Can Glasgow reach an agreement on an emissions trading scheme?

3 November 2021

This is a translation of the article posted on 2050. Läs på svenska här.

On Sunday, the annual COP26 climate summit began in Glasgow. For two weeks, countries from all over the world will negotiate solutions to reduce emissions in line with the goals set in Paris 2015. Daniel Lindvall, researcher at Uppsala Unversity, and Mikael Karlsson, senior lecturer at Uppsala University, and both scientific advisers to the 2050 rganisation, are present during the negotiations and comment on the discussions on Article 6 in The Paris Agreement.

One of the most important issues in the negotiations regards the application of Article 6 of the Paris Agreement, which is about emission reductions through trade and cooperation between countries. Essentially, it is about how one country may be enabled to take action in another country that lacks the resources to implement action itself. For example, emissions could be reduced through investments in renewable energy replacing fossil energy in resource-poor countries. It also concerns the creation of carbon sinks through afforestation or compensation for protecting forests from unsustainable use. The idea is that these measures are cost-effective, at least in the short term, and should be included in the calculations of the emissions reductions of the funding country.

The issue of cooperation and emissions trade has been discussed at virtually all climate summits and is both complex and controversial. A system of emissions trading was a central part of the Kyoto Protocol. Although this has been widely criticised for being ineffective, a similar mechanism was included in the Paris Agreement. This is regulated in Article 6, which includes both a market mechanism and rules on cooperation. But it is still unclear how the article will be applied and despite intense discussions at the climate summits in both Katowice and Madrid, the issue is not fully negotiated. It would of course be good to have a breakthrough in Glasgow, but there are still several difficult issues to solve.

Emissions trading is controversial
Firstly, parts of the climate movement and some climate change researchers are generally opposed to the idea of emissions trading. The criticism describes emissions trading as a form of climate confession where the sinner can pay for themselves through a carbon offsetting mechanism and then continue emitting as usual. Several companies that state that they are climate neutral – such as Google – do so by compensating for some of the emissions. The criticism is also that many of the measures that are financed and implemented as compensation are not effective. In the light of this discussion, there have been demands for “real” climate neutrality, which would mean that it would be impermissible to include compensatory measures in the countries’ national climate plans, or at least that the reduced emissions are not counted twice. Another part of the criticism is about how these measures can significantly delay the more costly transformative systems changes needed to reduce emissions.

At the same time, there is some research that shows that compensation can actually play an important role in societal transition, especially when new green technology is underdeveloped. During these periods of transition, it may be better for the climate for investments to be made in resource-poor countries where larger emission reductions can be achieved for a smaller cost. It is often easier and cheaper to reduce a tonne of carbon dioxide in a relatively poor and carbon-dependent country than in the opposite. A research study from the University of Maryland shows that an exchange of emissions in accordance with the meaning of Article 6 could save the countries of the world close to 250 billion US dollars per year. According to this study, emissions could be reduced by 5 billion tonnes per year or by a total of 50 percent by 2050.

However, this presupposes a functioning emissions trading, and there is still disagreement on several key issues. The issue that seems most difficult to solve concerns so-called double reporting. Both the country that pays for the measure and the country where the measure is implemented may want to take it into account. This is particularly problematic as several countries concerned are those that lack a developed climate policy with absolute goals and transparent reporting. There are also conflicts between some countries, such as Brazil and India, that do not want an overly strict regulatory framework and the EU, for example, that wants full clarification. Following the first day’s negotiations on Article 6, several hundred pages of text have been written, with a whole 373 parentheses where agreement could not be reached.

Transparency, Previous Actions and an Additive
There is also a discussion on whether previous actions in the system established by the Kyoto Protocol can be counted today. In addition, issues of transparency in the system as well as the assurance that the measures are appropriate and effective are of great importance. The measures included must also be additive, meaning that they would not have been implemented without compensation anyway. The latter is extremely difficult to work with.

All of these may appear to be technicalities, but are central issues because they have a major impact on individual countries’ climate plans. It is also important for the perception of climate justice, as several resource-poor countries are more affected by both the adjustment and climate change itself and thus require some form of compensation.

Who administrates this?
A challenge is also that a stricter regulatory framework could mean that some kind of international administration needs to be established that oversees and reviews the reporting. Some, however, believe that there is no need for bureaucracy around an emissions trade that is already underway and that is under development. With pressure from investors and consumers, more and more companies are paying to compensate for their emissions, while the system for reviewing, calculating and quality-assuring various measures has been developed. Moreover, the costs of compensation are expected to increase as demand increases at the same time as countries that reach closer to zero emissions will provide less and less scope for compensation. That all said, it requires uniform standards, which could be achieved by agreeing on the application of Article 6.

There is still hope
Although challenges remain, both the Chinese and US negotiating delegations have made hopeful statements that it is possible to create a functioning system of emissions trading and cooperation in Glasgow. For a large number of Swedish companies, this could be of great importance. There are therefore good reasons to monitor developments in the coming days.

Daniel Lindvall and Mikael Karlsson

Photo taken from Swedish article on 2050: https://2050.se/2050-belyser/kan-glasgow-enas-om-en-fungerande-utslappshandel/

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