (i.e., makeadjustments to NDCs regardless of how units were generated)

Issues:

Ex ante vs. ex post?

Relation to “nationally determined”

Could language around “progress toward NDCs” be used as a hook?

3. Transparency: Include comprehensive reporting ontransferred units (where and when generated,baselines, crediting protocols, etc.)

Four basic approaches1. Eligibility: Establish criteria for participating in trading

2. Conformity : Rules to ensure comparability of unitslude

3. Transparency: Include comprehensive reporting ontransferred units (where and when generated,baselines, crediting protocols, etc.)

4. Laissez-faire.

Four basic approaches1. Eligibility: Establish criteria for participating in trading

2. Conformity : Rules to ensure comparability of unitslude

3. Transparency: Include comprehensive reporting ontransferred units (where and when generated,baselines, crediting protocols, etc.)Minimalist approach: Focus on rules to ensure avoidance of double-

counting within NDCs in particular

Does this meet the standard of “robust accounting”?

4. Laissez-faire.

Four basic approaches1. Eligibility: Establish criteria for participating in trading

2. Conformity: Rules to ensure comparability of unitslude

3. Transparency: Include comprehensive reporting ontransferred units (where and when generated,baselines, crediting protocols, etc.)

4. Laissez-faire. Seems clearly to fail to meet the minimal standard of “ensure

avoidance of double-counting”

What is required toestablish well-functioning marketsand ensureenvironmentalintegrity?

What can theUNFCCC do?

What is required toestablish well-functioning marketsand ensureenvironmentalintegrity? What can the

UNFCCC do?