Carbon Market Rules Formally Enshrined in Glasgow Package

Steve Zwick

Six years after signing off on the Paris Climate Agreement, negotiators have agreed on rules for implementing Article 6, paving the way for more effective cross-border cooperation.

Published 11:27 GMT on November 13, 2021  /  Last updated at 19:38 GMT on November 13, 2021

GLASGOW | 13 November 2021 | In approving the Glasgow Package, world leaders have formally approved rules for implementing Article 6 of the Paris Climate Agreement. The rules were finalized Saturday morning, and the package was adopted in the final plenary of the 26th Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC) here.

Article 6 itself was ratified along with the rest of the Paris Agreement in 2016, but the rules for implementing it proved complex and elusive.

Article 6 covers the ways countries can work together to generate deeper emission reductions and produce more ambitious national climate action plans, called “Nationally Determined Contributions” (NDCs) to the Paris Agreement. It includes cross-border compliance carbon markets, described as “ITMOs” (Internationally-Transferred Mitigation Outcomes).

The final agreement resolves sticky issues associated with paragraphs 2 and 4 of the article. Paragraph 2 covers bilateral carbon trades, while paragraph 4 covers the centralized hub that replaces the Kyoto Protocol’s Clean Development Mechanism (CDM).

To avoid double-counting of emission reductions, the Paris Agreement calls for rules on applying “corresponding adjustments” of national carbon inventories when one country uses ITMOs to reduce its carbon footprint. This can happen at the government level, as when Switzerland purchased ITMOS from Peru, but is more likely to happen at the corporate level, when a company in one country purchases ITMOs from abroad to meet compliance criteria at home.

Voluntary carbon markets are also designed to reduce overall emissions, but the transactions themselves are not registered in national carbon accounts. As a result, they do not require corresponding adjustments at this time. This is a subject we will revisit in the coming days.

Paragraph 6.2 Summary

Click here to view the text

Article 6.2 covers rules for bilateral and multilateral transfers between countries. In the early days of the Glasgow talks, the most contentious issue focused on whether or not to implement a transaction fee to pay for adaptation in developing countries. Such a “share of proceeds” provision exists in Paragraph 6.4, which focuses on the creation of a central hub to replace the Kyoto Protocol’s Clean Development Mechanism (CDM). Most developed countries pushed back on this provision, arguing that it was impossible to implement in a unified and fair way given the diversity of approaches being developed.

The transaction fee doesn’t appear in the current draft, but there is an invitation for the Adaptation Fund “to report in its annual reports to the CMA on funding related to participation in cooperative approaches pursuant to paragraph 36 of chapter VII of the annex (Ambition in mitigation and adaptation actions).”

The corresponding adjustments are easier for multi-year NDCs because they run on a carbon budget approach similar to the Kyoto Protocol, making the account easier. Single-year NDCs are more difficult and will need more technical work. This will be taken up by the Subsidiary Body for Scientific and Technological Advice (SBSTA), which is a technical negotiating track that accepts requests from the Conference of the Parties (COP) and also helps inform the next meeting’s agenda. Among these are the treatment of corresponding adjustments after 2030 and whether ITMOs can include reductions or be limited to removals.

The Intergovernmental Panel on Climate Change (IPCC) has concluded that we must dramatically increase removals by 2050 to meet the climate challenge, and there is an active debate among NGOs as to how to strike the balance between strategies that use ITMOs to support reductions and those that use them to support removals.

Paragraph 6.4 Summary

Click here to view the text

Paragraph 6.4 covers the creation of a centralized hub to replace the CDM, and the biggest points of contention coming into Glasgow were whether countries would have to correspondingly adjust their carbon accounts when transferring emission reduction abroad and the degree to which Certified Emission Reductions (CERs) generated under the CDM could be applied towards NDCs.

The proposed text sets out criteria for countries to use CERs from projects registered after January 1, 2013 to meet their first NDC or first adjusted NDC, with no corresponding adjustment since the CDM predates that requirement. It designates a 12-member Supervisory Body to oversee the emerging hub and tasks it with reviewing baselines of recognized credits.

Earlier in the week, negotiators had agreed to require corresponding adjustments on all new emission reductions generated under Paragraph 6.4, breaking a logjam that had existed since 2015.

Steve Zwick is a freelance writer and produces the Bionic Planet podcast. Previously, he was Managing Editor of Ecosystem Marketplace, and prior to that he covered European business for Time Magazine and Fortune Magazine and produced the award-winning program Money Talks on Deutsche Welle Radio in Bonn, Germany.

Please see our Reprint Guidelines for details on republishing our articles.

Leave a Reply

Your email address will not be published. Required fields are marked *