A striking agreement on an emissions trading scheme once again proves incapable at COP26

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After six years of unsuccessful efforts, it is hoped that COP26 could produce a long-awaited agreement on rules for a global carbon market, viewed as key to helping countries and companies reduce emissions while driving investment in low-carbon projects.

In general, most countries are in favor of a carbon trading system as a way to reduce emissions behind climate change.

But a major stumbling block in the negotiations was agreeing on how a coal-trading system would work and how much credit each country could gain from its emissions targets.

A general framework was included in the 2015 Paris Agreement, which was ratified by more than 190 countries. But the details are still unclear – and so it remains a proposal rather than a solid agreement.

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During the two-week climate conference in Glasgow, COP26 President Alok Sharma noted that although progress has been made on the issue, there is also much more work to be done.

“Clearly there is a political consensus that needs to be built on this,” he said, while also describing how people will be “amazed” if talks fail again, as “we have been discussing this for six years.”

Establish a system

The system would allow countries that have exceeded their emission reductions to sell that credit to other countries; credit that would then be used in the name of satisfying their own climate goals – known as compensation. It could also create a commercial market for such credits, to be used by both public and private sectors.

There is a sense of urgency to these conversations, however, as some private coal markets already exist in various regions of the world – but without any established accounting rules or oversight.

Some companies are willing to spend on environmental projects to earn carbon offsets in the name of helping them achieve net zero-zero climate goals, including technology and energy companies in Canada.

GARDU | How a global coal trading market could work:

Why companies are closely following the COP26 carbon market negotiations

Andrea Bonzanni of IETA explains what the challenges are in establishing a global carbon market. 1:46

The goal is that all those dollars could ultimately help fund clean energy projects around the world.

The coal trading system is officially referred to as Article 6 of the Paris Agreement and there are two main elements under negotiation.

The first is about allowing the exchange of carbon credits from one country to another, essentially allowing one nation to pay another to cut emissions on its behalf.

The other focuses on creating a global market for compensation trading.

In total, the value of such transfers could reach up to US $ 300 billion annually in 2030 and up to US $ 1 trillion in 2050, according to the International Emissions Trading Association (IETA), which is a proponent of an emissions trading system.

“The vast majority of [countries] agrees that an international carbon market should be there and should be put into operation, ”said Andrea Bonzanni, IETA’s policy director.

“How to do it and the specific rules prove very difficult to agree on.”

‘So far from that now’

Currently, the Canadian government does not plan to use the provision in Article 6 to meet its climate targets, although it could in the future, Environment Minister Steven Guilbeault said on Friday during media availability in Glasgow.

“There was this idea at one point in not-so-distant history where Canada’s plan was to meet the majority of its emission reduction. [target] abroad. We are so far from that now where our plan currently provides 100 percent of our emission reduction at home, ”he said.

John Kerry, the U.S. special envoy for climate change, said Friday that good progress has been made on Article 6.

“A lot of parties, I think, are now converging on ideas. For the United States, we think it’s critical that any package is one that has environmental integrity and clear accounting and strong baselines that are essential,” he said.

But some environmental groups are worried that a compensation system would do little to reduce emissions or discourage the elimination of fossil fuel production.

At COP26, countries discussed a proposal for some kind of transaction tax on carbon trading that would set aside funds to help the least developed countries protect themselves from the detrimental effects of climate change.

Another dispute is the accounting rules, to ensure that if one country buys credits from another, the emission reduction is not required by both nations.

Similarly, there should be rules to prevent double counting when it comes to transactions with companies; for example, if a Canadian company builds a coal capture project in a foreign country or finances a reforestation project abroad, it is not calculated by both sides.

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