Momentum builds for carbon pricing in Paris agreement

Last week in Geneva, the prospects for a climate deal in Paris got a little brighter – and carbon pricing continued to gain attention on the international stage.

On Friday, negotiators in Geneva cheered the birth of the negotiating text for the Paris climate summit in December. Building on a draft document from Lima, they added provisions on a number of topics. In the end, the document ballooned to nearly 100 pages. They expanded the options on markets substantially, with Brazil, New Zealand, Norway, the EU and others offering detailed proposals.

For IETA, a wide range of options are on the table – but it will be an uphill struggle to get a good outcome. Still, I came away believing that the odds of emerging with workable market provisions have improved slightly.

Remember where we were a year ago? It was unclear whether the “ADP” would even touch on markets. The main pillars of the text (Mitigation, Adaptation, Finance, Capacity Building, etc) contained no explicit reference to market architecture, so it was a mystery if the ultimate deal would address markets at all. Instead, the market aspects were relegated to moribund negotiations in the UNFCCC’s subsidiary bodies – where technical negotiations remained stuck in the mud.

Last week was different. Throughout the week, negotiators offered views of how the market provisions should be structured. Although Venezuela and Bolivia still want little or no mention of markets, it is clear that many other Parties see it as an essential element. The big questions will be how much detail will be offered in the Paris outcome – and how long it may take to develop the remaining rules in the coming months (or years?). The 2016 negotiations are in Marrakesh, but it may be a stretch to hope for more “Accords” by then!

Here’s how the final day of the Geneva talks unfolded. The co-chairs convened a few “thematic” discussions, including a 90 minute session on “Markets, Non-markets and No Markets” on Friday. It was interesting to see where some key negotiating blocs lined up, and our full ADP de-brief offers a summary. But there were a couple of alignments that caught my eye:

  • Brazil appears ready to lead in the development of market architecture. It described a two-tiered, rules-based system, supporting both allowance trading markets and a new “Economic Mechanism” built on the CDM. The EU offered a similar vision of a two-tiered system, with allowance trades backed by solid accounting and project-based crediting with net mitigation – but with differences from Brazil (notably, on eligibility to join the system).
  • China said that it believed the market provisions were closely linked to mitigation of developed countries, to help them reach for more ambitious levels. They thought including markets in the Paris agreement is not required, because market details could be worked out after Paris.
  • The US began in a similar place: that ambition and markets are linked, in that markets can enable parties to do more, at a lower cost than otherwise. They emphasised that, in the bottom-up world driving this agreement, nothing would stop countries from using markets. The US seems to share a similar vision to China on process (market details can emerge after Paris). The US said that, although it does not intend to use international markets, it could see value in a reference in the Paris text to provide reassurance, and to provide clarity and consistency of market approaches.

There were many other helpful statements – New Zealand on accounting principles; Panama on REDD+ crediting and on a potential three-point plan for Paris (an accounting provision, a project crediting mechanism, and a way of dealing with domestic crediting systems). Norway ended with a strong statement on how markets enable parties to cooperate better and to engage their private sectors.

As I headed home Friday, I reflected on the hard work many of us have done over the past year (and indeed years!) to emphasise to governments that “markets matter” in the Paris text. IETA’s work with the World Bank on carbon pricing – and with the Harvard-led team on substantive input – helped us provide political momentum and concrete ideas to the process.

Don’t get me wrong – there are still deep divides across the whole agenda. No provision on markets will emerge unless there is progress on a host of other issues. Also, many Parties made clear that they will insist on “balance” in the texts – so the paragraphs on each key issue will need to be of relatively similar heft.

It will be a long, challenging year of negotiations, with sessions in June, August and October. Now is the time to stay close to your government’s market negotiators and make sure they know the IETA views. We’ll keep posting developments, as they occur.

Dirk Forrister, IETA

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