Markets must increase climate action, not undermine it

BRUSSELS 27 November 2019. The next round of UN climate talks takes place in Madrid from 2 to 13 December. The future of carbon markets could be a make or break element for climate action as some countries attempt to cash in on badly designed mechanisms. While governments are under pressure to find a deal, it can not come at the expense of the environment and human rights.

Carbon Market Watch calls for carbon market rules that uphold the social and environmental integrity of the Paris Agreement and result in an overall reduction in greenhouse gas emissions that can be clearly accounted for and reported. Our key messages for the governments present in Madrid are:

Only new projects after 2020

There could be more than 4 billion old carbon credits flooding the market after 2020 unless restrictions are applied to what is allowed in. To put this figure into perspective, if airlines were allowed to use these credits under the future aviation offsetting scheme CORSIA - a parallel climate negotiation process - it would be twice as much as their estimated demand over the next 15 years.

Allowing countries or companies to buy these old and extremely cheap[1] credits would further weaken the national contributions that already are nowhere near ambitious enough to reach the Paris Agreement goal of limiting global warming to 1.5 degrees Celsius.

Most of the CDM projects do not represent additional emission reductions which means that they would have taken place even without the scheme, and around 80% are expected to continue their activities in the future regardless of whether they can sell credits or not.

The Paris Agreement carbon market provisions must make a clean break with the past and not allow old credits into the new post-2020 climate scheme.

Sustainable development at the core of climate action

So far, sustainable development and human rights have been a mere afterthought in the global offsetting mechanisms. The biggest such scheme - the Clean Development Mechanism - has been linked to human rights violations and environmental destruction.

It is crucial to learn from past mistakes and ensure that all climate projects drive sustainable development, benefit local communities and reduce emissions. Affected communities must be involved in the decision-making process and be given access to an independent grievance mechanism.

The Paris Agreement market provisions must include safeguards, such as mandatory local stakeholder consultations and an independent grievance mechanism.

Strong rules to avoid double-counting of emission reductions

There is a significant risk that emission reductions under the future carbon market rules could be counted towards two or more climate commitments which would water down efforts to stop the climate crisis. Double-counting occurs when a country reduces pollution and uses this reduction towards its national climate pledge, but also sells the same reduction to another country or a company that uses it towards its target. This is cheating the atmosphere.

It is, therefore, imperative to ensure that emission reductions are correctly tracked and reported. Countries must correct their final emission levels to make sure they do not report emission reductions which have been sold to another country - this is called applying corresponding adjustments. In addition, all transfers must be efficiently tracked and logged in a publicly accessible transaction log and country accounts.

Double-counting of emission reductions must be avoided through the application of corresponding adjustments and strong and transparent accounting rules.

Markets must go beyond offsetting

Increasing the pace of emission reductions over time is at the core of the Paris Agreement and must be reflected in the implementation of Article 6. Carbon offsetting is (at best) a zero-sum game and does not lead to global emission reductions since greenhouse gas reductions in one place are cancelled out by continued carbon pollution elsewhere.

It is of paramount importance that the market provisions of the Paris Agreement reduce overall emissions instead of merely shifting them from one place to another or worse, increasing them.

The first step towards phasing out zero-sum offsetting is to automatically cancel a part of every credit when it is issued.

Beware of hot air

If countries have weak climate targets which they can easily overachieve, and if Article 6 allows these countries to sell this so-called “extra-abatement”, then this would generate “hot air” credits. If these credits were then used to justify emissions somewhere else, this would result in an overall increase in emissions because the credits do not actually correspond to real emission reductions There is about 20 gigatonnes of such hot air in the national Paris Agreement pledges.

In order to avoid the trading in hot air as opposed to emission reductions, governments need to agree on a total cap on the number of credits a country can issue over a given period of time and a limit on the lifetime of units.

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