How the Australia deal gets done

With only 2 days remaining in the UN climate talks, Environmental Ministers are looking to begin a rapid-fire deal-brokering period that could include an amended “reserve” pool to allow Australia to carryover, store and recycle millions of tonnes overhanging credits.

The “reserve” pool was still being debated as negotiations closed on Wednesday night, and its functions and potential time limits are yet to be agreed.

However, the concept of a “commitment period reserve” which forces sellers to set aside a portion of their emission reductions credits was a key part of the Kyoto protocol’s attempts to avoid overselling and flooding the market.

As of last night, it appears that an amended reserve that would be applied specifically to Australia’s carryover credits may now be on the table. If so, it could lead to a series of deals that could come close to resolving years of carbon market debate. 

Sadly, this resolution would come at the cost of an accounting loophole that takes advantage of intense deforestation, 29 years ago. It would also empower the Australian government to claim to “meet and beat its Paris targets,” while its actual emissions continue to rise.

With a possible carryover on Australia’s carbon credits on the cards, it would likely follow that a shared interest in Blue Carbon and a compromise on adaptation, could unlock all but one deal-breaking challenge holding up discussions.

Credits: UNFCCC.

Earlier this week, it was reported that 100 countries are opposing Australia’s attempts to carry over its Kyoto emission reduction credits. However, this grouping did not include powerhouses such as India and Brazil. In fact, an ideological alignment over transitioning Kyoto projects with both developing country power brokers has worked in Australia’s favour. 

Both India and Brazil are seeking to ensure they can still receive investments in emissions reduction initiatives that were established but weren’t funded during the Kyoto era. 

This has been another sticking point in the Carbon Markets debate over the last 10 days. However, after offering their support for Australia’s credit carryover in a group statement with China and South Africa, has seen far less opposition. 

This leaves the Alliance of Independent Latin America Countries, led by Costa Rica; Small Island Countries and a group of Least Developed Countries in Australia’s way. Today, Kitibati’s leader Anote Tong accused Australia of an attempt to “weaken the Paris Agreement” by “shifting numbers”.

This view was also supported by Greta Thunberg who was clearly referring to Australia’s attempt to recycle its Kyoto credits as she argued that some countries at the UN climate talks see it as a “kind of opportunity for countries to negotiate loopholes and to avoid raising their ambition.”

On the same day, as she was named TIME Magazine’s Person of the year, the 16-year-old Nobel nominee argued that “countries are finding clever ways around having to take real action like…moving their emissions overseas and walking back on their promises to increase ambition.”

This may be due to the fact that Australia only has credits due to a catastrophic rate of deforestation in 1990, which rapidly fell thereafter. As a result, even with massive increases in fossil fuel emissions, the Environment Minister still claims to be able to “meet and beat its targets”.

However, within the Carbon Markets debates, the countries that oppose Australia’s push for emissions reduction also have key objectives. Collectively, they are pushing for a share of proceeds from all trades to go to adaptation.

As a collective, both the small Island Countries and Independent Latin American Countries also are keen to push for an open window to trade carbon captured in mangroves, coral reefs and seagrass reserves in the future. This is known as “Blue Carbon”. 

On Tuesday night, Australia’s Environment Minister co-hosted a special event with Ministers from both groups. The event included Ministers from Costa Rica and Colombia; key power players in the Independent Latin American grouping, alongside Chile. It also included Ministers from Fiji and Papua New Guinea, two of the biggest economies and populations in the Alliance of Small Island Countries.

Fiji and Papua New Guinea are also Australia’s two biggest partners in the Pacific. They will also become major recipients of a $500m climate change funding package announced ahead of the Pacific Islands Forum leaders meeting in August. At the meeting, Australia negotiated against a strong Tuvalu Declaration on climate action for 12 hours past its deadline.

Credits: UNFCCC.

Chile has made COP25 the “Oceans” COP, with a clear focus on unlocking “Blue Carbon” as a highly lucrative window of opportunity for Carbon Market in the future. At current stages, accounting for marine carbon stocks are far behind terrestrial equivalents. Though it is clear that these countries share a common financial interest in securing carbon Market opportunities. 

While Least Developing Countries do include some of Australia’s island neighbours, the group is largely made up of African states. Many of these countries dot Africa’s coast, and may also be considering blue carbon markets in the future. However, their key issue this week has been ensuring that adaptation gets a bigger focus, especially in Carbon Markets.

Credits: UNFCCC.

Australia’s collective negotiating grouping with the USA, Japan and Canada is clearly against this idea. They have been one of the most combative collectives against allowing a greater share of proceeds on bilateral, carbon credit trades. But this may be one of the key cards Australia intends to play to win over the Least Developing Countries in the next few days. 

With support and finance for Adaptation being blocked in the room after room this week, it may be, that even a marginal compromise from Australia’s negotiating group could unlock an opportunity for both groups.

Though there is a range of other technical challenges in the Carbon Markets discussions, this string of relationships and series of compromises could clear the water for a possible resolution before the end of the week. 

The focus would then narrow on Brazil’s unilateral position on double-counting credits and offsets, which has plagued negotiators for years. This position looks likely to need a higher level of political discussion that is much harder to connect the dots. 

With 2 official days left, it’s clear to observers in Madrid that the Chilean Presidency and Spanish hosts would hate to have this issue unresolved after so many key discussions have already been pushed aside this week. On Monday night, negotiations on Transparency ended in disappointment with nothing to celebrate here in Madrid. 

Though moments before a mass sit-in from young activists today, Greta Thunberg clearly indicated that she would be ashamed of any compromises on Australia or Brazil’s “clever accounting” on Carbon Markets.  

“The biggest danger is not inaction. The real danger is when politicians and CEOs are making it look like real action is happening, when in fact, almost nothing is being done, apart from clever accounting and creative PR.”