Climate Finance | November 15, 2021

A global carbon market stirs to life, with new rules at COP26

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Nov. 15 – With so much on the line at the global climate summit just wrapped in Glasgow, you can forgive people for doing their dinger.

Weary COP26 negotiators reached agreements to step up emissions reductions, “phase down” coal and increase funding to developing nations. And the two largest emitters, the U.S. and China, agreed to cooperate on emissions cutting goals.

Another advance: New rules for global carbon markets. The carbon trading accord could “unleash huge investments by countries and companies” for sustainable projects in developing nations, declared the We Mean Business Coalition.


Article 6

The rules clarify carbon credit accounting under the Paris agreement to eliminate double counting of emissions reductions by parties on both sides of a trade.

Negotiators compromised on what to do with millions of carbon credits put into circulation under the less stringent 1992 Kyoto Treaty. Credits issued after 2013 can be transferred – a move that critics said would allow 300 million “zombie credits” to dilute climate goals. 

Two tracks

Nations as well as companies can trade credits, which could be key to meeting their Nationally Determined Contributions to emissions reduction. A separate centralized market overseen by the U.N. will facilitate trading of voluntary credits.

Wealthy nations, typically on the buy side, fended off stricter rules for bilateral trades. A transaction fee that will channel 5% of proceeds into an adaptation fund for developing countries does not apply to the nation-to-nation trades. Neither does a requirement to cancel 2% of newly issued credits to ensure that absolute emissions decline.

Accountability

The rules also specify the need to protect and respect human rights, particularly those of indigenous communities that safeguard forests and other natural assets. An independent body will handle grievances from local communities, but the final rules omitted a requirement for informed consent, which could leave land stewards open to fraud and displacement.

One open question is enforcement. It will fall to civil society and countries to “establish the norms and rules to get investment flowing toward the most urgent climate priorities and to hold companies accountable for their voluntary climate goals,” said the Environmental Defense Fund’s Kelley Kizzier.