In less than two weeks, Parties will meet again in Bonn at a UN climate conference for another round of negotiations to prepare for the adoption of the rules to implement the Paris climate change agreement. What role will markets have in how the world works to limit global warming to 1.5C?
Although observers were not allowed in the negotiating room at the last UN climate conference in May, it is clear from the countries’ submissions that there are still a number of outstanding questions which imply that Parties are not yet ready to agree on rules for carbon markets under the Paris Agreement.
Rather than rushing to lock in rules that would repeat mistakes of the past, it would be better to insert a placeholder in the rulebook for the market provisions. This way, Parties can come back to visit the issue when we have more clarity on some fundamentals of what markets need to do to further and not undermine climate change ambition.
An orderly CDM phaseout to protect the Paris Agreement
In order to move forward, however, it is important to draw a line delineating current experience from the world after 2020, especially with regard to the Clean Development Mechanism (CDM) of the Kyoto Protocol.
In addition to human rights issues with a number of CDM projects and a questionable contribution to sustainable development, the vast majority of CDM credits fail to reduce emissions (study).
Further, most of them are double counted under international commitments including the pledges made in Cancun in 2010 and would be under the contributions under the Paris Agreement. If used towards Paris and other commitments, these credits would lead to an increase of emissions and seriously undermine post 2020 ambition taking us further away from the Paris climate objectives. The CDM cannot be allowed to continue after 2020.
A positive tool or a race to the bottom?
Learning from the past means concentrating on the fundamental imperative that Article 6, which lays out the market provisions, must enhance – not undermine – ambition.
That means strong international rules and oversight to prevent a free-for-all race to the bottom in global markets as well as making the two provisions, the so called cooperative approaches and the future Sustainable Development Mechanism (SDM) equally robust.
Carbon markets need a new approach to present and future climate policy to make sure that emissions reductions are additional, meaning that they would not have happened anyway and to avoid perverse incentives to increase emissions in order to be paid to reduce them. To provide an incentive for countries to expand the scope of their national climate pledges, markets should only operate within sectors covered by the pledges – which varies from country to country.
Further, the social and environmental impacts of mitigation measures cannot again be allowed to be an afterthought and rather must be built into the core of the way any market works.
Some parties seem to want to go about everything in their own way ― but for the global collective problem of climate change, we also need to play by the same rules and importantly focus on stepping up to reduce our own climate impact rather than paying others to do it for us. Phasing out the CDM and not rushing market rules until we have got them right is where Parties need to start.