Climate Change

Climate Emergency CoP 25: It is market versus market in Madrid

Carbon market mechanism is turning into a big negotiation thorn

By Jayanta Basu
Published: Thursday 05 December 2019
CoP 25 opening ceremony. Photo: UNFCCC
CoP 25 opening ceremony. Photo: UNFCCC CoP 25 opening ceremony. Photo: UNFCCC

The ghost of pre-2020 carbon market mechanism has started to haunt the Madrid negotiations over the new climate market mechanism proposed for the post-2020 Paris regime. The negotiations for the new carbon market regime, which falls under Article 6 of the Paris agreement, will take centre stage along with the other outstanding issue of “Loss and Damage” before the agreement gets rolling on ground.

According to sources, some developing countries, in private discussions, have already raised the demand that the Kyoto Protocol phase II should be pushed back for couple of years to ensure that the developed countries complete their commitments under the protocol. Developing countries are pointing out that the Doha Amendment to the Kyoto Protocol, which officialises the second commitment period from 2013 to 2020, is yet to be ratified by requisite number of developed countries and hence did not get started on ground, though its scheduled closure has almost reached. 

While developed countries are mostly pushing for a new market-based carbon cut mechanism post-2020, developing countries, led by India, want the developed world to first fulfill their emission reduction commitments made under the Kyoto Protocol before finalising a new market mechanism. India, supported by like-minded developing countries, and Brazil are also demanding that certified emission reductions or CERs, a typed of carbon credits issued under the Kyoto protocol, should either be valid under the Paris regime or the developing countries should be compensated for discontinuing them.

India still has 750 million CERs, which could not be sold, as per a senior Indian delegation member. “It is not only the issue of money but also of trust and credibility of the UN process as the certificates were generated under UNFCCC programme and Kyoto protocol mandate. How can we now conveniently forget CERs built under pre-2020 regime and embrace post-2020 Paris agreement’s similar market-based approach. Who will guarantee that the same thing will not repeat post-2020?” asks the delegate. Sources say that developing countries might demand an extension of the Kyoto Protocol, if untraded CERs do not bear fruit.

Under the clean development mechanism (CDM) of the Kyoto protocol, developed countries could buy CERs from developing countries to meet their emissions commitments. Initially, the market had shot up when developed countries were willing to pay US$20 for 1 tonne of carbon. The market subsequently crashed when the developed countries chose to ignore their commitments under Kyoto phase II and stopped trading in CERs, which fell to less than a dollar for 1 tonne carbon.

The impact was felt by several Indian companies, including the public sector, which invested on emission cuts to earn CER certificates. India and China hold the maximum untraded CERs but other developing countries also have substantial amounts of CERs. The total global untraded CER number stands around 4 billion.

“They (old CERs) are mostly junk. There should not be any carry over as they will lead to double accounting. We should make a fresh start under the Paris agreement,” says Sam Van den plas, policy director, Carbon Market Watch. Others disagree. “India has valid logic but both sides should weigh the options on table and reach to a solution,” says Sanjay Vasisht of Climate Action Network South Asia (CANSA). He points out that till now there has been hardly any forward movement in Article 6 negotiation apart from a new text that came out on Wednesday. “The number of pages was reduced, so are the brackets (which mean no agreement). The text has become sharper but all contentious issues are still there,” says Vashist. The unresolved issues around CERs, apart from the carry forward controversy, include double accounting of such emissions as they were created before 2020, consideration of human rights safeguard in the process, market versus non-market mechanism promoted by Bolivia and Venezuela and silently supported by China, as well as the possible limits of trading under the new carbon market set up.

A fresh negotiation text is set to come out before the political leaders as they start negotiations next week.

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