Provisions for international carbon trade risk being squeezed out of the UN climate pact after a week of minimal progress at talks in Paris, although market proponents are adamant this won’t stop the spread of emission markets worldwide.

Over 80 countries have said in their INDCs that they intend to use or explore the use of market-based mechanisms to help meet targets or raise funds for the post-2020 period.

But global powerhouses China, EU and the US don’t plan to outsource any emission cuts, with the only firm sign of international demand from smaller nations Canada, Japan, New Zealand, South Korea and Switzerland.

As the fortnight-long talks near the half-way stage with scant signs of tangible progress, some observers and negotiators told Carbon Pulse that they fear that potentially contentious text on markets could be removed as the big nations come under pressure to seal an overall deal.

“There are a limited number of countries that see these elements as ‘crucial’, some think they are important but have other priorities, and others don’t want them at all,” said Jeff Swartz of pro-carbon trade business group IETA.

The ALBA group of Latin American nations, led by Bolivia and Venezuela, have spoken up this week against the inclusion of markets in the deal, which requires the consensus of all 196 parties.

HIGH PRIORITY

One country giving access to international trade a very high priority is New Zealand, which made its INDC goal dependent on access to foreign units and accounting rules.

“We believe it is every country’s sovereign right to use markets. In the event that there is silence on this issue here in Paris, we would certainly not see that as there was no future for markets,” Jo Tyndall, New Zealand’s lead negotiator told Carbon Pulse on the sidelines of the talks.

“What we want to do is be very clear that there will be a role for markets in the future. That’s the signal we will send out,” she added.

A negotiator from a second country putting a high priority on market access echoed Tyndall’s views that nations had a right to make use of markets regardless of a reference in the Paris deal.

Yet the development of international carbon trade faces uncertainty and potential delay if there is no language or provisions for it in the Paris agreement.

Experts and government sources have predicted the creation of multi-national carbon trading clubs of willing nations outside the UN as a fallback option.

BETTER UNDER UN?

IETA is pushing for the inclusion of clear language on markets in the Paris agreement to spur moves towards linking the various carbon markets worldwide, which they believe encourages countries to set more ambitious emission goals by delivering more cost-effective abatement.

“Obviously the UN is the best place to create global carbon markets, and will always be because they will be open, transparent, easily accessible. But it’s becoming increasingly difficult to create them here,” said IETA’s Swartz.

“If those markets get first created outside of the UN process, then that’s the next best-case scenario after getting something under an agreement, because markets are going to develop and grow no matter what.”

IETA is seeking wording that the agreement “shall further facilitate international cooperation between parties in the implementation of mitigation activities” and to have reference to “no double counting” of emission units to safeguard environmental integrity.

WARY

Green group coalition CAN is wary about the use of international trade and fears it could undermine the deep reductions necessary to stave off climate change.

“We have learned many lessons from the international offset mechanisms. In order to fully decarbonize by 2050, we now need financing mechanisms that enable transformational change and go well beyond identifying short-term least-cost options,” said CAN’s Anja Kollmuss on the sidelines of the talks.

She said that guaranteeing the environmental integrity of trade would be more difficult under the “free-for-all” bottom-up Paris agreement than under the current Kyoto Protocol.

“There were very good rules under Kyoto but there were considerable shortcomings with the CDM and JI and we’re heading for an agreement that will have even fewer global rules.”

The issue remains tricky, with environmental campaigners concerned that a market-free Paris text could lead to a worse outcome if countries pursue trade outside of UN scrutiny.

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

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