Brazil and the EU have jointly proposed new text on international carbon trade in a move observers and negotiators say drastically improves the chances of market provisions being retained in the final UN climate pact.

The proposal may diminish fears that provisions for international carbon trade risk being squeezed out of the UN climate pact altogether because major economies were giving it a low priority.

It sets out in more detail than the latest UN proposal ways in which willing nations can use “cooperative approaches” to cut emissions using “internationally transferred mitigation outcomes”, according to the text that was circulated among negotiators and seen by Carbon Pulse, before it was published on the European Commission website.

“This demonstrates what’s possible when two progressive parties come together. This shows our strong belief in the important role of ambitious and robust carbon markets in reducing global emissions,” said Miguel Arias Canete, the EU commissioner for climate action and energy.

“We know that many parties intend to use markets in their national climate plans. This will ensure that they will maintain and enhance ambition when doing so. This is a significant step forward – of course other parties will need to agree. We hope this sets a good precedent in the last hours of these negotiations.”

The proposal includes UN-supervised safeguards of applying “robust accounting” to ensure that “double counting” is avoided, apparently overcoming concerns by some environmental groups that Brazil was not prioritising the issue.

“We’ve got two big parties with a bridging proposal, and while it’s a compromise, we think it works and it’s ambitious.  Without this, there would be a free-for-all on markets because everybody intends to use them but there’s no consensus,” one European negotiator told Carbon Pulse.

“Brazil has supported a robust accounting system for markets, and that’s good as it’s something we and other parties have been asking for for a long time.  If you want robust accounting, if you want markets, and if you want a mechanism that has ambition in it, you kind of need to rally around this proposal.  It’s not perfect, but it’s the only thing on the table that delivers those things in these negotiations.  It was necessary for someone to find the middle ground, particularly with the BASIC countries, and say ‘ok what do we need to do to get integrity on markets into the agreement?’  There are bits and pieces that people will question but I think it’s the only sustainable deal.”

STICKING POINTS

The proposal aims to assist parties that have adopted “an absolute reduction target in relation to a base year”, helping them meet their commitments through the use of emission reductions from mitigation activities.

But one South African negotiator said this could be a sticking point in the talks.

“We as a developing country without an absolute target want to make sure we can use the mechanism, because the submission presupposes that projects will only be between developed and developing countries. What if you have a project between two developing countries? Does that mean that if we don’t have absolute targets in our INDCs we can’t do that?”

They added: “The thing that’s missing for us in this proposal is we want to establish a mechanism with multiple applications, but which leaves the window open to have other mechanisms in the future. We don’t know what things will look like in 5-10 years. We’re calling for a centralised mechanism, but we don’t know if that’s going to be the only type of mechanism we’ll have, so that type of flexibility is missing.”

The EU-Brazil proposal also affirms that the new mechanism “may be used to support greenhouse gas emissions mitigation, including in international aviation and maritime transportation [shipping].”

“I don’t think we would be comfortable with this,” the South African negotiator said.

Other sources said Bolivia wants provisions for non-market based measures to be included in this portion of the agreement, while Saudi Arabia opposes any mention of markets in the text.

The EU-Brazil plan calls on parties to agree on the details of this new mechanism at next year’s UN climate summit, which is due to take place in Marrakesh, Morocco in November.

INCREASED CHANCES

Including an agreed text on markets in a final agreement in Paris would be a boost for a group of smaller nations counting on outsourcing their emission reductions.

Canada, Japan, New Zealand, South Korea and Switzerland want to use markets to help them reach their INDC targets, while dozens of poorer nations want to tap them as a source of funding.

“The fact that the EU and Brazil join forces for pushing a market mechanism under the purview of the UNFCCC increases the chances to get a market mechanism anchored in the Paris Agreement,” said Axel Michaelowa of Perspectives, a consultancy on carbon markets and climate policy.

“It takes up the spirit of Kyoto where Brazil and the US joined forces to propose what eventually became the CDM,” he added.

As in the latest UN draft text, the Brazil-EU proposal includes the establishment of a new carbon market mechanism, which, similar to the CDM, would promote emission cuts and foster sustainable development.

However, one European negotiator noted that this proposal, if agreed, would effectively replace the CDM, one of three market-based mechanisms enacted under the Kyoto Protocol.

RIVAL PROPOSALS

“We need to have a workable text, rather than no text – and [the EU-Brazil] text is one we can work with,” said Jeff Swartz, director of international policy for emissions trading lobby group IETA.

The South African negotiator echoed that view, saying “this proposal is 90% there, so we’re going to work with some other colleagues to make some draft changes. Is there a landing zone here for an agreement? I think so.”

The European negotiator said the EU and Brazil are working actively with other parties to build support for their proposal.

But several negotiators told Carbon Pulse that there was another markets proposal that had been circulated by the Umbrella Group – a loose coalition of non-EU developed countries that has included Australia, Canada, Japan, New Zealand, Kazakhstan, Norway, Russia, Ukraine and the US.

One negotiator from the Umbrella Group, asking not to be named, said that no text at all on markets could still be an option, although it appeared less likely following today’s EU-Brazil proposal.

“We support the EU-Brazil text but it is quite vague, and if the Umbrella Group one is stronger on ensuring markets are anchored in the agreement, we would support it,” Swartz said.

“For example, we want a specific system that allows for transfers to take place through an architecture and with carbon units of a country’s choice.  We want transfers to be able to be conducted via a public or private sector entity, and to allow for UNFCCC architecture (registries, methodologies, et al) to be made available at a developing country’s request.”

By Ben Garside, Stian Reklev and Mike Szabo – ben@carbon-pulse.com

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