Environmental Integrity Risks and Approaches to Drive Private-Sector Investment as Part of a Transfer of Mitigation Outcomes from Chile to Canada Under Article 6 of the Paris Agreement

In the context of the Canada-Chile Bilateral Program to support the implementation of Chile’s Nationally Determined Contribution (NDC) in the waste sector, the governments of Canada and Chile initiated a discussion to explore considerations on Internationally Transferred Mitigation Outcomes (ITMOs) under Article 6 of the Paris Agreement.   Econoler was mandated to provide analysis and insights for Canada to continue engaging with Chile on a potential cooperation under Article 6 of the Paris Agreement, focussing on two key issues: (1) The question of safeguarding the environmental integrity of ITMO transfers; and (2) options for structuring financing for Canada to acquire ITMOs in a way that further mobilizes private-sector investments.

Through this mandate, Econoler provided analysis and insights on two key issues. The first was the question of safeguarding environmental integrity. The team analysed four environmental integrity risks, notably “hot air”, ITMO quality, ITMO transfer quality, and the risk of Chile underachieving its NDC. The team also proposed risk mitigation strategies, highlighting mitigation strategies that Canada and Chile could implement as part of their cooperation, independently of the international oversight that may be established upon decisions of the Parties to the Paris Agreement.   The second issue addressed the interest of both Canada and Chile to use their cooperation under Article 6 to further mobilize private-sector investments. The team examined three different models for generating ITMOs, one of which combines climate finance and ITMO finance to add more depth to markets for investments in mitigation actions. For each of the models, the team analysed the extent to which the model can both secure ITMOs for Canada and help Chile secure emission reductions for achieving its NDC by incentivizing further private investment.   The outcomes and recommendations from this mandate will support Canada as it continues to engage with Chile on a potential cooperation under Article 6 of the Paris Agreement.