Climate 411

COP 25: Carbon markets in the spotlight

Staff and volunteers welcomed at COP 25 in Madrid.
UNclimatechange via Flickr

International cooperation on carbon markets, covered in Article 6 of the Paris Agreement, is at the top of the agenda for the COP 25 climate talks in Madrid this week. Since leaving the Article 6 section of the Paris Agreement without agreement at COP 24, negotiators have continued to work over the past year to garner support for a deal, before countries shift focus to preparing their critical next round of NDC pledges, due next year.

They will do this against a backdrop of political disruption, but continued determination to finalize the Paris Agreement’s operating instructions, known in the UN as the “rulebook”.

Civil unrest in Chile led that country’s president to take the unprecedented step of canceling the climate conference only five weeks before its scheduled start. Spain quickly stepped in the next day to offer to organize the negotiations, known as COP 25, in Madrid. The United States earlier this month officially began the process to withdraw from the Paris Agreement. All this is happening while the increasing impacts of climate change are being felt around the world; fires have ravaged Australia and California, while historic flooding is drowning Venice and dangerous pollution is choking Indian cities. And a new World Meteorological Organization report confirms that the atmospheric concentration of three key greenhouse gases – methane, CO2, and nitrous oxide – continues to rise.

Although the ultimate success of the Paris Agreement will be judged many years from now, how the rules on international carbon markets are decided in Madrid could make or break the ambition of the Paris Agreement.

That’s because international carbon market cooperation underpinned by strong accounting and transparency rules can help drive emissions down significantly: research shows that well-designed carbon markets could nearly double the ambition of current national climate pledges, at no extra cost.

However, weak rules for carbon trading between countries could fundamentally undermine the Paris Agreement. By allowing countries and the private sector to “count” carbon credits that don’t represent real emissions reductions, a bad set of rules on Article 6 could negate the climate ambition of current climate pledges.

What is a good Article 6 agreement?

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What You Need to Know About Article 6 of the Paris Agreement

This post was coauthored by Kelley Kizzier from EDF, Kelly Levin from World Resources Institute, and Mandy Rambharos, Article 6 negotiator, South Africa. It originally appeared on WRI’s blog

As delegates arrive in Madrid for the UN Climate Change Conference (COP25) this week, one issue is top-of-mind: finalizing the rules on how countries can reduce their emissions using international carbon markets, covered under Article 6 of the Paris Agreement on climate change.

Article 6 is one of the least accessible and complex concepts of the global accord. This complexity was a major reason that Article 6 was not agreed to until the last morning of the Paris negotiations in 2015 and was left unresolved at the Katowice climate talks last year. Getting these rules right is critical for fighting climate change: depending on how they are structured, Article 6 could help the world avoid dangerous levels of global warming or let countries off the hook from making meaningful emissions cuts. The integrity of the Paris Agreement and countries’ climate commitments hang in the balance.

Here’s what you should know:

How do international carbon markets work?
International carbon markets work like this: Countries that struggle to meet their emissions-reduction targets under their national climate plans (known as “nationally determined contributions,” or NDCs), or want to pursue less expensive emissions cuts, can purchase emissions reductions from other nations that have already cut their emissions more than the amount they had pledged, such as by transitioning to renewable energy. If the rules are structured appropriately, the result can be a win-win for everyone involved — both countries meet their climate commitments, the overachiever is financially rewarded for going above and beyond, finance is provided to the country generating the emissions reductions, and the world gets a step closer to avoiding catastrophic climate change.

What does the Paris Agreement say about carbon markets?
Article 6 has three operative paragraphs, two of which relate to carbon markets:

  • Article 6.2 provides an accounting framework for international cooperation, such as linking the emissions-trading schemes of two or more countries (for example, linking the European Union cap-and-trade program with emissions-reduction transfers from Switzerland). It also allows for the international transfer of carbon credits between countries.
  • Article 6.4 establishes a central UN mechanism to trade credits from emissions reductions generated through specific projects. For example, country A could pay for country B to build a wind farm instead of a coal plant. Emissions are reduced, country B benefits from the clean energy and country A gets credit for the reductions.
  • Article 6.8 establishes a work program for non-market approaches, such as applying taxes to discourage emissions. For this explainer, we will focus on the carbon markets elements of Article 6.

While Article 6 established these concepts in broad strokes and countries achieved some progress on defining the rules over the years, their final shape remains yet to be agreed. Finalizing these rules is a key agenda item for COP25.

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California climate program remains solid as transportation emissions fall

Bixby Bridge, California. Photo by Dave Lastovskiy on Unsplash

Today’s solid results from the latest Western Climate Initiative cap-and-trade auction demonstrate once again the resilience of the market. Yet this is not the only interesting news out of the California market this quarter as the state released the preliminary 2018 emissions inventory, which showed that transportation emissions fell for the first time since 2012.

First up, auction results:

  • All 67,435,661 current allowances sold, clearing at $17.00, $1.38 above the floor price of $15.62. This is $.16 lower than the August 2019 clearing price of $17.16.
  • All of the 9,038,000 future vintage allowances offered also sold at $16.80, $1.18 above the $15.62 floor price. These allowances are not available for use until 2022.
  • The auction raised approximately $739 million for the Greenhouse Gas Reduction Fund, which California uses for activities that further decrease greenhouse gas emissions, improve local air quality, and support the state’s most vulnerable communities.
  • Quebec raised over approximately $245 million CAD (approximately $185 million USD) to fund their own climate priorities.

These results are generally consistent with the past several auctions, but there are a couple of points worth noting:

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As 2020 approaches, the climate action spotlight is on forests

Amazon Canopy. Warwick Lister-Kaye / istockphoto.com.

With 2020 fast approaching, countries, companies, and other stakeholders are taking stock of their climate commitments. As they consider ways to meet and enhance climate goals, interest in net zero emissions commitments and carbon removal technologies has grown. But what these discussions reveal is that forests are crucial. Capable of significantly reducing net emissions at a low marginal cost, and in the short-term, forests are an important piece of the climate change mitigation puzzle.

This year, tropical forests have dominated the spotlight. The forest fires raging throughout Brazil, Bolivia, and Indonesia are part of a disturbing trend: despite commitments from governments and companies, deforestation is still on the rise globally. Key forest ecosystems such as the Amazon continue to face the pressures of crop expansion for agricultural production, illegal extractive activities like timber harvesting and mining, relaxed legal enforcement and weakened environmental policies.

As deforestation persists, the planet’s capacity to absorb carbon pollution diminishes and more carbon is being released; tree cover loss in tropical forests accounts for about 16 to 33 percent of global emissions. We should be alarmed. But we should also be hopeful. Here are a few reasons why:

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Also posted in California, Forest protection, International, Paris Agreement, REDD+, United Nations / Comments are closed

How Brazil can develop its rural economy, increase agricultural production and protect forests

Day one panel “How should the rural economy be in the future?” featuring, from left, Carlos Nobre (IEA-USP), André Guimarães (IPAM), Regina Sambuichi (Ipea), and Juliano Assunção (PUC-RIO). Photo by IPC-IG on Flickr .

The recent fires in the Amazon rainforest have raised the question: is it possible to have a new model of development in the region that reconciles forest protection with economic growth?

The pressing threats of climate change, biodiversity loss, and environmental degradation along with a growing global demand for agricultural commodities, pose major challenges and opportunities for rural economies.

A group of Brazilian and international scientists, economists, and government officials joined private sector, civil society and multilateral organization representatives in Brasília to discuss how these challenges could be turned into economic and environmental opportunities for the Brazilian rural sector.

The two day workshop, “Business Opportunities for a Sustainable Rural Economy: The Contribution from Forests and Agriculture,” examined different facets of Brazil’s potential in a low-carbon rural economy. Organized by Environmental Defense Fund (EDF) in partnership with the Institute for Applied Economic Research (Ipea) of the Brazilian Ministry of Economy, and the United Nations Development Program – International Policy Centre for Inclusive Growth (IPC-IG), participants concluded that Brazil has an unparalleled comparative advantage to foster a buoyant sustainable rural economy that couples economic and agricultural development with environmental protection.

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Study: Consumers willing to pay carbon offsets for air travel

New social science research finds people are willing to put a price on carbon; just don’t ask them to pay taxes

iStock

This post was authored by Rainer Romero-Canyas, Lead Senior Social Scientist for EDF.

Flying shame has gone mainstream—just ask the Duke and Duchess of Sussex. But are travelers who won’t face the wrath of the tabloids for flying willing to chip in to offset the cost of flying on the environment? A new study from the University of British Columbia and EDF suggests they are. It all depends on how it’s labeled and who is viewed as paying for the environmental impact of the flight.

We wanted to see if it was possible to introduce policy instruments designed to price carbon, without triggering an aversion to taxes, a common challenge in the United States. So, we tested two aspects of the fee: one, both how it was labeled (a carbon offset or a carbon tax), and two, if it was important to see who got the bill (the company that imports or processes fossil fuel or the consumers who use their products and services).

In an upcoming issue of the Journal of Environmental Psychology, my co-authors and I detail the results of three studies focused primarily on the airline industry, because its emissions are slated to triple in the coming decades, absent policy change, making it one of the fastest sources of carbon pollution worldwide. The good news: consumers are willing to pay more for flying responsibly, just as long as it’s the airlines they’re flying that are stepping up and shouldering that responsibility.

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