Discord over carbon markets blocks climate summit

Defining the future functioning of carbon markets complicates the final agreement of the Madrid summit. It is his great thorn. An insurmountable stumbling block, for now. Discussions continued early Saturday morning. COP25 lasts one day.

The disputes have a lot to do with European demands. “Brazil, the United States and Australia wanted to establish a carbon market that would allow them to do nothing. And sometimes you have to say “no.” And this has been the moment,” explain sources familiar with the negotiation.

“Right now, one of the most important stumbling blocks is to define the rules that should apply to trading systems globally, how we move the units that were traded under the Kyoto protocol to the units with which they could be traded, if we get rules so that they can work in the Paris agreement, “- the acting Minister for the Ecological Transition, Teresa Ribera, said on Friday night.

“There is a sacred principle for European countries and that is that we need a robust system, that a ton emitted or not emitted of CO2 has the same value and the same ‘weight’ anywhere in the world that is emitted,” says Ribera.

It is a sagraado principle: it has to be a robust market, “says Teresa Ribera

The main issue of dispute to close the deal is the exact definition of the rules for them to start operating.

These markets, which will allow emissions trading between countries (and in which companies will also be given entry), should serve to enable governments to purchase surplus rights from others in order to meet the targets set out in the pledged national contributions.

In addition, they would allow companies to offset their gases by acquiring these certifications or emission quotas, which represent amounts of UNemitted CO2, and whose supervision would be under the control of a UN agency.

Markets got the green light in the Paris Agreement; however, it is a controversial, highly controversial instrument.

Very controversial instrument

In the capital of Madrid, two basic issues had to be clarified: first, to guarantee the approval of rules that avoid double accounting of the gas reductions achieved; and, secondly, to define what is done with the existing rights so far (generated by the Kyoto protocol, which preceded the Paris agreement).

China, China and Brazil want all emission reduction certificates (CERs) generated from the Kyoto protocol to be transferred to the new stage of the Paris agreement. (Obtained from clean development projects, such as investments in renewable energy facilities, modernization in industrial plants or restoration in forest areas).

China, India or Brazil want these rights to be carried over without any control or restriction to the new stage.

Two risks: double counting and excess duties

But that entails two risks: that there is a double accounting of reductions (that there is a reduction in emissions in the country of destination and in the country of origin of the transfer) and that the market is flooded by credits at a low price … with very pernicious effects.

“These reductions cannot be computed in two places,” says the acting minister. “There are countries that see this more lightly and others that want to be very strict, because if not, the credibility of these rights or units and even of the system itself would collapse,” adds Ribera.

The EU invokes the need to preserve “environmental integrity”, slang that expresses the fear that all this will not lead to real and concrete benefits.

Sources in the negotiation add that, if there is an overabundance of rights, prices would fall, which could create a simple compensation scheme and derail the global goal of reducing emissions.

“We have had a hard time having a well-organised European emission allowance market. And all this cannot be thrown overboard,” says Joaquim Nieto, the ILO’s representative in Spain, to justify the need for an efficient market.

In Europe, the emission rights market has been operating for 10 years, but there have been long periods of malfunction, with very low prices – now they are at 15 euros per ton of UNemitted CO2; which did not stimulate the reduction of CO2 emissions and therefore the energy transformation towards decarbonization.

Now, Endesa wants to close the thermal plant in As Pontes (Galicia) because it is no longer profitable to buy the emission rights. “It’s been seen that sometimes these markets work; this is the case,” say the sources consulted.

The risks of overabundance of rights

Moreover, if there were an overabundance of rights (because many countries had surpluses), it might even be the case that some countries would prefer to sell their own emission reductions, rather than use them to meet their own targets.

It would have created a perverse incentive to avoid increasing climate ambition.

Meanwhile, a group of ten countries led by Costa Rica have come together during negotiations to incorporate the so-called San José Principles for the High Integrity of International Carbon Markets with the aim of creating a “fair and solid” mechanism.

This is signed by a group composed of Costa Rica, Switzerland, Belize, Colombia, Paraguay, Peru, Marshall Islands, Vanuatu, Luxembourg and Cook Islands.

The conference has entered an extension phase; negotiations have continued throughout the night, but as of 9 a.m. on Saturday there was still no text to be taken to the plenary, which has not yet been convened.

Negotiations continued all night, but positions remain entrenched

This group of countries presented to the presidency of the COP of Chile a set of principles that describe the conditions for the agreement.

The San José principles are eleven conditions ranging from ensuring environmental integrity to avoiding double counting, avoiding the transfer of pre-2020 credits to the new system, blocking technologies incompatible with reducing emissions or guaranteeing financing for developing countries.

We need very strict rules for these markets; if we can’t have them this year, it doesn’t matter; we will have them next year. Having these rules is not a sine quan condition for the success of this summit,” said Manuel Pulgar-Vidal, WWF’s head of energy and who, as energy minister, presided over the COP20 in Lima.

“It is preferable that there is no agreement than a bad agreement,” Fran Timmermans, vice president of the EC, also said on Tuesday.

Adaptation Fund: demand from poor countries

It should also be clarified in this debate whether these new transactions also finance the adaptation fund, which now covers programmes to support the ability to cope with the effects of climate change in vulnerable areas. This fund is nourished by a part of the CERs certificates of the Kyoto Protocol.

“It is a question of seeing what percentage of these new exchanges is destined to the adaptation fund and how an equivalent figure can be available that also allows resources to be available,” adds Ribera.

“The outcome of Article 6 of COP25 – the one that talks about the carbon market – should provide solid guidelines to ensure environmental integrity and create a strong signal of the price of CO2 and foster climate ambition,” Carlos Salle Alonso told Bloomberg.

Position of Brazil

Brazil is the strongest supporter of these markets. And above all, it wants to take advantage of the remnants of the Kyoto protocol. It understands that there is no double counting; because these certificates, he argues, are outside his recent commitment to the Paris agreement (which, according to his interpretation, involves an additional effort).

On the other hand, most countries disagree with Brazil and its interpretation.

They are of interest to the civil aviation sector

On the other hand, it remains to be clarified whether these credits are eligible and usable by the international aviation sector (Corsia scheme of the International Civil Aviation Organization).

The air traffic sector (which is not subject to binding gas reduction commitments under the UN umbrella) has set a maximum emissions cap on its own from 2021, and promises to offset that excess gas from that moment on by acquiring rights in the market.

They will be “the biggest buyer of credit,” says Lola Vallejo, an expert at the Paris-based Institute for Sustainable Development and International Relations (IDDRI).

Hydroelectric plants with impacts in indigenous areas

The International Emissions Trading Association, as well as companies in the oil and gas sector, support these markets.

However, all of these markets inspire a lot of distrust. To

Although 96 countries have included carbon trading initiatives in their pledges to the UN, only eight have explicitly said they will make them to achieve their commitments (Canada, Japan, Liechtenstein, Monaco, New Zealand, Norway, South Korea and Switzerland).

Some of these credits, in addition, have a few feet of clay. For example, those that are generated from demonstrated activity of restoration of wooded areas.

The Paris agreement says these “activities must be real measurable in the long run.” But if that forest burns – and stops absorbing CO2 from the atmosphere – it already loses its status as a factor of environmental improvement. Where would environmental integrity be here?

Other perverse effects can occur when these credits come from controversial investments and with social and human impact (let’s say a hydroelectric plant) such as those that interfere with the places inhabited by native populations in South America.

Other points of disagreement at this summit concern how the call for countries to address climate action plans with greater ambition is realized. In parallel, developing countries want industrialized nations to be held accountable for their activities by 2020, including financing the least developed nations for climate change mitigation and adaptation.

Source: The Vanguard