Article 6 from COP27 to COP28 : not fully operative still for interoperability matters
Vladistav Malashevsky(1,2), Domenico Vito(1), Injy Johnstone(1,2)
(1)Osservatorio Parigi
(2)YOUNGO
1. Introduction
At COP27 Article 6 proved one of the toughest, most complicated and long negotiation tracks, but at the same time, was one of the most challenging and interesting from a negotiation perspective.
Let’s start our discussion by saying something that may be considered trivial, but actually it’s one of the key concepts underlying the complex structure of this part of the Paris Agreement.
Climate change is a global commons problem that needs to be addressed at a global scale given the vast diversity of opportunities for, and costs of, reducing GHG emissions (IPCC AR6 2021)[1].
As such, the climate crisis can be considered a global common burden – or a global public good – that can be approached by international carbon markets where emissions are reduced or removals take place, in a way that can reduce overall mitigation costs (Schneider et al. 2018)[2].
Article 6 is at the core of the Paris Agreement and builds upon the previous carbon credit regime of the Kyoto Protocol, which is widely accepted to have failed. It favors a system with greater environmental integrity.
Article 6 contains provisions on both market and non-market mechanisms, which will play a significant role in achieving our net-zero goals. International market-based cooperation under Article 6 can serve multiple purposes, including meeting and enhancing NDC targets, attracting investment, facilitating technology transfer, building capacities, and financing mitigation measures that a country cannot implement without external support. Moreover, Article 6 does not just relate to market approaches. It outlines cooperative efforts to reduce GHG emissions among states through international partnerships, project implementation, and private sector involvement.
2. Background : from Paris to rule book
Since the Paris Agreement in 2015, Article 6 negotiations have been one of the most contentious in the history of COPs. Even at COP24, this element was left out of the Katowice Climate Package.
It was only at COP26 that a first version of Article 6 operationalization was agreed upon through Decisions 1 to 4 of CMA.3 in the “Article 6 rulebook.”
Since Glasgow, the goal has been to design the rules, modalities, and procedures to further operationalize the different streams of Article 6, which include cooperative market approaches between countries (Article 6.2), an international carbon crediting system (Article 6.4), and various non-market approaches (Article 6.8). In particular, Article 6.4 has the potential to redesign the carbon markets under the Convention.
2.1 The Article
Article 6 of the Paris Agreement allows countries to voluntarily cooperate in implementing their NDCs. Such cooperation is meant to increase mutual ambition in terms of mitigation and adaptation to climate change, as well as promoting sustainable development.
Article 6 provides different options for countries to work together internationally and raise their ambition in NDCs regarding both mitigation and adaptation to climate change, while promoting sustainable development. Cooperation is voluntary, but more countries have expressed a desire to pursue it. However, countries that choose to cooperate must meet certain requirements [4].
Article 6 comprises 9 paragraphs that outline three options for voluntary cooperation among parties: two take the form of carbon markets, while one is defined as a non-market approach.
The three approaches are described in three main sub-items and also define their respective negotiation streams.
- Art. 6.2 of the Paris Agreement defines cooperative approaches for states to exchange emission contributions through carbon credits in the form of Internationally Transferred Mitigation Outcomes (ITMOs). The article provides a decentralized framework for bilateral or plurilateral cooperation, and also offers an international framework for trading schemes between two or more countries, such as the linking of the European Union’s cap-and-trade program with emissions-reduction transfers from Switzerland.
ITMOs are defined as mitigation outcomes (reduction or removal of carbon) generated from 2021 onwards that must be:
- real: ITMOs need to correspond to real mitigation
- verified: the ITMO needs reductions from a credibly determined and agreed-upon benchmark, and are monitored and reported on over time, aka standards [5,6]
- additional: ITMOs deliver a reduction of emissions that would not have occurred without the market
ITMOs must relate to “emission reductions and removals, including mitigation co-benefits[3]
resulting from adaptation actions and/or economic diversification plans or the means
to achieve them” (UNFCCC 2021a, para 1(b)). They must be authorized by the host party for use towards another party’s NDC, international mitigation purposes (e.g. the CORSIA scheme for international aviation), or other purposes like the voluntary market. Market-based cooperation under Art. 6.2 involves the transfer of mitigation outcomes (i.e., emission reductions or removals, or allowances) between a buyer and a seller.
- The Article 6.4 mechanism in the Paris Agreement replaces the prior Clean Development Mechanism (CDM) under the Kyoto Protocol. This mechanism allows countries to fulfill their emissions reduction goals through projects in other nations through a centralized approach. The coordination of the mechanism is handled by the UNFCCC through the Article 6.4 Supervisory Board (SB). Projects executed under this mechanism produce Certified Emission Reductions (CERs) or A6.4ERs, commonly referred to as “carbon credits.”
- Article 6.8 of the Paris Agreement supports “non-market” approaches (NMA). These approaches cover all ways to contribute to mitigation that don’t involve a carbon market, such as nature-based solutions, ecosystem solutions, reforestation, and community projects, or implementing taxes to discourage emissions. This article provides a formal framework for international climate cooperation outside of carbon markets, enhancing public and private sector participation in NDC implementation, and enabling coordination across instruments and relevant institutional arrangements.
Article 6 envisions global participation in mitigation, with all parties engaged through NDCs, whereas the Kyoto Protocol’s mitigation commitments only covered developed countries. [3].
In addition, non-state actors, such as private companies, sector associations, and NGOs, can engage in Article 6 cooperation as activity developers, credit sellers, and buyers. Non-state actors may use ITMOs or A6.4ERs to finance mitigation beyond their value chains and make claims about offsetting specific emissions or contributing to NDC achievement (Obergassel et al. 2020) [7] .
2.2 Article 6 rulebook
“Article 6 rulebook” was adopted by the CMA at COP 26 in Glasgow in November 2021. It built on the original Paris Agreement and is differentiated into three documents covering Article 6.2, 6.4, and 6.8. The rulebook sets out how international carbon markets under Article 6.2 and 6.4 will function in practice, along with a work programme on non-market approaches under Article 6.8. After the initial negotiation of the overarching Paris Agreement framework there have been several attempts to operationalize Art.6. All attempts were quite incomplete and had several loopholes. The first one was in Katowice, where final outcomes on Article 6 negotiations in the Katowice rulebook were largely procedural, forming part of the Katowice Climate Package (KCP). The Article 6 part of the Katowice text refers to paragraph 77(d) of the Paris Agreement rulebook, which is part of the Transparency Framework contained in decision 18/CMA.1:9. The outcome of the Katowice negotiations was that cooperative approaches that involve the use of internationally transferred mitigation outcomes can contribute to NDC mechanisms. However several points remained open and unresolved as the KCP did not lead to an implementable Article 6 [10]. Further discussion on COP25 in Madrid (Figure 1) ended up in stalemate and for the second COP in a row there was no decision on the Article 6 rulebook. The end of SBSTA 51 at COP25 yielded no positive outcome, that is no decision, so the process was handed over to the Chilean Presidency who produced three texts trying to find a landing zone that would accommodate the party’s needs. In the end, according to Decision 9/CMA.2,11 the issue was again sent over to SBSTA for further work at SBSTA 52, which was due to take place in June 2020 in Bonn. With the incidence of the COVID-19 pandemic in March 2020 and no COP held that year, Article 6 negotiations were substantively held back until COP26- whereupon agreement on the basic text of Article 6.2, Article 6.4 and Article 6.8 was reached. As a result, the Paris Agreement ‘rulebook’ was now finalised.
The Article 6 elements of the Rulebook addressed the main elements still under active discussion in Article 6 negotiations. These elements include: governance, environmental integrity, interoperability, corresponding adjustment and transparency and sustainable development [10]. (see also Article 6: implications on health). These elements are particularly prescient in negotiations on the market oriented parts of Article 6 under Article 6.2 and 6.4. Both articles provide the functions that ensure that mitigation outcomes transferred internationally to be used towards the NDC of the Party other than the Party where the mitigation outcome takes place. However the two articles have different governance structures and actor involvement.
Article 6.2 is bilateral/plurilateral in nature where: the cooperating will define what constitutes an acceptable mitigation outcome to both Parties, how it is measured, certified, what kind of assurance may be acceptable to both Parties that a corresponding adjustment will be undertaken.
Figure 2 shows the main contents regarding “Guidance of cooperative approaches referred to Article 6.2” contained in the Decision 2/CMA3
Article 6.4 on the other hand is multilateral in nature: it provides that certain functions could be effectively devolved to the Parties (e.g., baseline definition), under guidelines for the supervisory body.
When compared with the CDM under the Kyoto Protocol, it provides a stronger element of decentralization.
The keypoint regarding Article 6 implementation through the Rulebook is that ITMOs should be consistent with the Paris Agreement’s provisions and objectives, and parties need to take steps to ensure this consistency. To further illustrate this point, below we report some elements highlighted by the Center for Clean Air Policy (CCAP) in one of their official submissions on Article 6:
Final text regarding Article 6 requires ITMOS to:
- safeguard environmental integrity;
- prevent double-counting;
- be voluntary and authorized by Parties.
At the same time, to align with the objectives of the Paris Agreement, as laid out in Article 2, ITMOs should also embody the following characteristics[8]:
- ITMO use should support NDC implementation in both source and user country;
- ITMOs should support ambition; and ITMOs should seek synergies with other forms of cooperation as appropriate
FIgure 3 summarizes desired characteristics of ITMOs standing to CCAP
2.3 Current application of Article 6 and concerns on implementation
Article 6 is not yet fully operative but actually some projects are in the agreement phase especially regarding bilateral cooperation under Art. 6.2.
In particular Switzerland is very active in the field having already signed bilateral agreements with Senegal; Ghana and Dominican Republic [11].
Japan is also very active especially in the capacity building and building partnerships for market integrity[12].
However in general remains concerns as to Article 6’s effective implementation.
The Paris Agreement regime does not fully specify the ITMO mechanisms that could be used in Article 6. That’s why guidelines and rules and procedures are very needed.
Indeed, while many parties and observers understand that ITMOs offer a path to carbon markets, there are no specific references in the Paris Agreement that identify carbon markets as the only channel for ITMOs.
Parties could choose to advance other types of transfer arrangements that may be enabled by the broad provisions of Article 6, in addition to standard carbon market type mechanisms, including:
- Bilateral/plurilateral arrangements by Parties that do not involve the transfer of tradable securities like emissions reduction credits (ERCs) even if they do transfer a verified reduction from a source Party to a Party that will use it against its NDC; Publicly funded reductions, including those supported by multilateral finance entities, that can be verifiably generated and either canceled or used against NDCs;
- Transfer of recognition: in some cases, parties providing support may have an interest in being recognized as contributing to the achievement of emissions reductions, even while such reductions are accounted for only in the host country inventory; and Center for Clean Air Policy: Submission on ITMOs 4
- Transfer of non-greenhouse gas based outcomes: with a number of Parties defining targets or subnational goals related the drivers of emissions and removals – energy from renewable sources, acres of reforestation/afforestation, etc.—ITMOs could be defined in other ways than in tons of CO2 equivalent [3,10].
Moreover from now until the full implementation of Article 6 we need to face the transition from CDM to the current regime. In many developing countries, national CDM authorities may face a new challenge in overseeing ITMOs. In non-Annex I countries, several private sectors have become accustomed to being able to sell emissions reduction credits on the international market.
So long as the price was attractive, there was no reason for companies to abstain from selling mitigation outcomes, and governments in these countries had the incentive to allow as many emissions reductions to be sold as possible.
Under Article 6 the same countries will now have their own targets to achieve, and are identifying strategies to implement them. As a result, they may face tough trade-offs as they attempt to implement or incentivize mitigation actions to achieve their own targets while allowing access by their private sector to international carbon markets [10,3,9].
3. What has been discussed under Art.6 at COP27
During the negotiations of COP27, after the joint plenary of SBSTA and SBI 3 main documents
- Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement and in decision 2/CMA.3 (synthetically further referred as Article 6.2)
- Guidance on the mechanism established by Article 6, paragraph 4, of the Paris Agreement(synthetically further referred as Article 6.4)
- Work programme under the framework for non-market approaches referred to in Article 6,paragraph 8, of the Paris Agreement and in decision 4/CMA.3 (synthetically further referred as Article 6.8)
3.1 Negotiation main outcomes
Regarding Article 6.2, the discussion centered around the three topics of Tracking, Reporting, and Review. Despite two weeks of negotiations, these issues have not yet been resolved.
Interoperability
One of the key topics within Tracking and Reporting is Interoperability, which was also discussed extensively i n the context of Article 6.4, causing further difficulties. To better understand the discussion, it is important to have an overview of how the exchange works. The countries must first sign an agreement of cooperation. Then, ITMOs, which are meant for use towards an NDC or for other international mitigation purposes outside of NDC achievement, must be
- authorized by the host country after a project has been identified,
- issued during the project when emissions are being mitigated, and
- used or canceled for their specified purpose.
All of the bookkeeping must be done through a platform, known as a registry. Each country must decide whether to have its own registry or use the international registry. Then, of course, the ITMOs can be moved from one country to another, i.e. from one registry to another. To avoid double counting, the concept of interoperability was introduced, requiring some form of communication protocol between registries.
During COP27, discussions around interoperability ranged from allowing all pairs of countries to have de facto their own interoperability rules, to implementing a mandatory logging system that would guarantee the avoidance of double counting.
Actually, both approaches have advantages and disadvantages. For instance, the first approach provides more flexibility in terms of the choice and implementation of the registry, making it more economically and technically feasible. However, the second approach is more transparent to external observers who want to monitor and report on the functioning of Article 6.2.
Despite extensive discussions, the strategy of diluting the proposed texts until they all fit into a single proposal was successful. Thanks to the vague statement “Where participating Party registries are interoperable […]” at the beginning of the paragraph, it became meaningless, as long as parties are able to show or implement registries that are not interoperable (by choice).
Confidentiality
Besides submitting and tracking all ITMOs, the reporting and reviewing aspects are also crucial. Every project must prepare an initial report, known as the “Initial Report,” followed by a “Biennial Transparency Report” every two years. These reports are reviewed by a group of experts and may be sent back for clarification if necessary. Although some progress has been made, there is still no final version of either the initial report or the biennial report.
The Glasgow Climate Pact specifies the need to develop “modalities for reviewing information that is confidential”. During negotiations, proposals for confidentiality varied from stringent to widespread applications. In the end, the option with no limitations on confidentiality passed, allowing virtually any project-related information to be sent confidentially, leading to a significant lack of transparency. Review experts will still have access to confidential information, but the involvement and critique by local stakeholders and civil society may be greatly limited, as well as independent monitoring by external parties.
Items not agreed or accepted at COP27 (to be decided at future meetings)
Infrastructure, as well as reporting and reviewing, will still be topics of discussion at future COPs due to the many open points present.
- The gaveled version of the text clearly indicates the following CMA5 as the intended deadline to finalize a recommendation on the agreed electronic format.
- A request has been made for the creation of a first version of the centralized accounting and reporting platform and the Article 6 database with a deadline of June 2024, and a detailed list of requirements is expected from the secretariat for parties to provide their views and inputs.
- Additionally, a request has been advanced for the secretariat to implement the international registry, which is expected to be ready by 2024.
It’s important to recall that Article 6.2 is already operational, allowing parties to sign agreements and implement projects under it. This presents both advantages and challenges. On one hand, it enables the implementation of mitigation projects without further delay. On the other hand, it raises concerns regarding the robustness of these projects, as some aspects remain unresolved, including the aforementioned ones related to infrastructure. This can result in varying requirements and limitations for specific projects following future negotiations, such as those regarding emissions avoidance.
- In the final iteration the provision on human rights and those of indigenous peoples, and other groups was moved from the operative text to the non-operative preamble.
- Statement on overall purpose of carbon markets being for mitigation purposes removed in the final iteration.
- SOP and OMGE for both authorized and non-authorised now contribution A6.4ERs Annex IV. B.[39] [40]
- But no CA on non-authorised units or CDM transfers
- Crediting period of CDM activities shall end on 31 December 2025 or sooner – Annex I I.A.3(a)-(c)
- Slightly more qualified purpose for what contribution ER is (contributing to the reduction of emissions levels in the host Party).
- Guidance on removals is not being sent back to the Supervisory Body with direction to consider their advice in light of their obligations human rights and indigenous rights etc.
Items not agreed or accepted (to be decided at future meetings)
- Definitions of removals- [20]
- Decision to have a paired back work program.
3.2 Comments from constituencies
Constituencies remained highly engaged throughout the Article 6 negotiations at COP27, expressing different views as to developments. The Climate Action Network (CAN) as part of ENGO was active both in terms of the markets working group as well as from more specific perspectives such as human rights & health. YOUNGO’s Finance and Markets WG also played a role in tracking the negotiations and advocating for robust rules.
CAN noted tracked developments across all Article 6 areas. One area that emerged as an initial concern was the work of the newly formed Supervisory Body. The Supervisory Body provided Guidance on Removals to the CMA to vote on that the CMA subsequently sent back. The text had many issues, most pressingly in terms of removals, where language opened the door to risky techno-fixes. CAN’s view was that the guidance of the Supervisory Body appeared to underscore the political nature of the group staffed by negotiators, as opposed to its function as an expert group capable of supervising carbon markets robustly. This means that developments in 2023 will be crucial to determining the integrity of guidance the Supervisory Body can issue (in terms of removals, conservation enhancement and permanence), as well as its over credibility. If the Supervisory Body does not deliver in this regard there is a strong risk that Article 6 could do more harm than good for the overarching goals of the Paris Agreement.
Focus then turned to focus on the other aspects of operationalisation of the Article 6 mechanisms. Under 6.4 there was concern, shared with the Human Rights & Climate Change Working Group, that parties relegated human rights and indigenous protections to the non-operative preamble, and furthermore, removed the need for them to be considered in terms of the Supervisory Body’s work on removals above. At the same time, that the definition of non-authorized credits was expanded even further to now include “which may be used, inter alia, for results-based climate finance, domestic mitigation pricing schemes, or domestic price-based measures, for the purpose of contributing to the reduction of emission levels in the host Party”. Moreover, for non-authorized credits, concerningly that there were also no corresponding adjustments to OMGE or SOP, expanding the risk that these credits could be used to greenwash. CAN was also concerned at how expansive confidentiality provisions were noting that the scope to designate information confidential was considerably more than other UNFCCC standards such as the transparency framework (e.g. 18/CMA.1, Annex, para. 47 “except in cases where it may be technically impossible to separate information on emissions and removals in the LULUCF sector, and noting that a minimum level of aggregation is needed to protect confidential business and military information.”).
Under 6.2, CAN noted that the review powers were also more limited. The proposed review is now focused on a consistency check of submitted information, and the review team restricted from reviewing the adequacy or a cooperative approach, the activities under the approach, or the authorization of the approach towards use. That said ,they note that this subsequent agreement does not overide para 27 of the Glasgow 6.2 Decision, where the review shall include recommendations to the party on how to improve consistency with the guidance (including EI/SD criteria, conservative baselines, etc.)
In terms of the Clean Development Mechanism CAN had concern that there was not a clear end date for the mechanism, in essence risking further impacts from its weaker methodologies and credits from it. Text that would have set a 2025 or 2030 end date to when CERs can be transferred to the A6.4 registry was replaced with an open-ended period. However, CDM activities still remain within the remit of the SB. There was also weak provision about the “temporary solutions” as to transfers from the CDM to Art 6.4 registry, while CAN noted a hook for an account for “corrective actions” for cancellation of A6.4ERs, this could still be an area of weakness.
In terms of Art 6.8 CAN noted the decision to establish a UNFCCC web-based platform, and acknowledged the “party-driven facilitation and matching to identify, develop and implement” NMAs which could involve “financial, technology and capacity-building support needed” and will operate in two phases: 2023-2024 identifying and framing NMAs, and 2025-2026 for implementation.
YOUNGO’s Finance and Markets Working Group actively tracked and engaged with Article 6 negotiations at COP27. YOUNGO’s impression was that negotiators seemingly backtracked on a lot of the ‘good-will’ generated at COP26 to have a carbon market that has environmental integrity and protects human rights. They noted evidence of this was seen across the board, ranging from the rejection of an international tracking log by the United States, through to the removal of language on indigenous rights and human rights from operative text into the preamble. To YOUNGO it was similarly concerning to see that the provision that stated carbon markets are intended to reduce emissions was also deleted at the last minute. At the talks negotiators were reminded several times by co-chairs that they cannot rewrite the provisions of the Paris Agreement, nor the Article 6 provisions agreed to at COP26. Nevertheless, YOUNGO has concerns as to the increasing risk of backsliding and complacency in market mechanisms- especially given that at COP26 parties agreed to not to put any quantitative limits on their use. Because of this on the final day of proceedings YOUNGO delivered an intervention highlighting the importance of environmental integrity in the next steps ahead.
4. Open Perspectives towards COP28
Even though some progress on negotiation with quite commitment has been done by negotiators under Art.6, the approved texts on guidelines are still far from the final version.
The topics are of course quite complex and the main risk is the time of decision will be too long with respect to the need of implementation. The next SBs and COP28 had hard work on accelerating the process and taking as example Japan and Swiss Parties need to take initiative collectively and individually to achieve operationalization.
Parties should establish links between ITMO negotiations and those on other forms of cooperation,
Moreover capacity building on such complex questions is very requested and needed to facilitate the development and sharing of best practices.
In the next session SBSTA negotiations on guidelines for ITMOs should prioritize negotiation on those areas where risks are greatest without central guidance and that pose the most immediate relevance to Parties’ domestic policy planning efforts.
Parties will need to take responsibility for ensuring that ITMOs they use or generate support to achieve the Agreement’s objective.
But of course also markets need to be prepared.
In particular INTEGRITY needs to be assessed on the SUPPLY and on the DEMAND SIDE: actually there is a great availability on the SUPPLY side, but sometimes this not matches with ambition and expectation of the demand that is still reluctant.
It still needed a clear, compliant and accepted regulatory framework that for example could be very coherent with the ISO net-zero guidance principles.
Beside the COST, the assets need to be also REPUTATIONAL in order to spin up the demand and unlock from the current state of uncertainties due to the lack of a clear framework.
More-over Art.6 structures need to communicate clear and agile with the VCM: the involvement of private sector could be a boost and the key strategy also to implement that is real.
But all passes to operationalize and foster guidance that provides an interoperable, sustainable, transparent and environmentally integer mechanism….that now is a bit far from has been achieved.
5. Conclusions
Heralded as the COP for implementation, the Article 6 negotiations at COP27 proved just how complex a task this is.
From the Article 6.4 Supervisory Body whose guidance was rejected, to the SBSTA who forwarded a record number of redlines forward to the CMA to negotiate- it was clear that when it comes to Article 6, the devil remains in the detail.
The rules being negotiated are highly time sensitive given that Article 6 projects have already been announced. Disagreements about an international tracking log, and other basic requirements for environmental integrity create the risk that like the CDM, the Paris Agreement carbon market will become another wild west of carbon crediting.
Moreover understanding and explain clearly the interlinkages between Article 6 cooperation and host country NDC implementation is crucial for ensuring that Article 6 cooperation contributes to–and does not undermine–implementation of NDCs or the long term goals of the Paris Agreement. National Article 6 strategies and criteria should be developed in parallel with NDC implementation planning [10].
That’s what we expect for the next roadmap on Art.6 starting from COP28
Notes
Transparency integrity
References
- IPCC AR6 https://www.ipcc.ch/report/ar6/wg1/
- Operationalising an ‘overall mitigation in global emissions’ under Article 6 of the Paris Agreement
https://newclimate.org/sites/default/files/2018/11/Operationalising-OMGE-in-Article6.pdf
- A pocket Guide to Article 6 – ECBI
https://ecbi.org/sites/default/files/Pocket_Guide_to_Article_6.pdf
- https://unfccc.int/process/the-paris-agreement/cooperative-implementation
- Internationally Transferred Mitigation Outcomes (ITMOs)
https://www.pembina.org/pub/internationally-transferred-mitigation-outcomes - Carbon Markets and standards a new agenda for ldc Negotiators
- Obergassel, W., Hermwille, L., & Oberthür, S. (2021). Harnessing international climate governance to drive a sustainable recovery from the COVID-19 pandemic. Climate Policy, 21(10), 1298-1306.
- CCAP Submission on Internationally Transferred Mitigation Outcomes
https://unfccc.int/files/parties_observers/submissions_from_observers/application/pdf/696.pdf
- Article 6 – Decoding Rulebook
- Swiss, International Bilateral Agreements https://www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/climate–international-affairs/staatsvertraege-umsetzung-klimauebereinkommen-von-paris-artikel6.html
- Launch of the “Paris Agreement Article 6 Implementation Partnership”: Towards High Integrity Carbon Markets
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