Talks on carbon markets put climate future in a fix

  • Finalising the rules for carbon markets under article 6 was a contentious issue for COP25 in Madrid.
  • The issue was left unresolved as negotiators couldn’t reach a deal on aspects such as double counting and carryover of Kyoto credits into the Paris agreement era.
  • Experts say no deal is better than a bad deal as Article 6 will be back in focus at the climate talks in 2020, but worry about delays in climate action.

The United Nations climate conference in Madrid, Spain, closed last week without resolving one of the most significant objectives it set out to achieve – setting rules for carbon markets under Article 6 of the Paris Agreement.

Article 6 deals with ways in which emission reduction measures to be implemented in a country and the resulting emission reductions can be transferred to another country; mechanisms to mitigate greenhouse gases by supporting sustainable development; and also includes a third type, which involves anything that is not market-based.

Under the Paris Agreement that aims to limit the global average temperature below 2 degrees Celsius above pre-industrial levels, countries have prepared timelines and targets to reduce their national carbon emissions called Nationally Determined Contributions (NDCs). The Paris Agreement comes into force from January 1, 2020.

Despite exceeding the schedule by over 44 hours, negotiators at the climate summit or COP25 failed to reach a deal on Article 6. The discussion has now been pushed to the intercessional meeting in May 2020 at Bonn, Germany and COP26 in November at Glasgow, Scotland.

In an “honest and realistic assessment” statement released on December 19, Patricia Espinosa, Executive Secretary of UNFCCC (UN Framework Convention on Climate Change), said, “We need to be clear that the conference did not result in agreement on the guidelines for a much-needed carbon market – an essential part of the toolkit to raise ambition that can harness the potential of the private sector and generate finance for adaptation.”

COP25 venue in Madrid, Spain. Photo by Kartik Chandramouli/Mongabay.
COP25 venue in Madrid, Spain. Photo by Kartik Chandramouli/Mongabay.

The main hurdles for negotiations on Article 6 were the rules to avoid double counting where both countries buying and selling emission reductions could end up counting it to achieve their own NDCs, smooth transition of carbon credits from the Kyoto mechanism into the Paris regime, and the ‘share of proceeds’ that would be set aside for climate change adaptation in vulnerable countries.

Australia demanded a carryover of Kyoto units along with Brazil, which also wanted the ability to use double counting. The two countries were strongly criticized for blocking the negotiations from reaching a closure.

A recent report by Climate Analytics states, “Allowing roll-over of credits prior to 2020 would also potentially destroy the nascent Article 6 market by flooding it with pre-existing credits. Some of these credits could also be double-counted if they are also used to meet 2020 targets.”

The report also states, “The market mechanisms under the Kyoto Protocol have accrued an available supply of some 4.65 Gt CO2 worth of carbon offsets, largely allocated to China, India, and Brazil.” It evaluates that countries would achieve 40% of NDCs if these old credits are passed into the Paris regime. Current NDCs are already considered insufficient to stay within 2 degrees Celsius above pre-industrial levels. Implementations of current NDCs are projected to reduce the global average temperature by 3 degrees Celsius above pre-industrial levels.

Ravi Shankar Prasad, lead Indian delegate, told Mongabay-India in an interview, “These credits, which were generated, and the projects which have been laid down are duly authenticated, verified by the UNFCCC system. Now, the parties or project proponents, who put these things together, they worked on faith in the UNFCCC system. They invested and they expected certain returns. Now, after having gone through all this process, today people are saying that those credits are of no value, which is a breach of trust.”

“They are expecting that it may lead to flooding of the market or something like that, but then the markets are supposed to correct themselves,” he added.

Eventually, the text on Article 6 also removed a requirement for parties to “respect, promote and consider their respective obligations on human rights,” which created furore among civil society groups, indigenous representatives and some parties. Experts say that the same mistake in Kyoto Protocol’s Clean Development Mechanism, a precursor to Sustainable Development Mechanism under Article 6, caused human rights violations when the projects were implemented.

Erika Lennon, Senior Attorney, Center for International Environmental Law (CIEL), said, “On Article 6, despite the pressure to deliver the only remaining part of the Paris Rulebook at COP25, several parties refused to trade human rights and environmental integrity for carbon markets in Madrid, resulting in the decision being punted to COP26. This delay was the only responsible way forward today. Now, parties must ensure that when rules are adopted for the Article 6 activities, they safeguard human rights and indigenous peoples’ rights, guarantee public participation, and ensure access to justice so as to uphold the integrity of the Paris Agreement at COP26.”

Carolina Schmidt, COP25 President, Chile. Photos by IISD/ENB, Kiara Worth.
Carolina Schmidt, COP25 President, Chile. Photos by IISD/ENB, Kiara Worth.

Towards the end of the climate talks, a group of 31 countries led by Costa Rica established the “San José Principles” with a set of 11 demands for high ambition and integrity of the markets. It prohibits the use of Kyoto units and ensures that double counting is avoided but does not have specific safeguards for human rights as well.

Carlos Manuel Rodriguez, Minister of Environment and Energy of Costa Rica, said, “This is a definition of success on Article 6. Anything below these San Jose principles won’t create a fair and robust carbon market.”

While science dictates the urgency to ramp-up climate action and accelerated implementation of adaptation and mitigation policies, several experts felt that in the case of carbon markets, no deal was better than a bad deal. Gilles Dufrasne, Policy Officer with Carbon Market Watch, said, “After two weeks of negotiations, discussions on carbon markets took such a bad turn that seeing no agreement was actually a relief. We came here asking for urgent action and several countries only offered accounting tricks and cover for climate inaction. These loopholes are nothing but a way of cheating the planet and betraying the people.”

Climate activist, Greta Thunberg, echoed similar sentiments in  her speech to climate negotiators, “Finding holistic solutions is what the COP should be all about, but instead it seems to have turned into some kind of opportunity for countries to negotiate loopholes and to avoid raising their ambition.”

Sanjay Vashist, director at Climate Action Network South Asia, said, “The primary goal of the latest round of climate negotiations in Madrid was to complete the unfinished tasks of the Paris Agreement rulebook. The rulebook would contain the processes, guidelines and institutions for the implementation of the Paris agreement however developed countries prioritised their national interests over global common good and failed the world in finding a robust way forward that shows the urgency and commitment required to tackle the climate crisis.”


Banner image: Unresolved discussions on carbon markets from COP25 will now continue at the intercessional session and COP26 in 2020. Photo from Unsplash.

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