The carbon markets conundrum at COP26 (GS-3, environment and climate change)

Article 6 of the Paris Agreement would be the king to be checkmated and captured for concluding the Paris Agreement Work Programme (PAWP) at the 26th Conference of the Parties (COP26).

  • Article 6 of the Paris Agreement introduces provisions for using international carbon markets to facilitate fulfilment of Nationally Determined Contributions (NDCs) by countries.

  • Developing countries, particularly India, China and Brazil, gained significantly from the carbon market under the Clean Development Mechanism (CDM) of the Kyoto Protocol. 

    • India registered 1,703 projects under the CDM which is the second highest in the world.

  • Certified Emission Reductions (CERs) issued for these projects are around 255 million.

  • U.S.$2.55 billion in the country.

  • logically, India has a lot to gain from a thriving carbon market. 

  • Developing countries are faced with a dilemma of either selling their carbon credits in return for lucrative foreign investment flows or use these credits to  achieve their own mitigation targets.

What should be debated

    • market mechanism 

    • it should help promote sustainable development and assist climate change adaptation in the developing countries. It should encourage private sector participation and attract foreign investments

    • While over 50% of the countries have communicated their intention of using market mechanisms to  achieve NDC

    • It is the developed countries that would rely more on market mechanisms for achieving their climate targets

    • The three critical issues that would be hotly debated in Article 6 negotiating rooms are CDM Transition, Accounting rules and Share of Proceeds to the Adaptation Fund.

  • CDM transition:

      • transition of credits. If the decision regarding transition of CDM is not favourable, it could lead to a loss of billions of dollars worth of potential revenue to India alone

      • a new supervisory body to be formed under the Paris Agreement can re-examine the validity and rigour of such credits.

  • Accounting rules:

      • mechanism is meant to incentivise the private sector and public entities to undertake mitigation activities for sustainable development.

      • emission reductions transferred from a host country be adjusted against its NDC targets. It must be appreciated that these reductions represent additional efforts of the private sector or public entities to mitigate greenhouse gas emissions, and in fact raise global climate ambition

  • The path ahead:-

    • India does not need to undertake economy wide emission reduction targets at this stage of its development

    • It can significantly gain from the market mechanism 

    •  Robust accounting will ensure that there will be no double counting of emission

    • Share of Proceeds (SOP) to the Adaptation Fund:

    • For developing countries, adaptation is a necessity. However, it remains severely underfunded compared to financing for mitigation activities. 

  • carbon markets allow developed countries to keep emitting greenhouse gases while developing countries benefit from the revenue generated from the sale of their carbon credits

  • climate justice demands that developing countries get access to their fair share of global carbon space. 

  • a facilitative carbon market mechanism that respects the principles enshrined in UNFCCC would greatly help accelerate their transition to low carbon.

plutus ias daily current affairs 27 Oct 2021