20/10/2021

Prospects on the Eve of the Upcoming Climate Summit in Glasgow

The COP26 climate summit will be held in Glasgow next November after the UN’s August report revealed that the global temperature is rising faster than scientists had expected, and that reducing greenhouse gas emissions by at least half this decade is crucial to avoid the most catastrophic impacts of the climate crisis.

Yet there are signs of hope. In September 2021, on the occasion of the UN General Assembly in New York, the United States and China, the two largest emitters in the world, announced new commitments to face the crisis.

President Biden stated that the United States will significantly increase its international climate funding, which will push developed countries towards meeting their collective commitment to spend US$ 100 billion a year to tackle climate change. This will be one of the key issues at the upcoming summit, as many countries currently not only criticise the failure to meet this target, but also believe that it should be revised and increased as of 2025. At the 2009 COP15, the target of 100 billion dollars a year to support the fight against climate change in developing countries was established with little technical foundation. As it was held before the Paris Agreement (2015), it obviously did not consider the additional financing required to meet the targets set therein. 

In turn, China’s President Xi Jinping announced that his country would cease to finance coal-fired power plants abroad and redirect such funds to green energy. He also pledged that China would achieve carbon neutrality by 2060 through an ambitious forestry plan, among other things. In contrast to these encouraging proposals, China's current energy crisis has led the government to relax the limits on the use of coal by local industry, even if it exceeds the quotas set for this fuel to comply with climate agreements. 

Not only is the climate community keeping a close eye on what is happening with the world's two main emitters, but it is also on the lookout for what will happen with some of the key issues in the negotiations that will begin shortly in Glasgow. In addition to the aforementioned funding, there are two other aspects that, in my opinion, will be the main focus of attention.

The first is the need to establish a common timeframe for Nationally Determined Contributions (NDCs). It is worth noting that these commitments to fight climate change were voluntarily submitted by one hundred and ninety-four countries within the framework of the Paris Agreement. These NDCs include targets for different time periods, some from 2020 to 2025 and others from 2020 to 2030.  In Argentina's most recent NDC, for instance, the country made a commitment not to exceed a net emission of 359 million tonnes of carbon dioxide equivalent (MtCOe2) in 2030, which amounts to a total decrease of 19 % of emissions compared to the historical emission peak reached in 2007.

To address the climate emergency, it is necessary to set a fast pace with tight deadlines that will push countries to upscale their efforts more frequently and facilitate the effective implementation of other provisions of the Paris Agreement. Within this context, some countries consider that as of 2031, they should all synchronically submit their new NDCs every five years.

The second key issue is to complete the regulation of Article 6 of the Paris Agreement, which is fundamental for the implementation of a new carbon market. But before discussing this, let's first look at the historical background.

Carbon markets first emerged in the Kyoto Protocol (KP) to support the compliance with the emission limitation/reduction targets adopted by the industrialised countries included in Annex B.

In Kyoto, each country in Annex B received a number of emission permits in units called AAUs equivalent to their target for the period 2008-2012. As of December 31st, 2012, a country was considered to have met its target provided that the number of AAUs it held equalled the emissions accounted for in its national inventory. On the other hand, in the case AAUs exceeded the country's registered emissions, the target was surpassed and the country in question would be able to sell the surplus units to other countries that required them to meet their own targets. It was also possible that the total number of AAUs was lower than the emissions, but the country in question made up for the gap through the use of other units, emission permits, which resulted from the flexibility mechanisms established by the KP.

The Clean Development Mechanism, one of the three flexibility mechanisms of the KP, was based on the fact that it is generally less expensive to reduce emissions in developing countries than in developed countries (for example, the difference in land costs for a project somewhere in Japan versus one in Patagonia). The reductions generated by these projects materialised in the form of units called CERs, which, like AAUs, could be used to meet the targets adopted by countries in Kyoto.

In short, the KP established a carbon market whose demand stemmed from the countries that had adopted targets in Annex B. According to its specific conditions, each country decided to meet its target primarily through domestic reductions or by supplementing them with reduction units arising from emission trading and projects under the CDM. Overall, the KP flexibility mechanisms facilitated compliance with the targets at a lower cost than would otherwise have been the case.

Article 6 of the Country Agreement provides for three voluntary cooperation mechanisms: two market-based and the third one with a different approach.

The first mechanism (Art. 6.2) affords a country that over-achieved its target, or more precisely its NDC, the opportunity to trade surplus mitigation outcomes, called ITMOs, with other countries. At this point, it is worth clarifying that the ITMOs, depending on the NDC proposal submitted by each country, materialise in the form of a volume of emission reductions or other indicators such as hectares of forest or installed renewable capacity. In summary, this first mechanism is analogous to some extent to the alternative contemplated in the KP for countries with AAUs surplus whereby these units can be sold to other countries that need them to meet their targets, with the difference that in Art. 6.2 it is possible to transfer entities other than emissions.

The second mechanism (Art. 6.4) establishes an international carbon market to trade public and private sector emission reductions. Carbon credits may be generated, for example, from renewable energy generation projects. For projects in developing countries, Art. 6.4 would operate much as the Clean Development Mechanism did in the KP.

In principle, the third mechanism (Art. 6.8) is not as clearly defined and would include approaches unrelated to the market, along the lines of the Official Development Assistance (ODA) initiatives.

The implementation of the new carbon market under the Paris Agreement requires consensus on various aspects under negotiation in Art. 6, including a mechanism to minimise the risk that a country selling emission reductions to another country includes them as part of its NDC, in which case there would be double accounting, clearly undermining the objective of the Agreement. This and other issues will be the subject of the negotiations in Glasgow in the coming days.

 

Nazareno Castillo Marin was Director of Climate Change at the National Ministry of Environment between 2007 and 2014 and negotiator for Argentina before the Climate Change Convention. He has been a professor at the Universidad Nacional de Tres Febrero since 2007. He was a guest speaker at TEDx Rosario 2019: "Climate crisis vs economic interests". He is the author of three books: "The Scientific Environmentalist (EDUNTREF, 2015); "17 Goals for a Better World: a Guide to Understanding the SDGs (Amazon, 2019)"; and "Data-Sustainable Development: Big Data and AI Contributions to the SDGs (Amazon, 2021)".

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