COP26 Shifts to Technical Negotiations—Focus on Emissions Trading

Now the rubber hits the road as the real work begins. As a follow-up to the high-level political commitments made during the first week of the COP26 climate conference, the second week consists of technical negotiations among parties aimed at advancing implementation of the commitments made under the Paris Climate Agreement in 2015.

There is a lot to do, but a key area of focus for the negotiations is implementation of Article 6 of the Paris Climate Agreement’s “Rulebook,” which calls for mechanisms for voluntary cooperation in achieving nationally determined contributions to lowering emissions (NDCs). At the heart of the Paris Agreement is the requirement that parties set national emissions reductions targets, referred to as NDCs, to be able to collectively achieve global emissions targets. Many countries have announced more ambitious NDCs either during or in the lead-up to COP26, including the US (which is targeting a 50-52% emissions reduction relative to 2005 levels by 2030).

Article 6 of the Paris Agreement has become a central negotiating issue because it calls for establishing the mechanisms and rules for a global emissions credit trading market. Emissions trading—particularly for carbon credits—has long been suggested as a market-based tool for incentivizing emissions reductions; a country, or private entity, in order to meet its targets, could purchase emissions credits from another country or entity that is reducing beyond its targets. An agreed framework for a global emissions credit market would be significant; there is currently just a patchwork of carbon trading schemes, and many argue that creating common rules and mechanisms would spur significant investment in innovation to reduce emissions across industries, generate the financing to do so, and provide greater funding for biodiversity restoration initiatives as offsets.

The establishment of clear rules and mechanisms for international emissions trading could also provide increased opportunities for private sector actors to achieve their greenhouse gas emissions targets, such as net-zero emissions targets, especially as government regulators continue to consider mandates around climate-related initiatives and reporting.¹

The core issues in reaching an agreement on rules governing an international emissions-trading regime include whether countries can carry over emissions reduction credits developed under the Kyoto Protocol, and how to avoid double-counting of emissions credits toward different countries’ NDCs. Parties have emphasized the need for mechanisms to ensure that if one country sells an emissions reduction credit, it no longer counts that reduction toward its own NDC, which further implicates mechanisms for transparency and accounting. Additionally, a key issue on the table is to what extent a share of the proceeds of a sale of emissions credits should go toward climate adaptation funding aimed at supporting climate change resiliency measures in developing countries. A fourth issue is the reliability and durability of certain types of credits such as carbon capture through forestation and other initiatives. 

Reports from the first several technical negotiation sessions this week indicate that discussions over these issues have been challenging, but John Kerry, the US Special Presidential Envoy for Climate, has recently signaled that a deal may be possible. We expect to see statements on progress and potential commitments on these issues toward the end of the week.

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