The upcoming COP26 United Nations climate talks in November must nail down agreement on a rulebook for international emissions trading, market experts said Oct. 7.
The rapidly expanding global market for greenhouse gas emissions credits would benefit significantly from clear rules on how governments will account and trade greenhouse gas reductions – even as the industry-led market develops outside the UN process.
"It's definitely the last chance to get the rulebook agreed," said Sven Kolmetz, chairman of the Project Developer Forum – a non-governmental group of carbon market organizations, speaking at the Carbon Forward 2021 online event.
A major element of the Paris Agreement that remains up in the air is Article 6 – the section of the agreement that deals with international emissions trading. National delegations to the talks had hoped to finalize this element as early as 2018 but differences in views prevented final agreement.
Article 6 matters because it could help slash the global bill for meeting long-term climate protection targets, in turn encouraging governments to up their ambition on emissions reductions. It also helps to engage the private sector and drive finance and technology in a global bid to reach net-zero emissions by 2050.
"For some parts of Article 6, there is more time. But the private sector can't wait a long time for Article 6.4 to be ready," said Kolmetz.
Article 6.4 of the Paris Agreement aims to establish a voluntary mechanism, supervised by the UN, which will contribute to the reduction of greenhouse gas emissions by allowing public and private entities to trade emissions reductions.
The system would work on the principle that one country overachieving on its emissions reduction target can sell surplus credits to a country falling short, helping to meet the overall climate goal at a lower cost than would otherwise be the case.
"Article 6.4 is influencing the Voluntary Carbon Market. If I look at how important the VCM is becoming - and will become in the future - we should all be aware of this influence," said Kolmetz.
The VCM has been driven by cooperation between private sector CO2 emitters and non-governmental environmental standards agencies, a process which exists outside of the UN climate negotiations.
But it is also influenced by the UN process, because many governments could become net buyers of emissions credits, creating additional demand for credits.
Some governments have already established bilateral agreements to purchase emissions credits, and this is expected to increase under a globally agreed system.
Rulebook 'integral' to Paris deal
Other sources said the urgency to reach an agreement is rising ahead of COP26.
"It's time to conclude these issues," said David Hynes, a policy advisor at the UK's Department for Business, Energy and Industrial Strategy.
"The rulebook items are not 'add-on' items. They are integral to the Paris Agreement," he said at the Carbon Forward 2021 event.
Three important elements are needed under the Paris rulebook: Article 6; transparency on how countries will report their greenhouse gas emissions; and common time frames: how countries' climate targets and dates align so they are consistent, he said.
"The deadline, at the latest, is 2024. This is a tight timeline, especially for countries that are not used to this kind of reporting requirement," said Hynes.
"The longer we leave it, the less time there is to actually make use of Article 6. So the message is that we need to get the rulebook agreed this year," he said.
Carbon credit prices have increased sharply in 2021 as companies and governments show increasing interest in the market.
S&P Global Platts assessed CORSIA-eligible carbon (CEC) credit prices at $7.01/mt CO2e at the close Oct. 7, compared with $6.25/mt on Sept. 1, and as low as 80 cent/mt when the assessment was launched in January.