Carbon Markets Look Set To Emerge From Katowice Intact But Incomplete

Carbon Markets Look Set To Emerge From Katowice Intact But Incomplete

15 December 2018 | KATOWICE | Poland | Year-end climate talks (COP24) are drawing to a close here, and the results aren’t as bad as you may have heard.

The closing plenaries are set to begin now, and are being live-streamed here, but the negotiating text has been circulating for hours and represents a combination of good, bad, and ugly compromises that leave international carbon markets intact while sidelining Brazil’s plan to create a centralized hub akin to the Kyoto Protocol’s Clean Development Mechanism (CDM).

The specific guidance relates to Article 6 of the Paris Climate Agreement, which says countries can generate internationally-transferred carbon offsets, but only if they’re used to deepen existing climate action plans (Nationally Determined Contributions, or “NDCs”), and only if they follow rigid guidelines developed through decades of scientific review.

Article 6 lays out two paths for creating these offsets, which are dubbed “ITMOs” in the argot of international climate talks (for internationally-transferred mitigation outcomes).

The first path, articulated in Article 6.2, lets lets countries generate ITMOs under recognized guidance, and it has already led to a proliferation of cross-border carbon-trading initiatives around the world.

The second path, explained in Article 6.4 and championed by Brazil, is being forged as a centralized mechanism within the UNFCCC called the Sustainable Development Mechanism (SDM).

Both paragraphs faced challenges during the Katowice talks.

Burdens and Loopholes

On the eve of the talks, several current and former negotiators – most prominent among them being the respected former US negotiator Sue Biniaz – warned that some countries were violating the spirit of the Paris Agreement by loading the rule book for implementing it with overly prescriptive proposals.

“Article 6.2 is deliberately worded to recognize that countries may use transferred mitigation outcomes toward NDCs — whether or not the CMA (Conference of Parties to the Paris Agreement) provides guidance,” says Nathaniel Keohane, the Vice President in charge of Global Climate for the Environmental Defense Fund (EDF). “That’s the crucial meaning of the phrase ‘consistent with guidance,’ which is widely understood to mean that if guidance exists it must be followed — but action does not depend on guidance.”

In the months leading up to Katowice, however, negotiators from several countries layered in proposals that critics said exceeded the existing guidelines. Biniaz went so far as to characterize the rule book as a rewrite of the Agreement itself — an assessment that seemed to resonate with observers here.

“The draft text that negotiators came to Katowice with included roughly 700 options, representing multiple examples of overreach, included by multiple countries,” said one observer, speaking on condition of anonymity. “They should not have been there in the first place, and resolving took valuable time from priority topics, which cannot be understated.”

Article 6.4, meanwhile, faced a different challenge, as Brazil pushed for language that would allow developing countries to count their emission reductions twice in the early years, provided they promise to make it up later.

As negotiations enter the final hours, the task of developing guidance for Article 6 looks set to be relegated to a subsidiary body charged with resolving scientific and technical challenges, meaning no official guidance will emerge until next year’s talks in Chile.

This is a developing story. Check back after the Plenary for updates.

Article 6: Annotated

Here is the full text of Article 6, with brief summaries of each paragraph in simple English.

  1. Parties recognize that some Parties choose to pursue voluntary cooperation in the implementation of their nationally determined contributions to allow for higher ambition in their mitigation and adaptation actions and to promote sustainable development and environmental integrity.

Countries can cooperate with each other to ramp up their climate change strategies (“allow for higher ambition in their mitigation and adaptation actions”) and promote sustainable development.

  1. Parties shall, where engaging on a voluntary basis in cooperative approaches that involve the use of internationally transferred mitigation outcomes towards nationally determined contributions, promote sustainable development and ensure environmental integrity and transparency, including in governance, and shall apply robust accounting to ensure, inter alia, the avoidance of double counting, consistent with guidance adopted by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement.

Countries can meet their emissions reductions targets (“nationally determined contributions”) by trading emissions reductions (“internationally transferred mitigation outcomes”) among each other, and they can create their own governance structures to manage the process, but they must make sure the trading promotes sustainable development, and they must follow accounting principles approved by the UNFCCC.

Questions Raised:

The Paris Accord allows the transfer of emissions reductions between countries, but the national climate strategies are not as uniform as the caps were under the Kyoto Protocol.Interestingly, the Paris Accord does say that trading must promote sustainable development, which seems like a remnant from the days of differentiation.

  1. The use of internationally transferred mitigation outcomes to achieve nationally determined contributions under this Agreement shall be voluntary and authorized by participating Parties.

No countries are obligated to participate in the carbon markets.

  1. A mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development is hereby established under the authority and guidance of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement for use by Parties on a voluntary basis. It shall be supervised by a body designated by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement, and shall aim:
  1. To promote the mitigation of greenhouse gas emissions while fostering sustainable development;
  2. To incentivize and facilitate participation in the mitigation of greenhouse gas emissions by public and private entities authorized by a Party;
  3. To contribute to the reduction of emission levels in the host Party, which will benefit from mitigation activities resulting in emission reductions that can also be used by another Party to fulfil its nationally determined contribution; and
  4. To deliver an overall mitigation in global emissions.

The UNFCCC will also create a centralized trading platform that countries can use to trade emissions reductions. Some are calling this the “Sustainable Development Mechanism”.

  1. Emission reductions resulting from the mechanism referred to in paragraph 4 of this Article shall not be used to demonstrate achievement of the host Party’s nationally determined contribution if used by another Party to demonstrate achievement of its nationally determined contribution.

If one country transfers an emissions reduction to another country, then it can no longer deduct those emissions from its own carbon inventory. In other words: no double-counting.

  1. The Conference of the Parties serving as the meeting of the Parties to the Paris Agreement shall ensure that a share of the proceeds from activities under the mechanism referred to in paragraph 4 of this Article is used to cover administrative expenses as well as to assist developing country Parties that are particularly vulnerable to the adverse effects of climate change to meet the costs of adaptation.

Some of the money raised from the central platform will go to maintaining the mechanism, and some will go to least-developed countries.

  1. The Conference of the Parties serving as the meeting of the Parties to the Paris Agreement shall adopt rules, modalities and procedures for the mechanism referred to in paragraph 4 of this Article at its first session.

High-level negotiators will provide more details on the Sustainable Development Mechanism at the end of this year in Marrakesh.

  1. Parties recognize the importance of integrated, holistic and balanced non-market approaches being available to Parties to assist in the implementation of their nationally determined contributions, in the context of sustainable development and poverty eradication, in a coordinated and effective manner, including through, inter alia, mitigation, adaptation, finance, technology transfer and capacity-building, as appropriate. These approaches shall aim to:
  1. Promote mitigation and adaptation ambition;
  2. Enhance public and private participation in the implementation of nationally determined contributions; and
  3. Enable opportunities for coordination across instruments and relevant institutional arrangements.

Countries can also cooperate without using markets, and non-market approaches can be integrated with market-based approaches. Non-market approaches have been promoted by countries such as Bolivia and Venezuela and might include policies to promote renewable energy, as an example.

  1. A framework for non-market approaches to sustainable development is hereby defined to promote the non-market approaches referred to in paragraph 8 of this Article.

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