Carbon markets have seen little progress in COP25. Deciding the final text of Article 6, which will define how these markets are regulated under the Paris Agreement, was one of the expected outcomes of this year’s negotiations. But with only two days ahead, countries continue entrenched in their initial positions. Few believe that the issue will be solved in Madrid.
As expected, Brazil has shown great interest in shaping Article 6 to accommodate its own interests. These include accepting old credits generated under the Clean Development Mechanism (CDM) into the new carbon market, as well as allowing developing countries to temporarily count sold emissions as their own. While the latter was not mentioned during his High-Level Segment speech last Tuesday, Ricardo Salles, Brazil’s Minister of Environment, did stress that allowing CDM credits into the new system was “of the utmost importance”:
“Significant emissions reductions were generated in Brazil under the Clean Development Mechanism. This was a major contribution from our private sector to the fight against climate change, and it’s therefore of the utmost importance that carbon credits and projects developed under the CDM be honoured through the adequate transition of units, projects and methodologies to the Sustainable Development Mechanism [the new system], under the framework of Article 6 of the Paris Agreement,“ Salles said.
Although the minister ended his speech with a call to action on Article 6, people that are following the negotiations say that Brazil’s attitude has not been very helpful towards finding an agreement. In the hallways of COP25, the word is that Brazil is stalling the negotiations.
The sticky points
In addition to the carryover of the CDM credits, there are a couple of other issues regarding Article 6 that still hasn’t been solved:
- Corresponding adjustments. A country that sells carbon credits to another one has to adjust its figures to avoid those credits from being counted twice – once in the country where they’re generated and a second time on the country that buys those credits. Brazil dislikes this idea – they would prefer to count the emissions twice and set the record straight at a later time through new reduction initiatives. It is not clear why this is such an important issue for Brazil, but it might have to do with the fact that deforestation is increasing and the country still hasn’t developed a plan to reduce emissions after 2020, according to Observatório do Clima.
- Shared of proceeds. Under the CDM system, transactions involving carbon credits had a 2% tax impinged to them. That revenue, which in the language of the climate negotiations is called “share of proceeds,” was then used to fill the Adaptation Fund, which can be used by developing countries. In the new system, two things have to be decided. The first one is the value of the tax (2%? 5%?). The second one is if it applies only to trades between companies or if it will also be applied to trades between countries. About the latter, Brazil and others want to apply it to all transactions, while the European Union and other rich countries don’t. The reasons are a bit complex to explain, but if you’re interested you can read more about it here. The main issue is that the conversation is currently blocked. Which takes us to the next point.
Basically frozen
In general, different parties have not moved an inch from their original positions. Last Tuesday, Brazil and the other members of the BASIC group (India, South Africa and China) released a pretty self-righteous statement where they claimed that what they were doing for the climate already represented their “highest possible ambition”.
The statement also insists on the need for developed countries to channel more money to developing countries. This is well in line with Ricardo Salles’ comments before and during the COP, where he made it clear that securing new funds was his main goal at this COP.
But while it was previously reported that Brazil wouldn’t block the negotiations over this money, this new statement stresses that “commitments made by developed countries in the pre-2020 period must be honoured” and that this is “a precondition to any discussion on progression of current commitments”.
According to a veteran observer, the language and content of the statement “take us back to the Kyoto Protocol times”, when only rich countries had to reduce their emissions. And in fact, the main takeaway of the statement is that BASIC countries don’t want to start talking about the Paris Agreement until all the loose ends from Kyoto are addressed.
In the next 36 hours we may find out if this was all just a political game or a new reality, but it is certain that Carbon Markets will be seen as the key element of the COP25 puzzle, and the key chess piece that everyone wants to move, is Brazil.