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

27 Oct 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

Swarn Singh

Plutus IAS Current Affair Team Member