Kabir Agarwal from The Wire is in Madrid, Spain, to cover COP25. Follow our coverage of this important event here.
Madrid: With just one day to go before the talks wind up at COP 25, participating countries are no closer to reaching an agreement on key issues than they were when negotiations began ten days ago.
Both developed and developing countries are holding on strongly to their positions, and no compromise is in the offing.
The key issue to be resolved in Madrid is that of a mechanism for a global carbon market to facilitate the trade of carbon credits earned by countries that have exceeded their emission reduction targets. The mechanism is supposed to take shape through Article 6 of the Paris Agreement, which provides the broad framework.
However, it is a complex and controversial issue, which is part of the reason it couldn’t be resolved last year, at the COP24 climate summit in Katowice, Poland, when the rest of the Paris Agreement rulebook – the set of procedures to implement the climate pact – was finalised.
The leftover complications will likely sink COP25.
A bunch of civil society groups have opposed the very idea of carbon markets, arguing argue that it’s a front for large corporations to continue emitting by simply paying for more carbon credits, each unit of which is like a license to pollute.
Some organisations have also said that these credits won’t lead to emission reductions and could in fact even lead to perverse incentives for countries to set lower emission reduction targets in order to earn more credits.
Carbon markets were very much part of the agenda for COP25, and debates have been raging in negotiating rooms on the mechanisms and procedures to shape such a market under the Paris Agreement.
There are broad areas of disagreement between the developed and developing countries:
1 Carry-over credits from the Kyoto Protocol regime
The Paris Agreement is preceded by the Kyoto Protocol, which ends next year. Under the Kyoto Protocol regime, countries accumulated emissions reduction certificates (CERs) – or carbon credits – for projects that led to emissions reductions.
China, Brazil and India account possess a large chunk of the total CERs available, and they want these carried over to the Paris Agreement regime so that they can trade their CERs in the new carbon market.
The developed world is opposed to this. Its argument is that if these credits, which they also say are “worthless” as the verification processes weren’t “robust enough”, are carried over, the prices of new credits in the new market will crash and render the whole exercise useless.
Developed countries also argue that the Paris Agreement is a new agreement, so the world needs to wipe the slate clean. “Not look back but look forward,” as one negotiator put it.
Developing countries have responded that this is an issue of trust. If the credits that were legitimately created under the UN’s watch are now deemed ‘worthless’, there is no guarantee that the same won’t happen in the future when, say, the Paris Agreement expires.
India has taken a particularly tough stance on this issue, and has held its ground during multiple rounds of negotiations.
However, there are some rumours that a compromise is being worked out to salvage COP25, but it’s not clear how true this is.
2. Double counting
Under the Kyoto Protocol, which created the CERs, if a developing country accumulated CERs and sold them to a developed country, both could count them in their emissions-reduction accounting. This practice is called double-counting and it could skew the data in such a way that some countries appear to be reducing emissions more than they actually are.
It didn’t matter because under the Kyoto Protocol because only developed countries were supposed to reduce emissions. So even if a developing country that sold CERs didn’t make the adjustments in its emissions tally, it wouldn’t make a difference for the Kyoto Protocol’s success.
But under the Paris Agreement regime, double counting is possible as both developed and developing countries have emissions reduction targets.
Some developing countries, especially Brazil, have argued that both the countries involved in the trade should be allowed to use the emissions reductions in their emissions tally. But other developing countries aren’t very enthusiastic about supporting Brazil’s proposal.
So double-counting is unlikely to hold up the final leg of negotiations tomorrow – unless Brazil puts its foot down.
3. Share of proceeds
The terms of the Kyoto Protocol extract a 2% levy on CER trade, and the proceeds were to be used for administrative costs and to replenish the adaptation fund, which finances adaptation programmes in developing countries. The text of Article 6 of the Paris Agreement requires a transfer of a share of the proceeds for similar purposes.
The bone of contention is the extent to which trade under the new carbon market will attract this levy and the amount to be levied. Developing countries have said it should be set at 5%.
Article 6 describes two broad mechanisms of trade: a global carbon market, where credits generated by both private and public entities are traded; and an emissions trade between countries.
There is little disagreement that the levy should apply to a global carbon market. However, developed and developing countries haven’t been able to agree on trades between two countries. Developing countries are demanding that the levy be attached to all trade under the carbon market because otherwise the adaptation fund would be too small. They also argue that a lack of levy on one form of trade could incentivise all countries to that mode alone.
Developed countries have argued that a levy on emissions trade between countries would “distort” the transaction by exacting a price from these transfers and, according to them create political complexities in bilateral trade.
This issue remains highly contentious and is unlikely to be unresolved at COP25.
Pre-2020 emissions reduction targets
Developing countries have demanded at COP25 that developed countries deliver on their commitments under the Kyoto Protocol, which ends next year. The developed word, whose responsibility it was to reduce emissions under the protocol, has failed to deliver. A recent UN emissions gap report confirmed this when it said the world is not nearly on track to keep its surface from warming over 2º C.
India has been front and centre on this issue; its chief negotiator Ravi Shankar Prasad, an additional secretary at the Union environment ministry, reiterated this at one of the sessions on Thursday.
“We have been hearing lots of words on raising climate ambitions but haven’t seen the same kind of zeal as far as implementation is concerned,” he said. “Some countries have not been on track on their Kyoto commitments, and are not on track to fulfil their targets under the Paris Agreement either.”
Another reason developing countries want pre-2020 commitments to be met is the idea of common but differentiated responsibility, which is one of the pillars of the Paris Agreement.
“In the old regime there were no obligations on developing countries. So technically any gap that existed could be shifted to post-2020, where we are supposedly all contributing,” Amb. Wael Aboulmagd, head of the Egyptian delegation, told The Wire. “In effect, they are just shifting the burden from themselves to developing countries.”
The developed world is at odds with this idea and wants a clean slate instead.
But despite India’s forceful stand on this issue, it isn’t likely to hold COP25 hostage for it either. During a press interaction, Prasad said, “No, it’s not a red line. We don’t believe in red lines. It is a way forward that we are suggesting.”
This way forward is a two-year work programme to provide a framework for the emissions gap to be met by developed countries. However, word in the corridors is India’s proposal is unlikely to be accepted and that the country will have to make do with a compromise instead.
Kabir Agarwal from The Wire is in Madrid, Spain, to cover COP25. Follow our coverage of this important event here.