With the clock ticking to the end of the Glasgow COP26 climate summit, a key element remains unresolved: the rules for global carbon markets that experts believe are critical to cutting the emissions behind climate change.
The so-called “Article 6” rules have been outstanding for years, a subject of fierce debate and a contributor to the derailment of the previous COP in Madrid in 2019, which was broadly judged a failure.
China’s climate envoy Xie Zhenhua on Wednesday backed a breakthrough. “We hope that at this COP we can finalise the outstanding issues of Article 6 and build a global carbon market, which would be highly helpful to drive the cost down, for the global effort of emissions cutting, and help the world achieve its temperature goals,” he said, as the US and China pledged to co-operate.
The rules would pave the way for a system under which countries that have exceeded their climate targets would be able to sell units representing emissions reductions to other countries to use to meet their own commitments. They would also create a new market for the trading of the units by the public and private sectors.
Discord remains about several major issues, including which credits should be allowed and whether some money from the sale of the units should go to developing countries.
Talks had “hit a bit of a brick wall”, said one person familiar with the discussions. “They need ministers to start making decisions, there’s not much more negotiators can do.”
But there was “a general sense of hope that we will actually get agreement on Article 6 this time. I’ve not had this much hope for the last three years”, said Kelley Kizzier, vice-president for global climate at the US non-profit advocacy group Environmental Defense Fund.
Experts said there was a clear desire among negotiators to finalise the rules, with countries acutely aware of the booming interest in carbon “offsets” — tokens that organisations buy to compensate for their emissions.
“Without a rule book there will still be international carbon market activities,” said Andrea Bonzanni, International Policy Director at the International Emissions Trading Association. “That’s a shift — a change in the broader context in which negotiations are taking place.”
James Cameron, an independent adviser to the COP26 presidency, said countries could see from the dollars flowing into offsets that “big money is coming closer” — which was an incentive for finalising the rules.
But with just two days to go before the conference is due to end, country delegates are still wrestling over several technical questions.
The first is whether pre-2020 credits should be allowed in the new system. Many of these are judged not to deliver the climate benefits they claim, and were generated under the auspices of the Kyoto protocol in 1997.
Developing and middle-income countries, such as Brazil, favour being able to “carry over” some of these credits, arguing that cancelling them will starve the projects they were generated by — such as tree planting schemes — of much-needed funds.
A compromise was likely to emerge, said Cameron — the question would be which credits were permitted, and for how long.
A “buyer’s club” of nations that only purchase newer, higher quality credits may also emerge, said experts tracking the negotiations.
A second question is whether a levy should be imposed on all bilateral trades, with the money going into a fund to help developing countries cover the spiralling costs of adapting to climate change.
Although many developing nations favour this idea, many rich countries, such as the US, are reluctant to accept it. Instead they aim to broker a deal under which the money for adaptation is delivered another way.
That issue is “where the real fight is, and it’s not clear what [a compromise] looks like”, said one person familiar with the talks.
A final major hurdle remains on accounting: how to ensure that only one country or organisation claims credit for emissions cuts, and there is no “double counting”, which would undermine the entire system.
That could happen, for example, if a country planted a carbon-absorbing forest and recorded the resulting emissions reduction in its own accounts, while also selling units to another country that used it to offset its own pollution.
The three issues had been “major sticking points for a long time”, according to Bonzanni. But he believes a deal will finally be struck: “Progress is being made. I think we’re at the point where every party has to accept something they won’t be happy with.”
Additional reporting by Leslie Hook and Neil Hume
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