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COP25 outcomes – slow progress and no rules on carbon markets

18th December 2019

COP25 took place in a continuously changing geopolitical context and under strong scrutiny from the Fridays for Future movement, which brought thousands of people marching on the streets of Madrid. Spain had taken on hosting the COP at the last minute and passed this challenge with flying colours. Great venue, comfortable logistics – everything was arranged perfectly.

Given the close attention and strong calls for action, the pace of the habitually slow negotiation process seemed in stark contrast compared to the expectations. Despite overnight negotiation sessions and the longest running UN climate conference in history, the countries didn’t manage to agree on the rules on the use of carbon markets under Paris Agreement. There were also a few other agenda items where compromise was not reached.

While COP25 did not deliver on the main missing element of the Paris rulebook, there was slow and steady progress on many other fronts, notably on gender action plan, response measures, loss and damage.

The overview below outlines the main topics in the negotiations that have relevance for CCS technologies.

International carbon markets

Article 6 of the Paris Agreement allows countries to cooperate to reduce their emissions. This is a huge opportunity because it can bring down the costs of reducing emissions. One study shows that robust international markets can save countries $250 billion per year in 2030.

COP25 had one big task – to agree on the rules for implementing international carbon markets. It is one of the most technical and complex elements of the Paris Agreement. If robust rules are agreed, it can be a powerful tool to help drive climate ambition forward. If the rules allow double counting or bring in vast amounts of carry-over units from Kyoto period, then it can disincentivise global efforts to reduce emissions and throw us far off track from achieving net zero emissions. Getting these rules right is extremely important.

These are the three mechanisms in Article 6 under discussion:

  • International emissions trading (Article 6.2), for example international transfers of carbon units or linking emissions trading schemes between countries;
  • A project-based mechanism (Article 6.4) supervised by specifically established UN Supervisory Body. One country would pay for a project in another country and get carbon units for emission reductions the project delivers. When comparing with the Kyoto mechanisms, it would look more like Joint Implementation (both countries have targets) and less like Clean Development Mechanism (offsetting);
  • Non-market approaches (Article 6.8), which can cover anything that is not market-based. For example, financing adaptation, or using taxes to deliver emission reductions.

CCS technologies could be used under all three of these mechanisms, to deliver emission reductions or emission removals. When it comes to non-market approaches, the options grow further and could include for example using low carbon cement in adaptation activities. The role that CCS can play will depend on the rules once agreed. One aspect to highlight in the texts of 6.2 and 6.4 is permanence, relevant for both nature-based solutions and CCS. It will be important to have compatible accounting rules and methodologies, and also think beyond that from the liability perspective.  Indeed, greenhouse gas/climate liabilities of CCS technologies have been discussed in the Institute’s recent report “Adopting a Commercial Approach to CCS Liability”.

At this year’s COP, countries worked throughout the two weeks to find possible compromises on a list of issues where the positions diverged, including:

  • Avoiding double counting
  • Funding for adaptation (share of proceeds)
  • The transition of the Clean Development Mechanism
  • The use of pre-2020 units (own use/trading)
  • Coverage of emissions inside/outside countries’ Nationally Determined Contributions (targets under the Paris Agreement)

The Chilean Presidency was convinced that the deal was within reach and worked negotiators straight from Friday 13th to Sunday 15th of December early afternoon. When working through two consecutive nights without sleep, one would expect that it’s for a reason. Unfortunately, despite some optimism, much progress and an excellent mix of options on the table to get that deal done, the longest COP session in history did not result in an agreement on Article 6. Nevertheless, the draft texts progressed substantially, and all this good work will help to advance the negotiations during the next sessions.

At the start of the COP25, several countries said “no rules are better than bad rules”. While a disappointing outcome, it is not necessarily a disastrous result. Not having the rules in place has mainly two setbacks – for now, there is no established international market for trading carbon units (nor rules for the new project-based mechanism), and there is no agreed funding stream for adaptation for developing countries.

Meanwhile, groups of countries are coming together over shared principles. A day before COP25 concluded, 31 countries joined behind San Jose Principles, to preserve the integrity of carbon market rules, prevent loopholes and avoid double-counting carbon units. Piloting programs for Article 6 have been emerging already before COP25.

Having a fully global market and agreed rules would bring the cost of emission reductions down faster and help to drive ambition. In the absence of that, countries can still cooperate voluntarily and while we are waiting for rules of implementation of Article 6, a paragraph in transparency framework of the Paris Agreement (the well-known paragraph 77(d)), helps to avoid double counting.

In terms of process, the last three versions of the draft texts (that is nine texts in total) will serve as a basis for further work. The negotiations will continue during 2-week intersessional in Bonn in June 2020, in order to prepare draft decisions for consideration and adoption at COP26 (CMA.3) in Glasgow.

Clean Development Mechanism

A separate negotiation stream worked on matters related to the CDM. There were countries asking to close this agenda item completely, as CDM will finish together with the last Kyoto Protocol period, and there were other countries requesting to keep the discussion going until the rules of Article 6.4 (see above) are agreed and there is clarity on the possible transition of CDM. In the end, a very general text was adopted.

While no CCS projects have materialised under CDM, modalities and procedures exist, and this will be important element to follow in the context of transition between CDM and Article 6.4 mechanism.

Technology Mechanism

The joint annual report of Technology Executive Committee (TEC) and the Climate Technology Centre and Network (CTCN) was the most difficult agenda item to negotiate under the Technology Mechanism.  The issue of funding for the CTCN caused difficulties in agreeing on the decision on the Joint annual report, with developing nations pushing for more financial support for the CTCN. The negotiations went into late evening several times and a compromise was found.

Both TEC and CTCN are striving to work more closely with the private sector, and the adopted conclusions request for CTCN to enhance this collaboration.

Aside from the negotiations themselves, CCS has a role in TEC’s agreed work plan for 2019-2022, fitting under the emerging climate technologies.

Transparency Framework

A year ago, at COP24, countries made important progress by adopting strong rules that require them to report their greenhouse gas (GHG) emissions and their progress toward meeting their targets (NDCs) in a transparent manner. Under the Paris Agreement, all countries have targets and will need to report on their emissions and relevant progress. This is a big change and challenge for the countries that have not been preparing elaborate greenhouse gas inventories under the Convention and the Kyoto Protocol so far, and don’t yet have the expertise and knowledge.

While the discussions evolved, countries couldn’t find an agreement on the details on the reporting rules and didn’t officially recognise the documents that were prepared during COP25. As a result, the work will continue in Bonn in June 2020, with the aim of agreeing on the transparency framework at COP26 (CMA.3).

The use of CCS is reported in GHG inventories, although so far very few countries have used it in practice. According to the UNFCCC, Canada, Norway and Turkey have reported CCS in their energy sector. With all countries having to prepare elaborate GHG inventories under Paris Agreement, and with more and more CCS projects entering development, the expertise in reporting reduced or removed emissions via CCS will need to expand further.

Other international processes

While not specifically part of the international climate negotiation process, there are a couple of processes that are relevant for the CCS community and thus useful to keep track of.

First, Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) that is currently being set up in the International Civil Aviation Organization (ICAO). An ICAO technical advisory panel will make recommendations in January, deciding on which of the 14 global offset programme applications can eligible to supply the CORSIA market starting from 2021. Some of these can programmes can be relevant for CCS and could lead to either units from CCS or CCS projects to feed into the demand from CORSIA. ICAO is also working on sustainable alternative fuels and Direct Air Capture has come up in these discussions.

Secondly, IPCC’s 6th Assessment Report (AR6) is progressing as planned and Professor Jim Skea, Co-Chair of Working Group 3 (WG3), shared their plans for the outline of WG3 assessment at Business and Industry NGO meeting at COP25. AR6 will look at shorter timescale compared to AR5, not going beyond mid-century. Wider range of disciplines will be covered, especially behavioural and social sciences. IPCC is establishing a process to gather business input through one dedicated body - the International Chamber of Commerce. There’s a plan to receive many of the comments from stakeholders through dedicated webinars. When it comes to CCS, the need to use the latest data on the carbon capture rates was raised.

This piece was written by Eve Tamme, our Brussels-based Senior Advisor for International Climate Change Policy.

 

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