UN climate negotiators secure important elements of the Paris rulebook but leave key markets text out

(December 15, 2018) Parties to the UN Framework Convention on Climate Change (UNFCCC) have agreed on most of the elements of the so-called “rulebook” that will guide implementation of the Paris Agreement, including the critical guidelines for regular and consistent reporting needed to ensure transparency in how much countries are emitting and their progress toward fulfilling their nationally determined contributions (NDCs). However, negotiators failed to reach closure on the part of the text addressing international cooperation on carbon markets. Instead, they agreed to continue work in 2019 on guidance under Article 6, which covers “cooperative approaches” including the transfer of emissions reductions, or “mitigation outcomes,” among countries—the building blocks of a future international carbon market.

While negotiators had made significant progress in establishing sound accounting rules for bilateral transfers between countries (under paragraph 2 of Article 6), the talks broke down over Brazilian intransigence on the treatment of credits generated by a new “mechanism” under paragraph 4. Brazil refused to budge on its longstanding insistence that it be allowed to double-count such credits by applying them toward its own NDC while selling them to another country seeking to apply them toward that country’s NDC. Such a loophole would undermine the integrity of the mechanism and could potentially threaten the objectives of the Paris Agreement.

“In Katowice, countries made important progress toward realizing the promise of the Paris Agreement — in particular by adopting strong rules requiring countries to transparently report their greenhouse gas emissions and progress toward meeting their national commitments. Those rules, known as the ‘transparency framework,’ are vital to the success of the Paris Agreement. To avoid dangerous warming, countries need to ratchet up their ambition dramatically, which will only happen if countries have clarity about what others are committing to, and confidence that they are meeting those commitments.

“By leaving Poland without clear rules on international cooperation under Article 6, however, negotiators missed a major opportunity to start creating a robust framework for flexible approaches such as carbon markets. While there was overwhelming support for common-sense accounting rules among countries, businesses, and NGOs, a handful of countries, led by Brazil, thwarted progress by insisting that they should be allowed to cheat the atmosphere — and their trading partners — by double-counting their carbon credits. Such a loophole would undermine the integrity of the carbon market and contradict the basic principle that each ton of emissions reductions should only be counted once.

“It is no surprise that markets have become the flash point in these talks, because they are the fulcrum for ambition going forward. International cooperation will be the engine of deeper emissions reductions, and Article 6.2, which recognizes that countries may cooperate through markets, is the unsung hero of the Paris Agreement. Analysis from Environmental Defense Fund shows that countries could nearly double their ambition through the use of well-designed carbon markets, relative to the targets that are currently on the table. The best way to realize the promise of markets would be clear rules under Article 6 that require comprehensive reporting of transfers and prevent double counting. Negotiators must do better next year.

“While the failure to reach agreement in Katowice is a disappointment markets will move ahead in the more than 50 jurisdictions where they are already underway, including the European Union, California and nine other U.S. states — and China, which is building the world’s largest carbon market. The Paris Agreement explicitly recognizes that countries can pursue international cooperation on carbon markets on their own, regardless of whether or not the UN provides guidance. Countries interested in carbon markets are actively discussing the prospect of creating coalitions, or ‘clubs,’ to agree on harmonized rules for high-integrity carbon markets. EDF will continue to work with all interested countries to ensure that carbon markets and international trading of emissions reductions maintain sound accounting and environmental integrity.”

• Nathaniel Keohane, Environmental Defense Fund

Additional observations from Nathaniel Keohane about COP 24:

• U.S. role: “The US tried, again, to celebrate the coal industry while touting emissions reductions actually achieved by the Obama administration. COP 24 attendees were not fooled. The Trump administration has tried to eliminate the policies that have driven emissions reductions in the US. They, and the coal industry, need to be held accountable.”    
• Transparency and accounting: “Parties at the COP agreed to a common transparency framework that ensures robust accounting and provides flexibility for countries to report their emissions. This strikes the right balance of rigor and flexibility, which is the critical task for transparency. It is a vital step forward in realizing the promise of the Paris accord.”
• China: “Prior to the start of the negotiations more than two weeks ago, many asked which China would show up. Fortunately, China engaged constructively with the U.S. to preserve a single transparency framework and resist backsliding into bifurcation – the tired debate that different transparency rules apply to developed vs developing nations”
• Talanoa Dialogue/1.5 degrees: “The US’s unwillingness to acknowledge the dire findings of the Intergovernmental Panel on Climate Change’s (IPCC) report on the impacts of global warming above 1.5 °C was just another stunt by the Trump administration that threatens to distract us from what the focus of these negotiations and the focus of the world’s efforts should be: reducing the pollution that threatens our planet. The IPCC report has rightly lit a fire under the world’s sense of urgency. Whether the COP ‘notes’ or ‘welcomes’ it doesn’t affect the amount of carbon in the atmosphere by one ton.”

Additional resources:

• 7 signs the global energy economy is in transition
• Could aviation loopholes swallow climate progress?
• Transparency, ambition and carbon markets on the Paris rulebook agenda in Katowice
• Katowice Declaration on Sound Carbon Accounting