By Mathew Carr
June 9, 2021 — LONDON: UN climate envoys are considering cancelling as many as 30% of carbon credits immediately after issuance as one option to ensure a new Paris carbon market created under article 6.4 of the global agreement presses down on global emissions.
If a portion of credits are cancelled immediately, there will be fewer available for use by buying parties to meet compliance targets or voluntary targets. Buyers could be countries or companies.
Carbon trading has been criticised because it allows “zero-sum” activity where a company can finance emission cuts in one part of the world, only to boost emissions in another. With overall 50% cuts needed by 2030 to limit global temperature gains to below 1.5C, such zero-sum activity needs to be restricted.
UN envoys are seeking to create rules that cover national/regional carbon markets, cooperation between existing markets (article 6.2 of Paris), the new 6.4 global market and also voluntary carbon markets.
The Chairman of a key negotiation stream, Tosi Mpanu Mpanu, organized an informal consultation/informal technical expert dialogue on implementing overall mitigation in global emissions (OMGE) in the proposed Article 6.4 mechanism on June 6, 2021. Meetings are being held virtually.
Here is a summary document and key section: https://unfccc.int/sites/default/files/resource/IN.SBSTA2021.i15b.2.pdf
6.4 mechanism
The following options were identified in relation to implementation of OMGE in the 6.4 mechanism:
• Mandatory cancellation at issuance at X/10/20/30 per cent of total issued volume rate
Argumentation: A mandatory cancellation at issuance is simple, automatic and administratively easy. It
enables quantification of the portion of the emission reductions that will not be used to offset emissions
elsewhere, ensuring OMGE is achieved and a portion of the emission reductions are no longer available
for the host Party’s NDC, any other NDC or for any other purpose. The third draft Presidency text contains the appropriate architecture. The components are mandatory cancellation at issuance, a corresponding adjustment (see sub-options below), a mandatory transfer of a fixed percentage of issued 6.4ERs to a cancellation account in the mechanism registry specifically for OMGE, where these units may not be further transferred or used for any other purpose. The rate should be based on the first draft Presidency text; namely X/10/20/30 per cent, for further discussions during 2021.
Argumentation: the rate should be reviewed every 5 years.
NDC is nationally determined contribution. The host country is the nation where the emission-reduction project is located.
Countries and companies are using carbon pricing to help shift away from fossil fuels. Carbon trading under Paris could boost cooperation and cut the cost of the energy transition. Here is a World Bank chart showing carbon prices are generally not high enough (2021 State & Trends of Carbon Pricing):
This paragraph gives some helpful context (but might just be the opinion of one person at the meeting): OMGE can be understood as the result of the sum of emission reductions and removals achieved by the
NDCs and the total use of units by non-Party stakeholders for non-NDC uses outside the NDC, so we need full data on unit transactions, and comprehensive reporting and tracking and to have linkages between the Article 6 infrastructure and the voluntary market.
(Adds context, additional overview paragraph at the end; chart on prices; more to come)
NOTES:
The document is confusing because it says 6.4 is apparently seen as a non-market mechanism by at least one person at the meeting.
Story on the World Bank report: http://carrzee.org/2021/05/25/failing-taxpayers-twice-less-than-4-of-carbon-pricing-seen-high-enough-to-save-climate/