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Explainer-The toughest of tasks at U.N. climate talks: Article 6 on CO2 markets

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By Reuters
Explainer-The toughest of tasks at U.N. climate talks: Article 6 on CO2 markets
Explainer-The toughest of tasks at U.N. climate talks: Article 6 on CO2 markets   -   Copyright  Thomson Reuters 2021

By Nina Chestney

Agreement on a market-based mechanism to allow countries to use international carbon offsets to meet goals set under the 2015 Paris climate agreement is among the most complex and most important of the tasks facing U.N. negotiators.

The next round of U.N. climate talks, postponed from last year because of the COVID-19 pandemic, begins on Oct. 31 in Glasgow, Scotland.

WHAT IS ARTICLE 6?

Article 6 of the Paris agreement seeks to set rules to strengthen the integrity of carbon markets and create a new global carbon offsetting mechanism.

Progress on agreeing those rules broke down at the last talks in 2019.

Carbon markets are seen by some as an opportunity to lower the cost of reducing greenhouse gas emissions and enable countries to commit to more ambitious targets. Others see them as a way to stall more aggressive action to combat emissions.

Carbon offsetting involves helping to fund a cut in emissions elsewhere, by for instance preventing deforestation.

Countries that struggle to meet their emissions reduction targets in their national climate plans, or want to pursue less expensive emissions cuts, can purchase emissions reductions from other nations that have cut their emissions more than the amount they had pledged, such as by moving to low-carbon energy.

Article 6 is intended to provide an accounting framework for international cooperation. It envisages linking the emissions trading schemes of two or more countries and allows for the international transfer of carbon credits.

It also aims to establish a central U.N. mechanism to trade carbon credits from emissions reductions generated from low-carbon projects.

For example, one country could pay another to build a renewable energy project instead of a coal plant. This would reduce emissions but allow the second country to get the benefits from cleaner energy.

WHY IS ARTICLE 6 IMPORTANT?

Getting stringent rules around market-based mechanisms is important in the fight against climate change because of the emissions reductions they can achieve and the cost savings they can generate, analysts say.

Many countries’ national climate pledges hinge on the use of international cooperation through carbon markets.

The International Emissions Trading Association says Article 6 has the potential to halve the cost of implementing national emissions targets, saving an estimated $250 billion a year in 2030, and to facilitate the removal of around 5 gigatonnes of carbon dioxide a year at no additional cost.

But without the right rules in place, Article 6 could weaken countries’ climate pledges and increase emissions.

“Depending on how the rules are structured, Article 6 could help the world avoid dangerous levels of global warming…or let countries off the hook from making meaningful emissions cuts,” said Yamide Dagnet, director of climate negotiations at the World Resources Institute.

“The integrity of the Paris Agreement and countries’ climate commitments hang in the balance,” she added.

WHATNEEDS TO BE RESOLVED?

One of the European Union’s main concerns is how any emission reductions made via carbon markets would be accounted for.

The EU and other countries want to ensure there is no double counting, whereby the emission reduction is counted both by the country that has bought the credit and the country where the emission reduction has taken place.

“The main issue is how carbon credits are applied and accounted to meet national emissions targets and to avoid double counting, an issue that was flagged at the recent G7 summit,” Caroline May, head of sustainability and environment for Europe, Middle East and Asia at law firm Norton Rose Fulbright, said.

Leaders of the G7 nations in June said in a communique that they recognised the potential of “high integrity” carbon markets but stopped short of addressing the issue of double counting.

“It is hoped that negotiations in Glasgow will lead to a final agreement being reached on this critical issue,” May added.

Negotiators are also at odds over what to do with billions of carbon credits generated under the Clean Development Mechanism, called CERs, designed to help countries meet commitments under the 1997 Kyoto Protocol.

Brazil, South Korea, China and India account for almost 85% of all CERs issued to date.

Other countries say that allowing these credits to be carried over would potentially flood the market with credits for past accomplishments and not advance future emissions reductions under the Paris Agreement.