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5.12.19 12 OPINION 15.9.2022 Orlanda Grech and Sarah Bulteel are members of EY's Sustainability team at EY Malta. This article forms part of a series of four articles in preparation for COP27, to be published in the coming weeks. Orlanda Grech & Sarah Bulteel THE ROAD TO COP27 SERIES Voluntary international cooperation to reduce emissions ('Article 6' of the Paris Agreement) IN the first article within this four- part series of COP-related articles, 'A focus on climate change adaptation', we acknowledged the fact that the implementation of adaptation meas- ures is crucial against the effects of climate change, especially for a small island state like Malta. Coupled with mitigation measures, this has led to the creation of carbon markets and carbon credits, as per Article 6 of the Paris Agreement (framework for vol- untary international cooperation for countries to reduce emissions and meet their pledges towards National- ly Determined Contributions), which was widely discussed and revisited at COP26. Carbon credits can be defined as a certified and transferable instrument representing one tonne of CO 2 or equivalent greenhouses gases that has been avoided or removed, essential in achieving 'Net Zero'. Such credits pro- vide flexibility in achieving emission reductions by allowing for a cost-ef- fective transition, enabling business to offset hard-to-abate emissions. Article 6 is arguably one of the most important, covering international co- operation for carbon markets and Emissions Trading Systems (ETSs). One of its major concerns has been the double-counting of emission cuts - whereby two countries make the claim for the same emission reduction or carbon removal. erefore, as a coun- ter measure, Article 6 has led to the development of an accounting mech- anism, known as the 'Corresponding Adjustment', whereby one country (Country A) transfers mitigation out- come to another country (Country B). Hence, once the transfer has been au- thorized, Country A will have to sub- tract this emission reduction from its own GHG Inventory, while Country B adds up this emission reduction from their own GHG accounting. Following COP26, it was agreed that 'cooperative approaches', trading of emissions between developed and de- veloping countries for internationally traded mitigation outcomes (ITMOs), can take place via bilateral cooper- ation. Such ITMOs are measured in metric tonnes of carbon dioxide equiv- alent (tCO2e-eq) and could lead to ETSs and/or countries to buy offsets towards their national climate goals. A new mechanism will see to the creation of a carbon market (replac- ing the current Clean Development Mechanism), that could be created by the public or private sector. is will create a global platform in which the crediting of emission reductions will be recognized. is could also have implications for Malta. e new mechanism, led by the United Nations Framework Conven- tion on Climate Change (UNFCCC), will incentivise the private sector to implement mitigation activities across all sectors, encouraging innovation and the use of sustainable technologies. Malta's private sector may be able to invest in green projects and obtain credits that potentially could be traded with other countries, thereby also set- ting off their own emissions and reach- ing internal climate-related goals. For these credits to be issued, a re- quest for issuance with relevant re- quirements will need to be submitted. If approved by this body, the credits will be issued into the mechanism registry which distinguishes credits that are au- thorized for use towards the achieve- ment of NDCs and for other interna- tional mitigation purposes. Engaging in such projects could increase brand reputation and demand from green investors. ese same carbon credits may then contribute towards carbon emission reduction at a national level, for countries to meet their NDCs. In Malta, green finance and invest- ment is still at inception. e Malta Stock Exchange (MSE) has launched a 'Green Market' in the form of a Green Bond List (the 'MSE GBL'), where po- tential issuers can obtain finance for green projects, and benefit from re- ductions in listing fees. e Ministry for Energy, Enterprise and Sustainable Development (MESD) also launched the Malta ESG Platform, which collates ESG data for most listed companies listed on the MSE. With all these new developments, business leaders who engage early will be best placed to reap the benefits. e pooling of small actions can produce a larger ripple for a brighter and more sustainable future. Sustainability and climate change will be discussed during EY-Parthenon's Malta Future Realised Conference on October 18 at the Mediterranean Con- ference Centre. For more information and to register visit: ey.com/en_mt/ events/ malta-future-realised-2022.

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