COMMENT: Switzerland’s bilateral agreements set a poor precedent for ambition ahead of COP26

Published 18:56 on October 29, 2021  /  Last updated at 11:33 on November 25, 2021  /  Conversations, EMEA, International, New Market Mechanisms, Switzerland, Views, Voluntary Market  /  No Comments

Switzerland's recent bilateral crediting deals send no signal for decarbonisation at home, while for the countries hosting the emission reductions the agreements close some of their best available options to implement their NDCs and raise ambition in the future, according to researchers at NewClimate Institute.

By Thomas Day, Carsten Warnecke, and Harry Fearnehough of the NewClimate Institute

Switzerland has reached agreements with Georgia, Peru, Senegal and Ghana to support the implementation of low-hanging fruit climate change mitigation. In return, the countries will transfer the mitigation outcomes to Switzerland to help it meet its national target under the Paris Agreement.

The agreements send no signal for decarbonisation in Switzerland, while for the countries hosting the emission reductions the agreements close some of their best available options to implement their NDCs and raise ambition in the future.

Transferring credits for “low-hanging” emission reductions does not constitute an ambition raising mechanism in the context of the Paris Agreement. If other rich nations – whose collective targets are already way short of levels needed to avoid catastrophic climate change – follow this precedent, then countries most in need of climate finance could run out of accessible avenues to deliver climate action, while facilitating inaction on the part of those that need to take leadership.

Switzerland would set a better example for driving global climate action by fulfilling its fair share of international climate finance contributions to support activities in the countries it is partnering with, without claiming ownership of the emission reduction outcomes in return.

Ambition raising mechanisms under the Paris Agreement require a shift from the low- to the high-hanging fruit of mitigation action.

At COP26, parties aim to develop the rules and modalities for how countries may use voluntary cooperation based on Article 6 to support ambition raising under the Paris Agreement. Although those negotiations continue with many unresolved issues, it was already agreed in 2015 that voluntary cooperation between parties with transfers of mitigation outcomes under the Paris Agreement should serve a different purpose to those under the Kyoto protocol: these should be ambition raising mechanisms rather than flexibility mechanisms.

Two criteria – among many others – are essential for market mechanisms to play an ambition raising function in the context of the global governance framework of the Paris Agreement:

  • The abatement costs of projects supported in third countries should be high enough to send a signal for decarbonisation in the credit buying country, rather than a continuation of business as usual. For orientation, the High-Level Commission on Carbon Prices identified that the transition to a 1.5C compatible trajectory would require a global average price signal of at least $40-80 per tCO2e in 2020, rising to at least $50-100 by 2030. Prices in the European carbon market – which Switzerland is linked to – are around $70 per tCO2e today.
  • The projects supported should be sufficiently ambitious that they avoid presenting any conflict with the host country’s own ambition. More specifically, exporting emission reduction outcomes should not block the way for unilateral ambition raising in the host country, and prospective transactions should not present the host country with a perverse incentive to restrict its unilateral ambition.

This essentially means shifting focus from the low-hanging fruit – the main target for market mechanisms under the Kyoto flexibility mechanisms – to the high-hanging fruit of mitigation action. This high-hanging fruit is beyond the reasonable reach of unilateral action on the part of the host country, unlocks finance for the hard-to-abate emission sources that remain largely unaddressed, and sets a meaningful price signal for prospective market participants to reduce their own emissions first. This must define the benchmark for the additionality of projects under an ambition raising mechanism in the context of the Paris Agreement.

Through its bilateral agreements, Switzerland positions itself to buy up the low-hanging fruits of mitigation potential from other countries, while simultaneously not fulfilling its fair share of international climate finance contributions.

Switzerland’s recently announced agreement with Georgia envisages the provision of financial support for energy efficiency retrofits of large public buildings, in return for the international transfer of mitigation outcomes to offset Switzerland’s emissions.

The renovation of public buildings remains one of the most accessible mitigation options in Georgia. Further action in this sector can be implemented at reasonable – in some cases negative – abatement costs. A range of complex barriers in the residential building sector has led to inaction, but many of these obstacles are less relevant for larger public buildings. For this sub-sector, where action has been prioritised by the Sustainable Energy Action Plans of Georgia’s major cities for more than a decade, inaction is due to chronic underinvestment and inactivity on the part of the Georgian government as well as international support providers. Georgia already committed to further action in this sector under the international treaty with the EU, legislated in the 2020 Law of Georgia on Energy Efficiency. The same legislation is covered under the measures of Georgia’s NDC implementation plan.

The currently envisaged activities of the agreement cannot support ambition raising in either country. For Switzerland, the relatively low abatement costs of the measures referred to in the announcement can send no meaningful signal to address own emissions first and strive for further decarbonisation at home. For Georgia, the agreement to transfer emission reductions to Switzerland and apply corresponding adjustments to their emissions balance could threaten one of their most accessible options for NDC implementation and domestic ambition raising.

The poor state of the building sector is a key source of greenhouse gas emissions, as well as poverty in Georgia, and has proven difficult to address. Climate finance could lead to significant mitigation and socioeconomic benefits. But developed countries already have a responsibility to provide more financial support for climate action, without claiming the mitigation outcomes of that support as their own and blocking the path for host country ambition. ODI analysis shows that Switzerland’s contributions to international climate finance fall 38% short of what would be their fair share to the internationally agreed goal to mobilise $100 billion of public international climate finance per year. The Climate Action Tracker recently assessed Switzerland’s climate finance contributions, finding them highly insufficient. Georgia’s building sector would be a good candidate for such support: Georgia’s neighbour Armenia secured financing of $116 million for the energy efficiency retrofit of buildings through the GCF in 2016.

Unambitious plans for the use of international market mechanisms set a poor precedent. Widespread replication of such approaches could significantly threaten collective ambition under the Paris Agreement.

Switzerland’s bilateral agreement with Georgia may be modest in scale but should not be dismissed as insignificant at the international level. The agreement follows in the vein of Switzerland’s other bilateral agreements – which include support for biogas in Senegal, solar PV and energy efficient lighting in Ghana, and industrial energy efficiency in Peru – as well as other Article 6 pilot programmes pursued by the Swedish Energy Agency.

As an early actor in Paris market mechanisms, Switzerland’s bilateral agreements set a low bar for other countries potentially considering their use, and a poor precedent ahead of the resumption in negotiations on Article 6. If any forthcoming rules on Article 6 allow countries to follow this precedent, then this could quickly lead to a situation where developing countries run out of avenues to deliver domestic climate change mitigation action, while offering a cheap option for rich nations to avoid implementing urgent climate action at home. This does not deliver the urgent, transformative raising of climate ambition that Article 6 cooperation and wider provisions for climate finance in the Paris Agreement must achieve.

There is a more constructive way to pursue bilateral cooperation. Countries should fulfil the fair share of their climate finance contributions and reserve the use of market mechanisms for the hardest-to-abate emission sources.

To deliver on the ambitious goals that nations signed up to in 2015, the evidence is clear that we need urgent, ambitious climate action now to transform our economies. We’re likely to need all the tools in the box to meet this challenge and international market mechanisms – if designed robustly – can play a role in unlocking truly inaccessible mitigation potential in countries with more limited resources to address those emission sources.

Before reaching for international market mechanisms today, countries need to ensure they have their own house in order. This starts with two key steps: doubling down on targets for domestic decarbonisation; and fulfilling a fair share contribution to public international climate finance. Countries that fulfil their fair share contributions to international climate finance commitments – or even go beyond these commitments with further contributions – can more constructively support global climate action by leaving the mitigation outcomes with the host country, thereby supporting rather than conflicting with host country climate ambition.

Countries that want to go beyond this to participate in bilateral or multilateral cooperation with the international transfer of mitigation outcomes should strive to deliver the high-hanging fruit of mitigation action. This can best ensure that market-based cooperation can fulfil its purpose as an ambition raising mechanism. In this regard, Switzerland still has the chance to ensure that the final selection of specific projects implemented via its bilateral agreements is more ambitious than the activities referred to in announcements to date.

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