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REDD+ Sovereign Carbon Recognized as ITMOs by Clifford Chance

This month, UK law firm Clifford Chance LLP held a breakfast event in London to promote REDD+ sovereign carbon to the finance and corporate sectors. The focus of the event was to raise awareness about sovereign carbon coming out of the Paris Agreement and whether corporations, like countries, can purchase the post-2020 credits as ITMOs.

“Based on the Article 6 (of the Paris Agreement) published to date, we think that REDD+ Results Units (RRUs) can be treated as Internationally Transferrable Mitigation Outcomes (ITMOs) under Article 6.2,” said Kirsty Souter, Senior Associate with Clifford Chance, referring to the eligibility of UNFCCC REDD+ forest carbon credits being sold to companies.

RRUs are credits issued through the REDD.plus initiative. The platform allows rainforests nations to sell their UNFCCC REDD+ Results (emission reductions and removals from slowing deforestation).

Corporates and investors have come under increasing regulatory, political, and social pressure to realize their Net-Zero climate transition plans and do their part to avert the climate, nature, and biodiversity crises. Internationally Transferred Mitigation Outcomes (ITMOs) are credits traded between countries that count towards their climate pledges or Nationally Determined contributions, but in the view of Clifford Chance lawyers, these credits can indeed legally be traded with private entities.

The first batch of ITMOs from UNFCCC REDD+ will be available to purchase this year. In an interview with Quantum Commodity Intel magazine, Nicky Candler, head of sales at ITMO Capital, which aims to build registries and trading architecture, said that considerable work still has to be done on standardizing contracts, ensuring that trades would need to be fairly simple trade to start with.

“Pricing will always be key…and to ensure that they [buyers] understand not only what they’re buying, why they’re buying it, but also then how it settles and what they can do with that trade. How are they going to retire it? Or are they going to buy and hold? Are they going to potentially trade it? What have they bought it for?” Candler explained.

Following the recent Bonn climate change conference, governments and corporates are also preparing themselves to implement Article 6 and the ITMO mechanism to fulfil their Paris Agreement commitments and net-zero plans. Sovereign REDD+ credits issued under the Paris Agreement framework and traded as Article 6 ITMOs represent a nascent carbon market that will deliver long overdue payments promised to developing nations under Article 5 for reducing deforestation and provide a carbon offsetting solution for corporates and investors.

The event took place on Wednesday 5 July 2023 at Clifford Chance LLP, 10 Upper Bank Street, London. It was oversubscribed and sold out its 150 places.