The carbon markets conundrum at COP26

Synopsis: Article 6 of the Paris Agreement needs special attention in the upcoming climate summit. It may help in encouraging carbon mitigation efforts in developing countries.

Article 6 of the Paris Agreement for the carbon market would be at the center of discussion in the 26th Conference of the Parties (COP26). It has been a most contentious unresolved issue of the Paris Agreement Work Programme.

What is the issue linked to Article 6 of the Paris Agreement?

Developing countries, particularly India, China, and Brazil have benefitted immensely from Clean Development Mechanism (CDM) of the Kyoto Protocol. India alone has been issued total carbon credits known as Certified Emission Reductions (CERs) worth U.S.$2.55 billion.

However, with the ratification of the Paris Agreement, the rules have changed. Now even developing countries are required to have mitigation targets. Now developing countries can either sell their carbon credits in return for lucrative foreign investment flows or use these credits to achieve their own mitigation targets.

Why CDM is beneficial for developing countries?

The new market mechanism is beneficial to promote sustainable development and assist climate change adaptation in developing countries.

It encourages private sector participation and attracts foreign investments to support low carbon development.

It is the developed countries that rely upon market mechanisms to meet their NDC(Nationally Determined Contributions) goals, whereas countries like India, aim to rely on domestic mitigation efforts.

What are the issues that require attention in the upcoming COP26?

-Projects under CDM have gone through due diligence and credits have been issued under UNFCCC oversight. Therefore, due credit should be ensured for these projects to keep the trust of private investors in UNFCCC commitments. If the decision regarding the transition of CDM is not favorable, it could lead to a loss of billions of dollars’ worth of potential revenue to India alone.

-At the present stage, India need not undertake the economy-wide emission reduction targets. Thus, all mitigation efforts of India will not fall under the purview of its NDC.  India can sell emission reductions that lie outside its NDC. Robust accounting will ensure that there will be no double-counting of emission reduction. Thus, the argument of developed countries that it will discourage raising ambition levels is flawed, as India will only sell additional efforts.

-Adaptation Fund remains severely underfunded compared to financing for mitigation activities. It is necessary for adaptation for developing countries.

Thus, Climate discussions should ensure equitable sharing of carbon and developmental space. Climate justice demands that developing countries get access to their fair share of global carbon space.

Source: This post is based on the article “The carbon markets conundrum at COP26” published in The Hindu on 22nd October 2021.