How can EU countries and companies use ITMOs?

Now that the world’s first Sovereign Article 6 ITMOs have been issued how can EU Member States and European Corporations use them to achieve their climate targets? In this brief, ITMO Ltd. explores this option available today for European Member States and the European private sector.

The European Union (EU) has set a target to reduce greenhouse gas emissions by 55% by 2030, a goal it will achieve through policies under the European Green Deal.(1)

And, as the world’s largest carbon market, the EU ETS is currently the biggest source of demand for international credits, making it the main driver of the international carbon market and the main provider of climate finance in developing countries and economies in transition. This demand includes carbon removals by natural sinks that will increase to 310 million tonnes of CO2 equivalent by 2030.(1)

Furthermore, one of the main requirements and drivers of EU’s Carbon Neutral policy by 2050, is that each single tonne of CO2eq emitted into the atmosphere will have to be neutralised by a tonne of CO2 removed from the atmosphere.(2)

^{Graph 1: EU Commission – Green Deal – Nature Based Removals Demand}

So how can ITMOs help meet these targets?

A paper written by Dr. Lambert Schneider, published by Oeko-Institut e.V. and sponsored by the Swedish Energy Agency illustrates this potential option: “Using International Carbon Credits to Achieve National Mitigation Targets of EU Member States – Options for Accounting under Article 6 of the Paris Agreement”.

The paper explains that although the EU’s single NDC does not allow the use of international carbon credits to achieve its single EU target, Article 6 ITMOs can be used to account for both the exchange of emission trading system allowances with non-EU countries ETS (such as Switzerland and Norway) and individual EU member states’ national mitigation targets.

In the report, they use the example of Sweden, where their 2030 net-zero target (63% emissions reduction compared to 1990 levels), can be met by using Article 6 of the Paris Agreement and purchasing internationally transferred mitigation outcomes (ITMOs).(3)

By 2050 each single tonne of CO2eq emitted into the atmosphere will have to be neutralised by a tonne of CO2 removed from the atmosphere.
European Parliament (2023)

Using Article 6 ITMOs towards EU Countries’ and Corporates’ carbon targets

Under the Paris Agreement’s Article 6, countries are allowed to issue carbon credits known as ITMOs (Internationally Transferred Mitigation Outcomes) as it establishes a framework of accounting for these internationally transferred mitigation outcomes.(4)

The world’s first Article 6 Sovereign ITMOs were issued by Suriname this month. As such, these Article 6 ITMOs can be used for both national development goals (NDCs) and other international mitigation purposes (OIMP), such as voluntary goals by private or public entities (European companies and investors).

Therefore any use of ITMOs by EU member states or companies can represent a use towards OIMP, and not a use towards the EU’s single NDC.(5)

ITMO Accounting with EU Member States & Corporations

Several paragraphs in Article 6.2 guidance outlines how ITMOs should be accounted for and whether they should be correspondingly adjusted. These provisions only apply to transferring countries and countries using ITMOs towards National Development Goals (NDCs). This means that no corresponding adjustments are applied for the use of ITMOs towards OIMP.(6)

Therefore when an EU country or corporation uses ITMOs towards OIMP, they (EU Member States or Companies) do not require any corresponding adjustments.

The decisions under the Paris Agreement imply that, in the case of using ITMOs towards OIMP, corresponding adjustments shall only be applied by the first transferring country (i.e., the country where the emission reductions or removals occur) but not by the entity using the ITMO.
–Dr. Lambert Schneider (2023)

 

In conclusion

EU’s demand for carbon removals is growing rapidly due to its ambitious 2030 and 2050 Green Deal targets (>300m tCO2e natural carbon removals by 2030). To help meet these ambitious targets, EU member states and the European private sector can do the following:

1. ITMO Usage: Use Sovereign ITMOs towards achieving their national or corporate climate targets. These ITMOs can also be used by EU corporations and investors.
2. Purpose & Claim: Since EU’s single NDC excludes the use of international carbon credits, the use of ITMOs by EU member states or private entities should constitute an “other international mitigation purposes” OIMP.
3. Corresponding Adjutments & Accounting: When an EU country or corporation uses ITMOs towards OIMP it does not require any corresponding adjustments to be applied by the buying EU member states or companies.

By using Article 6 Sovereign ITMOs, EU countries and companies can massively scale the new Paris Agreement Carbon Market and help meet the global net-zero target and their national and corporate carbon targets.