Emissions trading deal proves elusive again at COP26

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After six years of unsuccessful efforts, it is hoped that COP26 can lead to a long-awaited agreement on the rules of a global carbon market, seen as essential to help countries and companies reduce their emissions while stimulating investment. in low carbon projects.

In general, most countries support a carbon trading system as a way to reduce emissions that cause climate change.

But a major stumbling block in the negotiations was agreeing on how a carbon trading system would work and how much credit each country could earn for its emissions targets.

A general framework was included in the 2015 Paris Agreement, which more than 190 countries have ratified. But the details are still unclear – and that’s why this remains a proposal instead of a solid deal.

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During the two-week climate conference in Glasgow, COP26 President Alok Sharma noted that while progress had been made on the issue, there was also a lot of work to be done as well.

“There is clearly a political consensus that needs to be built on this,” he said, while describing how people will be “astonished” if the talks fail again, because “we have been discussing this for six. years”.

Setting up a system

The system would allow countries that have exceeded their emission reductions to sell this credit to other countries; credit that would then be used in the name of achieving their own climate goals – known as offsetting. It could also create a commercial market for these credits, which would be used by both the public and private sectors.

There is a sense of urgency to these talks, however, as some private carbon markets already exist in various parts of the world – but without any established accounting rules or oversight.

A number of companies are poised to invest in environmental projects in order to obtain carbon offsets in the name of helping them achieve net zero climate goals, including technology and energy companies in Canada.

WATCH | How a global carbon trading market could work:

Why companies are closely following the COP26 negotiations on a carbon trading market

Andrea Bonzanni from IETA explains the challenges of establishing a global carbon market. 1:46

The goal is for all of those dollars to ultimately help fund clean energy projects around the world.

The carbon trading system is officially referred to as Article 6 of the Paris Agreement and there are two main elements being negotiated.

The first is to allow carbon credits to be traded from one country to another, essentially allowing one country to pay another to reduce emissions on its behalf.

The other focuses on creating a global market for offsets trading.

In total, the value of these transfers could reach up to US $ 300 billion per year in 2030 and up to US $ 1,000 billion in 2050, according to the International Emissions Trading Association (IETA), a supporter of a emissions trading system.

“The vast majority of [countries] agree that an international carbon market should exist and be operationalized, ”said Andrea Bonzanni, IETA Policy Director.

“How to do it and the specific rules are proving very difficult to accept. “

“So far from it now”

At present, the Canadian government does not intend to use the provision of Article 6 to meet its climate goals, although it may in the future, the Minister of Justice said on Friday. ‘Environment Steven Guilbeault at a press briefing in Glasgow.

“There was this idea at a not-so-distant point in history when Canada’s plan was to achieve the majority of its emission reductions. [target] abroad. We are so far away now, where our plan currently is to achieve 100% of our emission reduction at home, ”he said.

John Kerry, the United States’ special envoy for climate change, said on Friday that good progress had been made on Article 6.

“I think many parties are now converging on ideas. For the United States, we believe it is essential that any package be a package that has environmental integrity and clear accounting and solid baselines, which is essential, ”he said.

But some environmental groups fear that a compensation system will do little to reduce emissions or to discourage the phase-out of fossil fuel production.

At COP26, countries debated a proposal for a sort of carbon trading transaction tax, which would set aside funds to help least developed countries protect themselves from the adverse effects of climate change. .

Another point of contention is the accounting rules, to ensure that if one country buys credits from another, emission reductions are not claimed by both nations.

Likewise, rules must be put in place to avoid double counting when it comes to transactions involving businesses; for example, if a Canadian company builds a carbon capture project in a foreign country or funds a reforestation project abroad, it is not counted by both parties.

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