COP and Carbon Trading: Can This Time Be Different?

(Bloomberg) --

COP President Alok Sharma says climate talks in Glasgow are about to get tough. That’s because negotiators are trying to nail down a deal they’ve spent six years of their lives chasing.

Clinching an agreement on international carbon-market trading is a key benchmark of success at COP26,  and would be a major win as the issue has been pending ever since the Paris accord was signed in 2015.

The buzzword is Article Six, and it’s about two kinds of carbon trading. One is about country-to-country exchanges of carbon credits — where one nation essentially pays another to cut emissions on its behalf. The other is about offsets traded by public and private players.

For the planet, no deal is better than a bad deal.

A well designed agreement would help cut emissions, spur up to $1 trillion of investment in poorer nations, and encourage low-carbon innovation. But if the rules are too lax, it will merely give a free pass to companies and countries to emit more than they should. (Think of it as paying someone else to go on a diet for you.)

But there is a sense of urgency to nail down the rules — and not just because the planet is warming fast. Demand is booming for offsets: more credits changed hands in the first eight months of this year than in all of 2020, according to BloombergNEF, as corporations and governments spend billions of dollars to meet their net-zero targets.

But there are no unified standards or international oversight, leaving room for abuse. Low-quality offsets do little — or nothing — to slow climate change. The aim in Glasgow is to bring transparency and rigor to a market that’s growing in a messy sprawl across the globe.

Companies are watching carefully — and lobbying too. They want clarity on the rules as they map out how to implement their net-zero strategies.

The chances of a deal had been looking up in recent weeks. Brazil, reluctant to compromise at the last round of negotiations, signaled it would be more flexible. But the first week of the conference was a reminder that finding a landing zone will be no easy task. Countries are stuck on the issue of how much revenue from trading should be siphoned off to help poor countries adapt to climate change.

Another key point of contention is how the accounting rules should work to avoid emission-reductions being counted twice. A badly drawn deal could allow the credit to be booked both in the country that buys it and the one that sells it. There’s also a fight over whether credits from a now defunct carbon regime should continue to be valid or rather phased out. The fewer old credits in the system, the more effective the market will be.

The three most contentious issues mostly pit developing countries against rich nations. Brazil wants to be able to use at least some of the old credits and the African group of countries seek a bigger share of revenues to be channeled toward regions that need funds. The European Union, a key player, has been repeatedly urging robust accounting rules, and opposes the African bloc’s proposal on revenues.

Sharma is cranking up the pressure to get a deal done. He warned delegates on Friday that people will be “astonished” if the summit once again fails to produce an agreement. “We’ve been discussing this for six years.”

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