The UNFCCC's 26th Conference of Parties – COP26 – will take place in Glasgow next November.
COP25 in Madrid last year had been touted as an "implementation COP", where parties would finally agree how the ambition of the Paris Agreement – to limit global warming to well below 2°C and to pursue a limit of 1.5°C – will work in practice. Madrid transpired to be one of the most fractious and disappointing COPs to date, with countries failing to agree many key technical details, including rules to set up a global carbon trading mechanism, and a system to channel new funding to countries most at risk from global warming.
Many of these key issues will now fall to be agreed in Glasgow, as parties seek to bridge the gap between ambition and reality. Delayed by Covid-19, COP26 will proceed in an entirely new political context, and is shaping up to be one of the most interesting and critical meetings in the global effort to limit global warming. The effect of the Covid-19 crisis on governments' willingness to make major commitments remains to be seen. Here, David Bone and Joshua Hale take a look at some of the main points of contention?
(1) Article 6 Carbon Markets
Article 6 of the Paris Agreement contains mechanisms for “voluntary cooperation” towards climate goals, including the establishment of Carbon Markets under Article 6.4, which would allow international trading of emissions reductions created anywhere in the world. The "Rulebook" for how Carbon Markets were to operate was expected to be agreed at COP25, but countries failed to agree several key points, that will need to be addressed in Glasgow:
- Double Counting. In order to effectively reduce global emissions, a country that sells emissions cut credits to another country should not count those underlying emissions cuts towards its own target or Nationally Determined Contribution (NDC) under the Paris Agreement; the host nation must make a "corresponding adjustment" to its own tally to account for the transfer of savings to be used elsewhere. This is critical to the integrity of the entire carbon markets system; the purpose of the new market is to achieve "overall mitigation in global emissions" (OMGE) but without a corresponding adjustment, countries' targets could be "met" even as CO2 emissions rise.
On the face of it, the principle seems straightforward. The contention surrounds when a corresponding adjustment would be required, with Brazil in particular posing obstacles to agreement. Brazil's position is based, in part, on its interpretation of the nature of NDCs. Brazil reportedly views an NDC as a set of government policies and programmes, rather than a particular target to cut CO2. Therefore, any private sector activity hosted by a country, resulting in carbon reductions, is guaranteed to be additional to the NDC – since it was, by definition, not part of the government’s own policies and programmes – and therefore a corresponding adjustment to the NDC for this type of activity should not be required. Most other parties disagree, seeing the central issue in terms of the aggregate impact on emissions. If consensus cannot be reached on this point in Glasgow it may be fatal to the viability of an effective Carbon Market.
- Kyoto Credits. The proposed Carbon Market will replace the Clean Development Mechanism (CDM), established under the 1997 Kyoto Protocol. Some countries, including Australia, Brazil and India, want to be able to use unspent CDM credits in the new mechanism. Many countries are concerned that allowing CDM carryover could saturate the market with cheap credits that don’t represent real emissions reductions, undermining the integrity and purpose of the system. Little consensus was found on this at COP25.
- Actual Mitigation and discounting. Unlike the CDM mechanism, the Paris Agreement text calls for the new Article 6.4 Carbon Market to deliver OMGE. In essence, it should result in actual emissions reductions, rather than just offsetting CO2 released in one country with savings elsewhere. In order to achieve this, parties have proposed an automatic discounting or cancellation mechanism, whereby a proportion of a carbon credit is cancelled each time it is transferred. For example, if 100 credits representing 100 tonnes of CO2 reductions were transferred, the receiving country would only count a proportion of those towards its target. The remaining tonnage of CO2 reductions would not be counted towards any targets, resulting in overall mitigation over time.
There are concerns such a mechanism would make the process more expensive by effectively taxing trades, but the majority of parties agree in principle to some form of mechanism to ensure OMGE. Parties have provisionally agreed that 2% of traded credits would need to be cancelled for overall mitigation, with the exact figure to be decided no later than four years after the initiation of the mechanism. The real political fight concerns whether a similar OMGE objective should also apply to trades made directly between two countries under Article 6.2 as well as via the global Carbon Market under Article 6.4. At present, cancellation under Article 6.2 is only "strongly encouraged" in the draft texts, which some argue would create an imbalance that could skew the market away from the Carbon Market towards Article 6.2 direct trades, which currently have no OMGE objective.
(2) Loss and Damage
At COP25, negotiators were required to review the Warsaw International Mechanism (WIM), which was established to deal with extreme damage suffered by vulnerable communities due to climate change. The question of how to support countries affected by the irreversible impacts of climate change has been a long-running debate at recent COPs, with the matter of funding a particularly contentious issue. Pressure by rich nations meant that the funding question remained unresolved at COP25. The only funding offer that was actually being considered relied on the Green Climate Fund, a compromise offered by the EU, rather than new additional funds. The final text removed any concrete financial obligations, merely “urging” developed countries to “scale up action and support, including finance". Whether new additional funding can be agreed will also be an important aspect of COP26.
(3) Common Timeframes
Parties had previously agreed that countries' NDCs should follow common timeframes, with the question of how long timescales should be left open for negotiation. Proposals included 5 year, 10 year time frames, or 5 years for developed countries and 10 years for developing countries. Agreement could not be reached at COP25 and is being pushed back to the intersessional meeting in Bonn, Germany, which has also been delayed to 2021 due to Covid-19. It remains to be seen if agreement can be reached there or will be pushed back further.
In the meantime – national commitments
In the run up to COP26, keep an eye out for announcements and commitments from national governments. Countries are required by the Paris Agreement to "recommunicate" or "update" their NDC climate pledges before the end of 2020. Given that current NDCs reportedly fall well short of what is needed to limit global warming to agreed levels, there have been efforts at previous COPs to agree text calling for greater ambition from all parties. Countries failed to adopt language at COP25 that would require the 2020 NDCs to be more ambitious than previous NDCs. Instead, countries must simply "consider" the "significant gap" between current commitments and the goals of the Paris Agreement when they recommunicate their NDCs in 2020. As the incoming COP president, the UK has emphasised the need for greater ambition, calling on all parties to submit enhanced NDCs.
Domestically, in response to a progress report by the Committee for Climate Change, the UK Government recently announced plans to publish a comprehensive "net-zero strategy" ahead of COP26. It follows the UK being the first major economy to commit to net-zero in domestic law last year. The Secretary of State for Business, Energy and Industrial Strategy (BEIS) Alok Sharma, also announced a series of climate commitments during the first day of Climate Week NYC in September, including the launch of a COP26 Energy Transition Council whose aim will be to speed up the transition from coal to renewables in developing countries.
On the side-lines, the European Parliament voted on 8 October 2020 in favour of making a 60% emissions reduction target by 2030 legally binding. Parliament must now agree the final law with the EU’s 27 member states, but only half have said they support an emissions cut of "at least 55 per cent" within that short timescale. Heads of government are expected to decide states' negotiating position at a summit later this year; the result of that summit could be significant.
It will also be interesting to see what commitments the private sector makes between now and COP26. COP25 saw an alliance form of non-state actors and there is potential for an "ambition loop" if cities and the private sector continue to make their own unilateral commitments. For example, Ford, LafargeHolcim and Facebook have recently joined the UNFCCC's Race to Zero campaign.
If you are interested in hearing more about what to expect at COP26, you can access a recent webinar that our Head of Energy & Natural resources David Bone participated in here.
You can also find out more about COP26 here.