Carbon markets left out of Paris agreement rules

  • Market: Emissions
  • 17/12/18

Countries have postponed until 2019 a decision on how carbon markets will function under the Paris climate agreement, after the issue threatened to derail negotiations in the final hours of the UN's annual climate summit (Cop 24) in Katowice, Poland.

Negotiators from nearly 200 countries on 15 December agreed a set of rules that will put the Paris agreement into operation when it takes effect in 2020.

The guidelines cover how countries will track and report their emissions, as they take action to deliver the agreement's goal to limit global warming to 2˚C by the end of the century, and pursue efforts towards 1.5˚C.

But negotiators failed to reach agreement on contentious issues including carbon markets and the transfer of climate finance to developing countries beyond 2020. Decisions on these parts of the rulebook have been pushed into meetings next year.

Carbon markets

Talks on carbon markets reached an impasse in the final hours of Cop 24, which had been scheduled to end on 14 December, but overran late into the night on 15 December.

Article 6 of the Paris agreement contains rules that would allow countries to trade emissions reductions, and count these reductions towards their national CO2 cutting targets under the Paris treaty.

This could provide the foundations for an international carbon market.

Negotiations reached a gridlock when Brazil attempted to insert a loophole into the text that would allow it to count CO2 cuts towards its national emissions target, and sell the same CO2 cuts to another country, for use towards that country's target.

This would have resulted in double counting of emissions cuts — a red line for countries including the EU, which rejected Brazil's proposal. Decisions on article 6 will be taken at a fresh round of UN talks in November 2019.

Countries also failed to agree whether certified emissions reduction (CER) credits can be used for compliance with the Paris agreement's goals.

Allowing parties to count CERs towards their Paris pledges could create a new source of demand in the CER market, which has been plagued by low prices and oversupply in recent years. But environmental groups warned that CER use would undermine the Paris agreement's effectiveness, owing to concerns over the environmental integrity of CER-issuing projects.

The delayed decisions on article 6 will complicate developments in UN aviation agency Icao's Carbon Offsetting and Reduction Scheme for International Aviation (Corsia). Icao will confirm in 2019 which types of offset credits will be eligible for compliance with Corsia.

Climate compromises

The final Paris agreement rulebook received a mixed reception. Lawmakers hailed it as a compromise that will lay the groundwork for future climate action, while environmental groups said the text would fail to cap global warming at a level scientists have said is safe.

The rulebook lays out guidelines for countries to report their CO2 output and progress towards meeting their national climate goals.

It sets up a committee, which will investigate countries that fail to submit emissions data on time. The committee will help countries get back on track with their reporting. It will not "impose penalties or sanctions", according to the text.

Criticisms of the rulebook have focused on its perceived lack of ambition, as the text holds countries to their current pledges to cut CO2, but does not oblige them to set tougher targets.

The combined efforts of current pledges would result in global warming of 3°C by 2100 — far beyond the level agreed by scientists to be safe.

The EU, Canada and a group of 50 developing countries have already said they intend to increase their emissions pledges before 2020. Countries are expected to formally announce new, more ambitious, targets at a summit in September 2019, led by the UN secretary-general.

"From now on, my five priorities will be — ambition, ambition, ambition, ambition and ambition," UN secretary-general Antonio Guterres said at the conclusion of Cop 24.

The Paris agreement rulebook also fails to "welcome" a report by the Intergovernmental Panel on Climate Change (IPCC) warning that global warming must be capped at 1.5˚C above pre-industrial levels to avoid the most severe impacts of climate change.

The EU had led a large group of countries in the negotiations pushing for the rulebook to "welcome" the IPCC report, to signal that countries would take action to limit warming to 1.5˚C.

The final text "welcomes" the "timely competition" of the IPCC report, but does not welcome the report's findings. And it "invites", but does not require, countries to make use of the IPCC research.

Delayed decisions

Negotiators also postponed decisions on climate finance beyond 2020, and the issue of "common timeframes".

The rulebook confirms that, from 2031, countries' emissions reduction pledges will all run on the same timeframe. A decision will be made on whether this is a five- or 10-year timeframe at a meeting in June next year.

Countries' current national emissions targets do not all follow the same format. For example, the EU pledged a 40pc cut in its emissions by 2030, while the US pledge runs to 2025.

And countries will take decisions at a UN meeting in November 2020 on the rules to transfer climate finance to developed countries after 2020.

Chile will play host to the annual UN climate summit in 2019. Brazil had been slated to host the event, but the country withdrew its offer last month, citing financial constraints and the impending transition to a new government. President-elect Jair Bolsonaro, who takes office on 1 January, has threatened to pull the country out of the Paris agreement.

The UK last week formally expressed interest in hosting the UN climate summit in 2020.


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