Cop27, buying and selling permits to emit CO2 makes more and more

Cop27, buying and selling permits to emit CO2 makes more and more


The World Bank put it on paper in its latest carbon market report. In 2021, for the first time, emissions trading systems (ETS), which allow less polluters to sell to those who risk breaching certified limits or offsetting projects, such as planting trees, have made more of taxes on emissions. Of the $ 84 billion that states raised last year, 67% came from buying and selling permits to emit CO 2 or other climate-affecting gases that someone else, with reforestation projects or with technologies such as carbon capture. , promises to absorb.

Up to 2020, taxes took the lion's share. But last year, the World Bank writes, the rise in ETS prices and the increased number of permits on the market prompted the overtaking. With the result that in 2021, the states have seen their revenues increase from systems that put a price on CO 2 by 60% compared to 2022. A premise that bodes well for negotiators that at Cop27, the United Nations climate conference in course in Egypt, will deal with Article 6 of the Paris Agreements. That is the voice that establishes a series of systems at national and international level to sell and buy emission certificates.

The point about the negotiations:

Password: implementation How article 6 works Accounting matter National and international markets The new mechanism of the United Nations Up to one trillion Cop27 All news from the UN climate conference in Egypt


Password: implementation

If the Conference of the Parties (COP) of Sharm-el-Sheik wants to be, as the new executive secretary of the Framework Convention on Climate Change of United Nations (Unfccc), Simon Stiell, the "implementation" appointment, the one that will put into practice previous political commitments and declarations of principle, a negotiation like the one on Article 6 has a good chance of succeeding.

"The discussion moves from more political to more technical issues, on the rules and guidelines of these mechanisms", explains to Andrea Bonzanni, international policy director of the International Association of Emissions Trading (Ieta ), which represents 300 companies including banks, brokers, companies in the energy and technology sector.

In a COP over which the shadows of the war in Ukraine, the energy crisis and international tensions between China and the United States stretch , it is better to talk about technicalities than politics. And since the previous conference in Glasgow, the number 26 of 2021, has made the principles clear, Egypt can move on to the practical aspects, trying to bring home a result that would give substance to a conference presented by several parties as an interlocutor. As evidence of this need to find themes so as not to pass it off as a missed opportunity, Cairo has enriched the program on the transparency front (another technical topic) and just a few hours before the opening of the event, at 7 am on Sunday of the inauguration, the UNFCCC delegates have approved a first proposal for an agreement on the guidelines for the carbon market of article 6.

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How Article 6 works

Let's start from the basics. That is, from article 6 of the Paris Agreements (those of 2015 which, to be clear, set the commitment to contain the increase in temperatures within 1.5 degrees compared to pre-industrial levels), which establishes the carbon market. And it does this in three ways.

Paragraph 2 provides for an exchange mechanism between individual states. To regulate it, we rely on the package of commitments to reduce emissions and meet the objectives of the Paris agreements, called Nationally Determined Contributions (Ndc). A and B join forces, A agrees to build a system that captures CO 2 for B. Paragraph 4 provides for a similar system, but centrally governed by the United Nations, which retires the current Clean Development Mechanism (Cdm ). Finally, the 8th introduces "non-market" approaches, envisaged in particular in support of developing countries.

Having complete and transparent data on emissions is proving to be more difficult than expected. to achieve the Paris agreements and will have to be available from 2024, but progress is slow. At the climate conference underway in Egypt, Cop27, the issue will remain out of the negotiations but everyone's commitment is needed to make progress

A matter of accounting

"With respect to paragraph 2, the decisions to be made concern the reporting - says Bonzanni -. When the States activate a cooperation mechanism, it is necessary to clarify what is reported to the UNFCCC, to decide how the registers will be made to trace the exchanges and avoid double accounting ". Double counting, ie counting the emissions saved twice, thus nullifying the effectiveness of the instrument, is the big risk of these interchange systems. Let's take a practical example: to reduce CO 2 emissions, A decides to start a reforestation project. But if A then sells the emissions absorbed on the market to B, it will no longer be able to count the forest among the projects to reach its NDCs. That share, in fact, is now in the hands of B.

For this reason, as was decided in Glasgow, it takes painstaking accounting and a clear correspondence (corresponding adjustament) between the credits that a State assigns and those that another receives. Otherwise we end up moving tons of CO 2 from one side to the other only on paper, without a real impact on reducing pollution. Furthermore, voluntary markets, animated also by companies that want to achieve zero emissions, must not pass these obligations, which risks opening a rift in the wall of rules.

"To avoid greenwashing operations - he explains to Gilles Dufrasne, head of carbon markets for an association specializing in the topic, Carbon market watch - transparency is needed. It is the responsibility of states to authorize the use of these credits to offset emissions. If he doesn't, there can be no corresponding adjustments. For us, this difference must be clearly highlighted, for example by using different names, so that those who buy that credit know that it is not one of the authorized ones ".

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National and international markets

Some countries are already ready to activate their buying and selling mechanisms, such as Japan and Switzerland, says Bonzanni. Tokyo expects to aim to reach between 70 and 90 million tons of CO2 offset on the carbon market by 2030. While the European Union is in the process of reviewing its market, Eu Ets. An operation that the Commission wanted to take home before Cop27 but which is going to take a long time, also due to the energy crisis and the farewell to Russian gas. Euractiv recalls how steel producers were granted in one of the last negotiations to have a quota of free permits, despite the commitment to reduce emissions.

"For now, the Union has focused a lot on domestic mitigation - observes the head of the Ieta - but in the future it will have to resort to carbon markets if it wants to achieve zero emissions, because the projects to capture CO 2 are incompatible with the characteristics of the European territory, since they need low housing intensity ".

At Cop27, paragraph 4 of article 6 will also be discussed. The one that establishes an internationally governed credit exchange system by the United Nations. Today the UN already has an instrument, the CDM, which, however, must retire. “The goal is to launch the new mechanism within two years,” says Bonzanni.

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The new mechanism of the United Nations

Before the start of the conference in Egypt, the first recommendations on the functioning of CO 2 removal systems were published, asking, for example, to use various tools, such as field measurements, satellite monitoring and remote sensors to certify the effectiveness of projects, such as those for the capture and storage of carbon dioxide, which have raised a lot of criticism. As well as some reforestation projects “These markets are growing and are increasingly subject to public control - says Bonzanni -. Projects have emerged that have not worked, but most bring concrete results ".

For Dufrasne" the definitions are still too broad. In our opinion, it is necessary to decide which forms of removal can be used ”. The expert makes the case of a forest used to compensate for CO 2, whose trees are subsequently cut down to make building material. How do you behave in that case? The farewell to the CDM also causes a freeze on allocated funds. For this reason, migration rules are being worked on from one mechanism to another, with 2.8 billion credits that could pass from the CDM system to the new one and 300 million dollars to be allocated to new projects. And again: could a company that decides to extract less gas or oil use that quota to sell carbon credits, they ask themselves in Carbon market watch? There is still no univocal answer but it would serve to prevent the introduction of waste paper on the credit market. The UN, Dufrasne recalls, has also set up a group of experts on zero emissions, to give common rules to tackle greenwashing. The consultants will present the first results of their work at Cop27.

Up to one trillion

The question then remains of how to use these funds. Ecosystem marketplace, a volunteer initiative of the financial consulting firm Forest Trends, has certified that in 2021 the voluntary carbon markets, where companies sell and buy credits to achieve zero emissions, have seen an increase in values ​​and volumes. Prices have gone from an average of $ 2.52 per ton in 2020 to $ 4 and operations have touched two billion. Almost like all those carried out in the previous seven years and a quarter of the total 8 billion recorded since before 2005. “Two billion are still few but the trend is growth - says Bonzanni -. More and more companies are turning to the voluntary market to achieve their decarbonisation goals. In this year we see a continuation of previous trends, except for a slowdown linked to the rise in interest rates ". Dufrasne also confirms a decline in the last period. But Bonzanni assures:" They will become a commodity ".

Second Ieta the carbon market could halve the costs of NDCs by 2030, saving $ 250 billion a year. And a 2021 study by the same association concludes that putting Article 6 into operation could make up to 1 trillion flow. per year by 2050 in the coffers of the poorest countries, net sellers of credits, to finance investments against the climate crisis.

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