The draft Paris Agreement text released Wednesday afternoon potentially paves the way for a new international carbon market, but remained heavily bracketed and included wording that experts say may be problematic for some parties.

Published amid intensifying negotiations, the text included provisions for the “international transfer of mitigation outcomes”, UNFCCC language for carbon markets, but the whole paragraph on ‘cooperative approaches’ was bracketed, meaning it had not been agreed.

Currently, the section reads:

[Parties shall, where engaging on a voluntary basis in cooperative approaches that involve the use of internationally transferred mitigation outcomes towards ###, promote sustainable development and environmental integrity and apply robust accounting to ensure, inter alia, the avoidance of double counting, in accordance with guidance adopted by the CMA.]

The text contained elements of the EU-Brazil proposal released Tuesday evening, such as limiting buying of units to countries with absolute GHG targets.

However, other bits were changed, mainly in the 3ter section of the text, including:

• Making net emission reductions from transferable outcomes voluntary.
• Allowing private and public entities to participate if a country takes responsibility for them, compared to requiring them to be “authorised” by a party.
• It refers now only to verification, not to certification, thereby levelling the playing field between project/programme-based and sectoral mechanisms.
• Ensuring that a share of the sale proceeds of all units, not just programme- or project-based ones, goes to covering “administrative expenses” as well as to assisting vulnerable developing countries to adapt to climate change.
• The reference to a ‘multi-window’ mechanism has vanished, which might make the text less palatable to Umbrella Group and some developing countries, which wanted to maintain more options.

Some experts said the earmarking of revenues could be hard for the EU to swallow, while others said the proposal offers the basis for carbon markets in a hybrid of the UN’s current CDM and JI mechanisms, while also opening the door to controversial trade in land use and forestry credits, which could also be unacceptable to many parties.

EXPERT COMMENTS

Below are some initial reactions from market experts on the new text. Updates will follow.

Axel Michaelowa, managing director at Perspectives:
“While the new text contains some elements that are hard to swallow for the EU, it leaves the chance intact to get a market mechanism that builds on the successes of the CDM.”

Stig Schjolset, head of carbon analysis at Thomson Reuters Point Carbon:
“Although much work is needed to flesh out the sustainable development mechanism, it looks a bit like a mix of CDM and JI. It resembles JI as it will imply an actual transfer of mitigation outcomes (emission rights) to avoid double counting, while the CDM rulebook will likely be starting point for the nuts and bolts of the mechanisms.

“Additionality, a key concept of CDM, is not explicitly mentioned. But as the mechanism should incentivise climate action beyond a developing country’s climate target, essentially implying that the additionality criteria is there. As many developing countries don’t have clearly defined climate targets it could however be tricky to determine exactly what an additional effort beyond the target would be.”

Eva Filzmoser, director at Carbon Market Watch:
“The draft decision text accompanying the Art.3ter proposal opens doors for land use and forestry carbon offsets by replacing the important principle that carbon offsets need to represent permanent reductions with the new wording “long- term”. This is very problematic because land use or forestry carbon offsets (which sequester carbon on decadal timescales at best) are not appropriate to replace fossil fuel emission reductions, knowing that fossil fuels have been stored safely in the ground for over 300 million years.”

Jeff Swartz, international policy director at IETA:
“It’s a workable text. It allows countries to cooperate on mitigation, and that cooperation can take place in a number of different forms. But the biggest point is it’s all in brackets, which means it can be taken out. And if it does get taken out, we need to question the motivation there, because every country here should be concerned about the tools they have available to increase their ambition.

“In the agreement section under accounting, international transfer of mitigation outcomes are taken out, but then look at this decision text, which is not in brackets:

‘32. (e) The use of internationally transferred mitigation outcomes towards ### is on the basis of an equivalent adjustment by both the transferring and acquiring Parties’.

“I would say that’s quite good because you have to define the equivalency of units, so we get into this whole space of mitigation value and carbon value, which could facilitate the growth of more carbon pricing systems.”

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

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