COP26: Carryover of old carbon credits 'most contentious issue' in Paris rulebook: IETA

The carryover of emissions reductions from the Kyoto Protocol is the most contentious issue holding up negotiations on the Paris Agreement "rulebook" being discussed at the UN Climate Change Conference in Glasgow, the International Emissions Trading Association said late Nov. 4.

The comments relate to discussions around Article 6 -- the part of the Paris Agreement that deals with international carbon markets, with potential for decisions in Glasgow to help shape the market for carbon credits for years to come.

"The most contentious issue is related to the carryover of both activities and credits from the Kyoto Protocol," IETA said in a statement.

"Our team noted that while in Article 6.2, the talks have evolved into developed versus developing country Parties, in Article 6.4, the picture is a lot more nuanced," the group said.

Article 6.2 sets out the rules for emissions reduction accounting systems, while Article 6.4 deals with a mechanism for voluntary trading of emissions credits.

The rules on use of older credits from the Kyoto Protocol era matters for the carbon market because allowing them would increase the supply of credits – a potentially bearish signal for carbon credit prices. A ban on older credits could limit the supply of eligible credits, sending a supportive price signal for credits allowed into the international system.

Carbon credit prices have surged in 2021 as demand grows from companies wanting to offset their greenhouse gas emissions as part of a drive to achieve net-zero emissions by 2050 or sooner.

CORSIA-eligible carbon (CEC) credit prices have increased by 856% since S&P Global Platts launched daily assessments in January, with prices assessed at $7.65/mt CO2e at the close Nov. 4, compared with 80 cents/mt on Jan. 4, 2021.

Meanwhile, nature-based credit prices hit double digits for the first time Nov. 3 at $10.05/mt, according to Platts assessments, a gain of 132% since the first assessment on June 14, 2021.

"There are some developing countries that want very strict limits on Kyoto Protocol activities, particularly the Least Developed Countries and the African Group," IETA said.

"On the other hand, developing countries that have benefited the most from the Kyoto Protocol and host a large number of projects -- in particular Brazil and the Like-Minded Developing Countries -- want to carry over many more credits and activities," it said.

Delegates also held very detailed discussions on the functions of the Article 6.4 Supervisory Body, which would replace the Clean Development Mechanism Executive Board.

"Our team felt that the discussion of topics such as the gender balance and term limits for members of the Body represents a genuine intention to make progress and hopefully find agreement next week," IETA said.

At past COPs, the talks have tended to involve technical negotiations by specialists in the first week, who aim to thrash out areas of agreement between nations and other stakeholders so that draft texts can be passed up for ministerial sign-off in the second week.

On the wider negotiations on national climate targets, more than 150 countries have submitted updated Nationally Determined Contributions and 2030 targets, representing over 80% of global emissions, according to the World Resources Institute, IETA said.

"There have been improvements to NDCs covering around 63% of emissions, and 82 countries now have net-zero targets," the group said.