The road ahead for UN carbon markets

Another round of UN climate talks closed on May 10th in Bonn, where negotiators discussed the “Paris Agreement rulebook”, a set of rules to regulate how commitments put forward in Paris can be implemented starting in 2020. The rulebook is to be finalised by the UN climate change conference (COP24) in December this year in Katowice, Poland. While the negotiations on the Paris Agreement market provisions were dominated by discussions around the process, some key contentious issues need to be sorted out at the next session in Bangkok before the rulebook can be adopted.

Avoiding double counting

For carbon markets to truly contribute to meeting the Paris Agreement objectives, it must be avoided that any emission reduction is claimed multiple times. An emerging challenge in Bonn was how to work not only within but also between the UNFCCC and the future Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) which will start its pilot phase in 2021. It will be paramount to avoid that a credit is claimed by a country and an airline at the same time.  

A possible solution would be to set up an international registry, for example under the future Sustainable Development Mechanism (SDM) (Article 6.4) to track the issuance, trading, and cancellation or use of credits by countries. This would allow to clearly isolate any credit claimed or cancelled by a country from the pool of tradable credits.

The additionality dilemma

Beyond the issue of double counting, rules will have to be put in place to ensure that credits represent emission reductions which would not have happened anyway, i.e. to ensure additionality.

In the new international landscape where all countries have emission reduction targets to meet, this is a very complex issue. To ensure additionality, only emission reductions going beyond the ambition of the national pledges should be eligible for crediting purposes.

Upholding the rights of affected communities

In addition to measures to promote environmental integrity, article 6 mechanisms must learn from the mistakes of the past and include a strong set of rules to protect the rights of local stakeholders, especially indigenous people.

This should include, as a minimum, clear mandatory steps on how to conduct local stakeholder consultations, as well as a transparent and predictable grievance process for affected stakeholders to seek recourse.

Danger: hot air!

The mechanism for “cooperative approaches” (article 6.2) carries a great risk of trading “hot air”, i.e. carbon credits which were generated against unambitious targets and thus do not represent real emission reductions. Trading of such credits should be avoided, and measures will need to be put in place to ensure that such credits are not used under the CORSIA.

Ambition means no more offsetting

Finally, true climate ambition in line with the Paris Agreement will require a clear break from the logic of offsetting which undermined climate efforts throughout the Kyoto Protocol period.

The SDM should, therefore, be set up as a result based climate finance scheme, to ensure that emissions are actually reduced rather than simply displaced. This would allow funding for climate projects that would not have taken place without it, and help developed countries meet their climate finance pledges towards developing countries.

A well designed article 6 could truly increase climate ambition while protecting human rights and the rights of those affected by climate mitigation projects. However, a lot of work remains to be done and countries will have to work hard between now and December to set themselves up for a success in Katowice.