COP 25: The mess in Madrid – and how international carbon markets can still drive ambition despite it

Midnight COP 25 plenary on Dec. 14 in Madrid. UNclimatechange via Flickr.

At just before 2:00 pm Sunday afternoon in Madrid, at a sprawling conference center on the outskirts of the city, a new record was set — and not an enviable one. That’s when the gavel finally fell on COP 25 — the 25th meeting of the Conference of the Parties to the UN Framework Convention on Climate Change — making it the longest COP in history, as it extended nearly 44 hours past its scheduled end.

Even with all that extra time, however, negotiators from 197 Parties were unable to reach agreement on virtually anything of real consequence, including one of the issues that topped the conference agenda: guidance for promoting the integrity of international carbon markets, in particular by ensuring consistent and robust accounting of emissions reductions transferred among countries.

While that failure is widely recognized, the outcome also offers three key implications for how markets can move forward.

  • First, negotiators came surprisingly close to a good deal. That provides a foundation for negotiators to build on next year – although it’s not at all clear that having failed two years in a row, the third time will be the charm.
  • Second, countries that are serious about markets don’t need to wait for the UN to provide guidance: they can and should move ahead to set their own rules.
  • Third, the failure to reach agreement puts the Kyoto Protocol’s offset program (known as the Clean Development Mechanism) on shaky legal ground – something that decision makers at the UN’s aviation agency, ICAO, should heed.

How markets can help drive ambition

Markets may seem like a surprising headline topic for an international climate negotiation. But they are a central, if underappreciated, tool to make faster, deeper cuts in climate pollution — which is desperately needed, given the growing gap between the world’s current emissions trajectory and where we must go to meet the Paris Agreement’s objective of limiting warming to well below 2 degrees Celsius.

The Paris Agreement expressly recognizes, in its Article 6, that carbon markets provide a critical tool to enhance ambition. Market-based international cooperation enables countries to do more together than they could on their own. Economic analysis by EDF shows that carbon markets could achieve nearly double the emissions reductions relative to current Paris Agreement commitments, at no extra cost. The current nationally determined commitments (NDCs) are nowhere near ambitious enough to meet the objectives of the Paris Agreement, and we need all the tools in the box to avoid climate catastrophe.

The deal we almost had

While the final deal on the table in Madrid was not perfect, it was surprisingly good, particularly on robust accounting for bilateral carbon market transactions (known as Article 6.2). The deal on offer would have enabled countries to count the results of international cooperation through carbon markets with integrity and credibility.

In the last hours of COP 25, there was even some progress on the rules for implementing Article 6.4, concerning a new UN mechanism to generate carbon credits. This is an area where negotiations have been particularly difficult on issues key to environmental integrity, such as avoiding double-counting of emissions reductions and the “carry-over” of pre-2020 surplus carbon credits generated under the Kyoto Protocol’s offset program, known as the Clean Development Mechanism (CDM).

If Parties can resist the urge to completely renegotiate what’s on the table, the progress in Madrid can be formally banked at COP 26 in Glasgow.

What can markets do now?

Outside of the UNFCCC, it is time to move on. Countries that are serious about using carbon markets to increase ambition should go ahead and set strong rules for high-integrity international cooperation through carbon markets. Such a coalition of carbon markets could pave the way for faster, deeper cuts in climate pollution.

Countries could draw on the good work done in these negotiations, especially in the draft Article 6.2 text, applying many of the principles outlined in the San Jose Principles. Indeed, a coalition could move ahead as soon as early next year, laying a foundation for greater ambition at COP 26 in December 2020. There’s no need to wait – and no time to waste.

It is important to underscore that countries remain free to cooperate through markets; they don’t need any authorization or approval from the UN to do that. Indeed, Article 6 explicitly acknowledges that countries may use international emission transfers to meet their NDCs.

Impact on aviation’s emissions program

The spotlight now shifts to the International Civil Aviation Organization (ICAO), the UN aviation agency, which will cap emissions from international flights beginning in 2021 via the first global carbon market for a major sector. As with any market, getting the rules right will be critical to success.

In March, ICAO’s Technical Advisory Board will make final recommendations to the ICAO Council on which offset programs should be eligible for use by airlines to meet their obligations under the program, which is known as the Carbon Offsetting Reduction Scheme for International Aviation (CORSIA).

A critical question for ICAO will be the use of credits from the CDM, whose benefits for the climate have rightly been called into question. Designed more than two decades ago, the CDM was never structured to help cut global emissions, making it obsolete in the context of the landmark Paris Agreement. The failure of the Madrid talks to provide a legal pathway for CDM transition means that the CDM lacks the legal basis necessary for use in compliance programs. With the COP having failed to allow CDM credits to be used, ICAO should follow suit – and ensure that the pre-2020 CDM surplus does not crowd out the potential for new and additional emission reductions under CORSIA.

Moving on

COP 25 didn’t produce the deal on Article 6 that many observers were hoping for – and we may never have one. But it did show widespread support from Parties for a high integrity international carbon market with strong provisions on double counting and transparency – vital to help countries raise ambition ahead of COP 26. Countries don’t need to wait for the UNFCCC to provide guidance. They can move ahead without it. For the sake of the climate, it’s critical that they do.

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