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After COP25... and on to 2020!

Well, that was a disappointment. 

After two weeks of negotiations in Madrid, which were heavily focused on getting an agreement on the one outstanding item of the Paris Work Programme, negotiators still couldn’t reach a deal on how to structure international cooperation and market mechanisms.

On Article 6.2, which deals with international cooperation, Brazil refused to give way on the issue of making corresponding adjustments to reflect transfers of carbon units (also known as internationally transferred mitigation outcomes, or ITMOs). 

Developed countries also objected to a proposal to to cancel a share of units from 6.2 trading systems to ensure that there is an “overall mitigation in global emissions” from every trading mechanism, and to transfer an additional share of units to the Adaptation Fund.

There were also disagreements over how to treat abatement that took place outside the scope of a Nationally Determined Contribution.

And on Article 6.4, there were even greater differences of opinion on whether to transfer Kyoto units into the new mechanisms. Australia was seeking to shift its surplus of AAUs into the new system and so achieve much of its Paris target without having to make any more reductions, while India and Brazil wanted to move their stock of CERs into the new regime from where they could be sold.

These proposals met with stiff resistance from an alliance of progressive nations, and so the talks ended up achieving little more than they had a year earlier in Poland.

But… the big takeaway from Madrid is that those progressive nations aren’t going to hang around for a Paris “rulebook”. More countries are setting up carbon markets, and looking to link them together under the sketched-out-yet-unapproved rules of Article 6.2. 

We already have an example of linked markets in California and Quebec. The Swiss Emissions Trading System linked to the much larger EU ETS as of last week, and discussions are underway among various Latin American carbon-tax-and-offset regimes about how to develop these systems into a regional carbon market.

With another large ETS about to launch in China, and the world’s first sectoral ETS about to take flight in the airline industry, there is plenty of interest in emissions markets right now. 

IETA was one of the major players in Madrid: we hosted numerous negotiators at side events, and our policy team worked tirelessly to help delegates understand the options available under Article 6. We also launched a major new initiative: Markets for Natural Climate Solutions (NCS).

Markets for NCS will work to bring market-based mechanisms to the land-use, agriculture and forestry sectors, in which there is great interest building up from countries as well as the private sector. An increasing focus on nature-based solutions to climate change means that we can harness the power of markets to boost the impact of NCS.

Earlier this year, IETA carried out a study which concluded that a strong Article 6 regime, including NCS, could save around $320 billion a year in abatement costs by 2030. Those savings could be put towards an additional 9 billion tonnes of CO2 reduced a year over the same period. 

So while we didn’t get the Christmas present we were hoping for in the form of a robust set of rules for the emissions markets of the future, we aren’t too downhearted. We’ve heard enough to suggest that nations will kick on and build their own markets along the lines of what the Article 6 talks have achieved so far. And when the UNFCCC talks catch up, those markets will be perfectly set up to adjust to the new rules.

Wishing you a happy and prosperous 2020!

Alessandro Vitelli
Communications Advisor, IETA

For more information on IETA and our work, see www.ieta.org

Meet IETA

  • 9-13 March: Join us in Kampala for Africa Climate Week
  • 26-28 May: IETA will be attending Innovate4Climate in Barcelona
  • 27 May: Save the date now for the European Climate Summit 2020, taking place in Barcelona as part of Innovate4Climate

IETA Member's Corner

How is AirCarbon involved in the carbon market?

AirCarbon is a Singapore based digital carbon exchange focused primarily, but not exclusively, on the CORSIA compliance market. The AirCarbon Token will be the first digital carbon asset to be listed on a regulated exchange. Each token will be backed by an equivalent one ton of CORSIA eligible carbon credits. The structure streamlines a fragmented market around a single asset allowing for efficient low cost trading of carbon credits. In addition to the Exchange, the AirCarbon Fund will make equity investments in carbon mitigating projects generating a steady flow of carbon credits at cost to participating investors.

Why did you join IETA?

IETA sits at the cross roads of carbon markets and carbon regulators and is equally respected by both camps. Its preeminent position makes it a valuable source of industry intelligence. Any firm looking to operate in the carbon markets would be remiss to not belong to IETA.

William Pazos
Chief Operating Officer, AirCarbon

IETA Publications

 

In this year's Greenhouse Gas Market Report, IETA celebrates its 20th anniversary with a look back at its roots, its journey to now, and how the lessons of the past can inform the future. The report also looks at the evolution of the VCS, where next for the EU ETS, the way forward for CORSIA, and an innovative approach to valuing forests. 

IETA's definitive wrap of the Madrid climate talks looks at how the negotiations unfolded, where they ended up, and where to in 2020. It also includes a summary of key side events. 

The Economic Potential of Article 6 of the Paris Agreement and Implementation Challenge report, prepared by IETA and co-sponsored by Carbon Pricing Leadership Coalition, with the help of researchers and modellers from the University of Maryland. 

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