COP markets failure may see UN by-passed
Independent efforts may gather their own momentum after deadlock in Madrid
UN-led efforts to craft a new set of rules governing international emissions trading failed for a second time at the COP25 meeting in the Spanish capital in December. But, while countries will again attempt to agree the guidelines at the next summit in Glasgow at the end of this year, there is a growing sense that many signatories may not need to wait for a UN rulebook to get involved in supra-national schemes.
Negotiations over international carbon trading after 2020 were meant to have been completed in 2018 as part of a wider agreement on implementing the 2015 Paris Agreement, which will succeed the Kyoto Protocol next year. But the lack of agreed procedures is not proving an insurmountable barrier to progress.
“Countries that are serious about using carbon markets to increase ambition should move forward to set their own strong rules for high-integrity international emissions trading, paving the way for faster, deeper cuts in GHGs,” says Nat Keohane, vice-president of climate at US non-profit the Environmental Defense Fund.
Market advocates increasingly believe that the draft text of Article 6.2 contains enough guidelines to be used for a system of linked national markets
Markets provisions are contained in Article 6 of the Paris Agreement, which sets out different ways in which countries may participate in emissions trading. Article 6.2 sets out a framework for “cooperative approaches”, which allow sovereign parties to transfer emissions reductions between themselves. Under a system of linked markets, any transfers of emissions allowances between markets would be governed by this article. Article 6.4 deals with a new crediting mechanism, for generating emissions offsets in exchange for investment in clean technology projects.
Draft texts for both garnered widespread support at the Madrid talks, but did not receive unanimous backing of countries. Australia, Brazil and India objected to a ban on carrying over unused credits and quotas from the Kyoto Protocol—in the case of Australia these Kyoto surpluses would allow it to achieve more than half its Paris target without having to make any further material reductions.
Despite failure to reach agreement on Article 6 as a whole, market advocates increasingly believe that the draft text of Article 6.2 contains enough generally-accepted rules and guidelines that it can be used as the basis for a system of linked national markets.
There is broad consensus on issues such as measuring, reporting and verifying emissions reductions, and on recording and tracking transfers of units between countries. These, observers suggest, are sufficient to inform bilateral and multilateral market links.
The UN has a chance to broker a deal on Article 6 at this year’s COP. If it fails again many will start to question its relevance
“A key takeaway for negotiators and countries is that they should build on what they produced in Madrid, rather than view it as a bad deal that we managed to avoid,” says Keohane.
Studies have shown that linked markets under a robust set of UN guidelines could generate as much as $320bn in annual savings by 2030 compared to purely national action. These savings, if ploughed back into more emissions cuts, could boost reductions by up to 9bn t/yr by 2030.
Even before the UN talks bogged down, national and even sub-national markets were already linking together to leverage lower costs and widen their scope of reductions. On 1 January this year, the Swiss emissions trading system (ETS) formally linked to the much larger EU market, while the UK government’s preferred post-Brexit plan is to set up its own national carbon market and link that to the EU ETS system.
In the US, California’s state-wide carbon market has been linked to a smaller market in the Canadian province of Quebec for five years, while in Latin America several like-minded countries are building national markets that can be linked at a later date.
The subject of linking has been studied intensively for more than 10 years, and there is general agreement on the value of increased market size and liquidity when it comes to cutting greenhouse gases.
The UN has another chance to broker a deal on Article 6 at this year’s COP in Glasgow. If it fails again many will start to question its relevance, particularly if, before then, more countries begin to make plans to both build and link up their own markets. Instead of brokering a new future for climate markets, the UN could end up playing catch-up.