At least developing countries did not cave into weak rules on markets
The key deliverables from the 25th Conference of Parties (CoP 25) to the United Nations Framework Convention on Climate Change (UNFCCC) in Madrid (originally scheduled in Santiago, Chile) were two-fold:
With some caveats, CoP 25 failed to deliver on these requirements.
Rules on carbon markets
There was no consensus on rules under Article 6. Well past the scheduled closing time for the CoP, negotiating texts were still riddled with square brackets — indicating objection by at least one country to a segment of text — and options — indicating that consensus was still split between divergent visions of what the rule should look like.
At the closing plenary (which did eventually take place), all negotiators expressed deep disappointment at this failure, but some statements were more revealing than others. The European Union (EU) and Switzerland made roughly similar points — that the lack of consensus on rules would not prevent the operation of carbon markets.
These two jurisdictions recently inked a deal to link their Emissions Trading Systems, so this is a matter of high concern for them. They are both relying on Article 6.2 of the Paris Agreement, which deals with bilateral and mini-multilateral markets.
This is in contrast with Article 6.4, which creates a centralised, global market — the Sustainable Development Mechanism, which effectively succeeds the Clean Development Mechanism under the Kyoto Protocol. It is clear that the Article 6.4 market cannot operate without consensus on rules.
Article 6.2 is a little different. It does not create a market. It regulates bilateral and mini-multilateral markets, and it does so indirectly. It sets up conditions under which credits from these markets can be used to achieve a country’s national targets (nationally determined contributions, or NDCs).
It specifies the broad outlines of these conditions, and leaves it to the CoP to make rules to operationalise these conditions. What if the CoP does not reach consensus on rules? A straightforward reading of Article 6.2 indicates that credits from bilateral / mini-multilateral markets cannot be counted toward NDC achievement until such consensus is found.
So the EU and Switzerland are only partly correct when they say that markets will operate anyway. The NDCs are not the only driver of demand for credits, but they are a major driver. An inability to link bilateral / mini-multilateral markets to NDCs will depress carbon trading. Or at least it should, unless the market is confident that loopholes and backdoors will be found. This is not out of the question in the highly arcane area of carbon trading.
On the whole, though, the markets text's failing consensus is not the worst outcome. Bad rules on markets have the potential to tank any ambition in NDCs. As we covered previously, there were too many bad possibilities still in the text at a late stage.
It would have been better to have clarity before the new NDCs come out in 2020. But in a perverse way, the lack of consensus gives us one clear metric — any new NDC which significantly relies on international carbon trading can be written off as un-ambitious straight away. Canada’s Ecofiscal Commission, for example has explicitly recommended against relying on carbon markets precisely because there are no rules under Article 6.
Loss and Damage
Unlike with markets, there was a decision on loss and damage. Whether it meets the scale of the emergency though, is very unclear. Loss and damage refers to the unavoidable, irreversible impacts of climate change, where mitigation has failed and adaptation is not possible.
It is important to distinguish it from adaptation, particularly, because while some ‘new and additional’ finance was committed to adaptation in the Paris Decision, loss and damage has not been similarly addressed yet.
In October, we identified this issue as being key to the moral relevance of this CoP — a bellwether of whether the international process was responsive to the needs of the most vulnerable. It is clear that the impacts of warming will be differentiated, and there are already those who need financial support to cope with the impacts of extreme weather.
Financial support is one of the workstreams of the Warsaw International Mechanism on Loss and Damage (WIM), which was set up in 2013. Work on this front has remained stagnant for six years, and vulnerable countries and activists were clear that COP25 needed to establish secure new and additional finance for loss and damage.
The debate coming into this CoP was initially centred on whether this finance would take the form of:
The compromise that began to emerge a few days ago took a completely different tack — a “Santiago Network of experts” to “catalyse the technical assistance of relevant organizations, bodies, networks and experts”. This expertise is to be channelled toward the “implementation of relevant approaches at the local, national and regional level, in developing countries that are particularly vulnerable to the adverse effects of climate change”.
This compromise has made into the final decision, along with exhortations to developed countries and the Green Climate Fund (GCF) to increase the amount of finance available for loss and damage. A network of experts seems like largely a capacity-building exercise, which is of limited help compared to actual finance. And the instructions to developed countries and the GCF do not sufficiently distinguish loss and damage from adaptation.
It is difficult to understand exactly why developing countries have agreed to this compromise. One possibility is that there was no way to create a distinct new support system for loss and damage without abandoning or disguising references to finance. The Santiago Network may be an institution which can eventually attract finance at scale, without being labelled a financial institution.
Still, the WIM itself is an umbrella for technical collaboration on loss and damage — there has been a decent amount of technical work, but none of it has resulted in scaled-up finance. The signs for a new technical-seeming collaboration to succeed are not great.
The hopes from this decision are hence mostly pinned on another new group set up by this decision — an “expert group” set up collaborate with other UNFCCC institutions and develop a plan of action on enhancing finance, including finance raised by the GCF. This represents a process that could lead to new and additional finance, although the words ‘new and additional’ themselves have no place anywhere in the decision.
Although a lot of countries have been hiding behind others’ red lines at this COP, the blame for this weak compromise is not hard to attribute. Ian Fry, representative of Tuvalu, made the point at the closing plenary, when he let loose on a “Party that will not be a party in 12 months”. Denying the most vulnerable their due will be a fitting coda to tUnited States involvement in the Agreement.
No consensus on markets, no consensus on new and additional finance for loss and damage — on its primary deliverables, CoP 25 has fallen well short. The minimal positives are that developing countries did not cave into weak rules for markets, and that a strong signal has been sent for new NDCs which are due in 2020 (as we covered here).
The markets discussion will be picked up next year leading up to CoP 26. With new NDCs and long-term finance already on the agenda at the Glasgow CoP, there is a risk that there is too much to do in 2020.
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