Carbon market mechanisms are well entrenched within the United Nations Framework Convention on Climate Change (UNFCCC). Trading of carbon emissions is permitted by the Kyoto Protocol, which is an agreement under the UNFCCC that requires some rich industrialised countries (listed in Annex I) to limit and reduce their greenhouse gas emissions to 1990 levels.
The Kyoto Protocol was to be implemented in two phases, the first of which is over. In the first phase, Annex I countries committed to limit and reduce emissions by 5% below 1990 levels from 2008 to 2012. The composition of parties in the proposed second phase, between 2013 and 2020, was changed by the Doha Amendment, and the parties were committed to reducing greenhouse gases by 18% below 1990 levels. However, the amendment has not yet entered into force for want of ratifications.
Article 3 of the Kyoto Protocol mandates that Annex I countries, jointly or individually, should not exceed the aggregate human-made carbon dioxide emissions limit laid down by Annex B to the Kyoto Protocol. To achieve these commitments, these countries are further exhorted to implement policies and measures, such as enhancement of energy efficiency, greenhouse-gas sinks, carbon dioxide sequestration, afforestation and reforestation. In addition to domestic commitments, the Kyoto Protocol allows countries to use three market based mechanisms:
1. International emissions trading permits countries with emission-reduction commitments under the Kyoto Protocol to purchase spare emissions units from one another
2. Clean development mechanism allows Annex I countries to implement emissions reduction projects in developing countries and earn ’emission reduction units’, which can be traded
3. Joint implementation permits Annex I countries to implement emissions reduction projects in other Annex I countries in order to earn tradable ’emission reduction units’.
A registry created under the Kyoto Protocol keeps track of the trading of emissions.
Carbon markets in the Paris Agreement
Carbon markets continue to remain in the Paris Agreement, albeit under different nomenclature. Little thought was given to the inherent conflict of interest that carbon markets have with objectives of both the UNFCCC and the Paris Agreement. This is not surprising given the tremendous influence wielded by rich and powerful polluting countries and the groups that lobby on their behalf. While there was enough evidence to show that carbon markets mechanisms had failed to deliver the expected results in terms of limiting and reducing emissions, and in fact had led to millions of tonnes of excess emissions, the US, the EU and their lobbyists were successful in placing carbon-market mechanisms at the heart of the Paris Agreement.
Although Article 6 of the Paris Agreement does not create a carbon market, it recognises that “some parties choose to pursue voluntary cooperation in the implementation of their nationally determined contributions”, and such approaches “involve the use of internationally transferred mitigation outcomes towards nationally determined contributions”.
The usual riders of integrity, transparency and accounting practices that ensure avoidance of double counting applies. Article 6 also envisages the establishment of a sustainable development mechanism to mitigate greenhouse emissions and the creation of a new body that will supervise the working of the mechanism. It will also “incentivise and facilitate participation” of entities, including private ones, authorised by countries.
The language of Article 6 is wide enough to accommodate various market mechanisms already in place, including carbon taxation policies and cap-and-trade systems. It will also leave the new system open to abuse by big polluters as they can trade emissions in international markets under the guise of meeting countries’ Nationally Determined Contributions domestically. Since unlike the Kyoto Protocol there is no distinction between developed and developing countries, carbon markets can undermine the Paris Agreement.
Continuing conflict of interest
Conflicts of interest tend to be exacerbated by the fact that observer organisations, such as the International Emissions Trading Association (IETA), are present at each session of the UN climate talks. The IETA was founded and has been funded by some of the biggest polluters, such as Shell, Total and Chevron, and continues to be controlled by them.
Groups like the IETA benefit from delaying climate action and their massive lobbying efforts helped put carbon markets right at the centre of the Paris Agreement. The recent Bonn inter-sessional was no different. Proponents of carbon markets were present when country representatives met to hold further negotiations. Pertinently, negotiators could not reach a consensus.
As the UNFCCC has admitted, carbon market mechanisms effectively reduce the climate to a commodity. These mechanisms allow the global north to purchase the right to pollute. Previous attempts at monitoring carbon market emissions have had less than successful results. Carbon markets have failed and instead of providing real solutions with tangible effects, they simply move emissions around from one country to another. Combined with reluctance on the UNFCCC’s part to adopt a ‘conflict of interest’ policy, carbon markets pose a serious threat to the Paris Agreement’s potential to prevent the world from reaching the 2º C degree temperature rise threshold. Thus, countries must completely reject the notion of carbon markets within the Paris Agreement.
Zeenat Masoodi is a lawyer living in Srinagar.