I recently returned from the climate negotiations in Madrid (the twenty-fifth Conference of the Parties – COP-25 – of the United Nations Framework Convention on Climate Change), and as I have done in previous years, I would like to provide you with my brief perspective on the outcome. This year that means commenting both on what did and did not happen.
A Very Quick Overview
The press has characterized the Madrid climate talks in rather stark terms – as a failure, in contrast with the inspirational calls from youth activists and others for greater ambition. For example, Somini Sengupta, writing in The New York Times, characterized COP-25 as “widely denounced as one of the worst outcomes in a quarter-century of climate negotiations …” As usual, reality is somewhat more nuanced.
On the one hand, the inability of the climate negotiations to produce an aspirational statement calling for greater ambition in the next round of national pledges is not terribly significant in terms of its real effects, despite the fact that some members of civil society – ranging from Greenpeace to Extinction Rebellion – have framed this as the key task for COP-25. On the other hand, there was a significant unfulfilled objective of the negotiations, namely writing meaningful rules (for Article 6.2 of the Paris Agreement) that would help facilitate global carbon markets. As I explain below, this was indeed a significant disappointment, but not the fatal failure that some have portrayed it to be.
So, there is good news and bad news. I will begin with the latter.
But before I turn to the substance, I will note for the record that we – the Harvard Project on Climate Agreements – were busy at COP-25, including: five speaking engagements focused on two topics – national and sub-national carbon-pricing policies (carbon taxes and emissions trading), and international linkage and the critical role of Article 6 of the Paris Agreement); and podcasts with key observers and participants in the negotiations (Andrei Marcu on December 8th and Paul Watkinson on December 11th).
The Bad News
From my recent essay at this blog just before I departed for Madrid (What to Expect at COP-25 in Madrid, December 5th), you know that a key task for COP-25 was to complete the so-called Rulebook on Article 6, in particular, Article 6.2, which can potentially facilitate international carbon markets and other forms of cross-border cooperation.
As I have said before, there are two necessary conditions for ultimate success of the Paris Agreement. First is adequate scope of participation. This has been achieved, with meaningful participation from countries representing some 98% of global emissions – or some 85% if the U.S. withdraws in November, 2020 (compared with the 14% of global emissions from countries committed to emissions reductions under the current, second commitment period of the Kyoto Protocol).
The other necessary condition is adequate ambition of the individual national contributions. But the very element of the Paris Agreement that fostered such broad scope of participation – namely, that the individual national “pledges” (Nationally Determined Contributions or NDCs) are anchored in national circumstances and domestic political realities – implies that individual contributions may not be sufficient, due to the global commons nature of the climate change problem, and the attendant free-rider issues.
So, the challenge has been to identify ways to enable and facilitate increased ambition over time (not just to issue calls for greater ambition, but to devise ways of actually facilitating it). Linkage of regional, national, and sub-national policies can be an important part of the answer – connections among policy systems that allow emission reduction efforts to be redistributed across systems. Such linkage can bring down costs tremendously (in theory, to as little as 25% of what those costs otherwise would be), and thereby provide the latitude for countries to increase their ambition.
If such bilateral linkages among countries are to be correctly reflected when tallying countries’ emissions relative to their NDCs under the Paris Agreement, then the Agreement needs to include a robust accounting mechanism. The obvious and clear home for this was (and is) Article 6.2, which provides for Internationally Transferred Mitigation Outcomes (ITMOs) and Corresponding Adjustments, which together can function as the international accounting mechanism to correctly reflect a multiplicity of international private-sector exchanges (under various international, intergovernmental linkages). The negotiators needed to outline some brief and simple rules for double-entry bookkeeping.
Unfortunately, due to the insistence by Brazil and a few other countries for accounting loopholes that “would weaken transparency and mask emissions in a way that would undermine the integrity of the accord,” it turned out be impossible to reach agreement on Article 6.2, even after more than two weeks of extensive discussions and intense negotiations, which pushed the COP-25 proceedings 40 hours past their scheduled conclusion.
The Not-So-Bad News
This may sound like a rather technical, albeit unmet objective of COP-25, and that is not an unfair characterization. But the press has focused on something else altogether, namely the demand from some countries – principally the smallest and some of the poorest nations – for an official decision at COP-25 endorsing significantly greater ambition than what is currently codified in the aggregation of the first round of NDCs under the Paris Agreement. Such a consensus decision was not forthcoming, and that has been labeled as the great failure of the Madrid talks.
But how important is such an aspirational (even inspirational) statement of ambition, compared with putting in place sound rules to achieve the ambition to which the parties have already agreed? As Nathaniel Keohane of the Environmental Defense Fund recently wrote, “If merely adding “ambition” to a UN decision made a difference to what nations do, we would have solved the climate crisis long before COP-25. What matters to actual ambition is the operational substance of the decision.”
The very strong press attention to the lack of an official decision regarding increased ambition at COP-25 was no doubt brought about, at least in part, by the forceful youth activists who have focused their energies on the urgency of what is characterized as the climate emergency, rather than on the hard and sometimes technical work of improving public policies, whether at the international, national, or sub-national level. Surely, Swedish high school student Greta Thunberg’s speeches have been inspirational, as were Al Gore’s exhortations not very many years ago, but the primary outputs in Madrid were disruptive protests inside the conference (which led to the expulsion of some of the youth activists, and the temporary barring of all members of civil society), and the dumping of manure outside the conference venue.
The Good News
It is very important to understand that although clear accounting rules under Article 6.2 would be very helpful, they are decidedly not necessary for the successful execution and operation of bilateral international linkages and consequent carbon markets. Let me explain.
There are three distinct but closely related levels of relevant policy action. First, national (or regional) governments can establish emission-reduction policies, including carbon taxes, cap-and-trade systems, and performance standards. Second, these jurisdictions can link their policy instruments through mutual recognition of permits, allowances, or credits via bilateral agreements. This allows trade among private-sector compliance entities of these units across international borders, which facilitates lower-cost achievement of the aggregate target. But such transfers of emission reduction responsibilities and actions ought to be correctly counted toward compliance with respective NDCs under the Paris Agreement. This is where Article 6 comes in!
In other words, the ITMOs of Article 6.2 would potentially be units of accounting for Corresponding Adjustments, not a medium of exchange for government-government purchase and sale. Thus, international linkages among heterogeneous policies in different countries can continue to be executed, as they already have, and international carbon markets can and will proceed to grow!
It is surely unfortunate that the Madrid negotiators did not capitalize on their opportunity to define clear and consistent guidance for accounting for emissions transfers under Article 6.2, because such a robust accounting framework would increase confidence in successful linkages of climate policies across jurisdictions. But if the guidance had extended much beyond basic accounting rules – such as implicit taxes on cooperation via what have been termed “share of proceeds” and “net global emission reduction” – then restrictive requirements would actually impede effective linkage, and thereby drive up compliance costs.
As Teresa Ribera, Minister for the Ecological Transition of Spain, observed at COP-25, “no deal is better than a bad deal” on carbon markets and Article 6. Countries can now proceed to develop their own rules for international linkages that can foster high-integrity carbon markets.
