COP25: Make-or-break talks begin on carbon markets to tackle climate crisis
Carbon markets, which are in the Article 6 of the Paris Agreement, are one of the main tools to keep mean global temperature rise under 2 degree C by capping global emissions globally after 2020.Updated: Dec 05, 2019 01:15 IST
Countries started negotiating the contours of a new global carbon market at the UN Climate Change Conference (COP25) in Madrid on Wednesday, a move that has tremendous significance for India, a key player in the current carbon market.
Carbon markets, which are in the Article 6 of the Paris Agreement, are one of the main tools to keep mean global temperature rise under 2 degree C by capping global emissions globally after 2020.
The negotiations are likely to heat up next week as several contentious issues related to carbon trading will have to be resolved by 197 countries by December 13.
The draft text on matters relating to Article 6-- rules, modalities, procedures for the mechanism to be established -- talks of designating a supervisory body, developing provisions for validation, registration, monitoring, verification and certification of carbon credits, delivering overall mitigation in global emissions, and transition from the clean development mechanism.
The carbon market scheme under the Kyoto Protocol will be reviewed to make way for a new scheme.
Carbon markets trade in emission reduction credits. A country that has over-achieved the target can sell carbon credits to others.
According to Carbon Market Watch, if a group of people, countries or companies agree to limit their emissions to a certain amount or agree to a carbon budget, it does not matter how much each person emits, or where they do so. So, the best way to take climate action is to do it where it is the easiest and cost effective.
The logic is market-based and offers countries flexibility. About 51% of all nationally determined contributions (NDCs) have included carbon markets as one of the means to achieve emission reduction goals, said Chirag Gajjar, lead, mitigation, Climate, to World Resources Institute (WRI).
“Carbon trading is a market-based system aimed at reducing GHG emissions. The concept is to allow richer countries to pay for the development of low carbon schemes in developing countries. The key advantage is that carbon trading is much easier to implement compared to expensive direct regulations and taxes,” said Karan Mangotra, climate finance expert at The Energy and Resources Institute (TERI).
India and China benefitted the most from the clean development mechanisms (CDM) projects. According to analysis by Mangotra, total carbon credits issued globally under CDM was about 1995 million out of which 253 million credits were from projects in India; a large proportion remain unsold.
These will lose all economic value if they are not transitioned over to the new market mechanism. National Clean Development Mechanism Authority (NCDMA) was established in December 2003 for according Host Country Approval (HCA) to the CDM projects. Till April 30, 2015, NCDMA had accorded HCA to 2, 941 projects facilitating possible investment of about ~579,306 crore, according to environment ministry. These projects are in sectors of energy efficiency, fuel switching, industrial processes, municipal solid waste, renewable energy and forestry.
One of the big issues is whether credits from CDM under the Kyoto Protocol can be carried forward and counted as emission reductions post 2020.
COP will also have to ensure that the new market mechanism is cheating and duplication proof. For example, a country or entity may sell carbon emission credits from the same project to two different countries resulting in double counting. The accounting process must be full-proof.
Some developed countries may have also been gaming the older system, experts say.
“Basically, all developed countries’ emissions reduction obligations were capable of being outsourced,” Centre for Science and Environment (CSE) said in a fact sheet. Some of these CDM projects were extremely cheap forestry projects compared to investments in sectors such as wind or solar.
CDM’s credibility was also challenged and its executive board has faced allegations of conflicts of interest and lack of transparency, said CSE.
“Experience has shown that developed world has invested in cheap and convoluted low-cost options in the developing world. That time is over. The carbon markets of the future will have to be designed in a way that the cost of transformation and not transition should be paid so that the developing world can use it towards a transition to a real low carbon economy,” said Sunita Narain, director general, CSE.
For climate scientists like NH Ravindranath of Indian Institute of Science, “environmental integrity” of these credits are most important so that the world actually delivers on Paris targets.