7 December 2019, Madrid, Spain - Article 6 – Markets and non-market mechanisms, was the very last aspect of the Paris Rulebook to be completed, which is the guidance which Parties are to follow to implement the Paris Agreement of 2020.
Article 6 of the Paris Agreement will see countries establish a new global carbon market system to help them decarbonise their economies at a lower cost through cooperation and investment. Now underway are negotiations to agree upon rules that govern this mechanism.
At the Twenty-fifth Conference of the Parties to the UN Framework Convention on Climate Change in Madrid, Spain – it is Article 6 that is dominating negotiation discussions in the rooms and along the corridors – one of the hardest of negotiations now underway at COP25.
An extremely technical issue, Article 6 is connected with and impacts other parts of the negotiation issues at COP25. To learn more about this please visit: https://www.climatechangenews.com/2019/12/02/article-6-issue-climate-negotiators-cannot-agree/ or https://www.carbonbrief.org/in-depth-q-and-a-how-article-6-carbon-markets-could-make-or-break-the-paris-agreement
We touched base with Mr Espen Ronneberg, the Climate Change Adviser from the Secretariat of the Pacific Regional Environment Programme (SPREP), providing negotiations support to Pacific island delegates working on this agenda item.
Q. Why is Article 6 so important for Pacific islands?
A. Mr Espen Ronneberg: For the Pacific and the other island countries, the most important thing about markets is that it does present an opportunity to get greater ambition in overall mitigation of global emissions because market forces can drive greater ambition. Yet there are some dangers in the process which is why we have been calling for a mandatory cancellation of a percentage of the units that are being generated.
We are also calling for a share of the proceeds, as share of the profits from this mechanism to go towards the Adaptation Fund. We are also calling for ensuring environmental integrity so that activities that are promoted under the Markets Mechanism don’t run counter to the overall thrust of the Paris Agreement.
Q. What are the markets?
A. Mr Espen Ronneberg: Essentially you have a number of different systems. You have emission trading schemes that are set up internally or between several countries which are basically a cap and trade type system - the country will set its limits and require emitting industries to comply. The emitting sectors and businesses in those countries can then trade between themselves if one company can produce emission reductions that are cheaper.
But overall the idea is that this will drive innovation and technologies and so forth.
Then there are project based systems, where one country may invest in renewable energy in another country, and keep the resulting emissions reductions and count them towards their NDC.
Q. So if I am leading a project, say a tree planting project in a different country – and it’s going to reduce a certain amount of carbon dioxide emissions in that country – but they are already reducing so very little CO2 then I say to them, I can buy those emissions we are not putting out into the atmosphere and pay cash for them but I can record them as GHG emissions that my country hasn’t emitted?
A. Mr Espen Ronneberg: What you are describing is a project based cooperation which will be under the market mechanism, what that will entail is that a company approach a developing country and say well we can install “x” amount of solar energy or we can improve the efficiency of the power generation sector by “this” amount and this is what it will cost but we want to get the emission reductions that are generated from that so we can count that against our country’s national emissions budget.
Q. What is meant by cancellation of percentages?
A. Espen Ronneberg: So one aspect of that is that if such a project goes through in a developing country you don’t want them to also continue either increasing their emissions or continuing on a business as usual pathway, and you also want to ensure that there is this mandatory cancellation of a percentage. The Pacific and AOSIS are now suggesting 30% of the emissions should be cancelled so it’s not a simple offset, its actually going to contribute to the overall emissions reductions.
Q. How do you know how many units there are to trade or cancel?
A. Espen Ronneberg: Well, all the units that are generated, all the emissions units that are generated have to be registered with the central registry and they will be given an identifier so that they can be tracked through either the trade or the cancellation.
The calculations around this show that a 30% cancellation has very little impact on prices or costs to the developers. Basically if an investor pays for a project that generates 100 tonnes of reduction then what the investor would actually get from that is 70 tonnes of the reductions. So the 30% will be disappeared, but it will also be taken out of the atmosphere which is what we want to see.
Q. Do any of the Pacific islands trade or are part of this carbon market?
A. Espen Ronneberg: Not at the moment and because of the size of the economies and the size of the emissions in the Pacific, it’s probably not likely that the region will be that attractive to investors, perhaps maybe some social and ethical investors will look to the Pacific but I think generally they will look towards the bigger developing countries for this which is the experience that we had from the Kyoto Protocol.
Q. What does the Pacific want to see?
A. Espen Ronneberg: We want to see a robust system, we don’t want to see a situation where there is any sort of fixing of the system.
Because there are so many countries that on the one hand don’t want to do anything and want to see as many loopholes as possible and then there are others that want to see the freest possible market where they can undertake whatever activities they want, but for the Pacific the bottom line in the spreadsheet of the market and what does the atmosphere see as a result of this. That’s why environmental integrity is so important.
Q. Given the negotiations are so tough, do you think this is one area that won’t see consensus?
A: Espen Ronneberg: It could but it would be unfortunate if we don’t set down some markers here that this is what the system should look like because if we don’t get a decision on this then parties will be free to do what they want anyway which is equally as bad as having bad rules.
Q. What is your timeline for Markets?
A Espen Ronneberg: Well we have been looking at having some clarity on the decisions made by Saturday but the problem with the markets discussion is it is very complex. If the technical experts cannot agree on Saturday then the issue is handed over to the COP Presidency, who will then engage with leaders for a decision. It’s very hard to understand these nuances when you see it written up in legal text and I don’t think it would be a topic that’s suitable to just hand over to our leaders with all this type of detail in it for a decision to be made.
Q. And am I right in saying that until this also effects the outcomes of other negotiation issues?
A. Espen Ronneberg: Yes it interlinks with a number of different things such as the NDCs, which in turn links to compliance and transparency and all the reporting that is required. It is becoming a bit of a lynchpin to everything because it has an impact on so many different elements, it even has an impact on financing for adaptation given the discussion around the share of the proceeds, another automatic removal of units that go to the adaptation fund for them to sell and to use the profits for that to fund adaptation projects in vulnerable countries.
Q. Out of curiosity – this is such a technical issue, do we have a lot of Pacific expertise in this area?
A: Espen Ronneberg: We have a bit, not very strong but there is certainly a lot of experienced people doing this type of work in what we used to call the National Communications and doing the National GHG inventories so there is some experience and expertise but it is certainly an area we need to build up more expertise.
Q. So once this is agreed upon we would see the carbon market kick into action in 2020?
A: Espen Ronneberg: No, at this point we would only be agreeing to the core principles and the parameters around how the markets would be regulated and operated. Some of the specific tasks will have to be done during 2020 but it’s unlikely that any trading or any investments will occur until the rules are completely set in place and that’s going to take probably another couple of years.
But the basics, the principles have to be very strong.
Thank you very much Espen.
The UNFCCC COP25 is hosted in Madrid, Spain from 2 – 13 December, 2019. If you would like to learn more about this issue please do visit the links shared above.