One of the longest chapters in the Durban negotiation text (cf pages 35 – 52), and with most ‘new’ ideas in it — in terms of legal text — is the chapter on “Various approaches, including opportunities for using markets, to enhance the cost-effectiveness of, and to promote, mitigation actions, bearing in mind different circumstances of developed and developing countries” (Chapter 1bv).

Why such a long title, and why do I even bother to retake it completely?

Well, it is important to state what the Bali Action Plan was looking for: ‘various approaches, to enhance cost-effectiveness and to promote mitigation action’. Many consider this chapter to be on carbon markets. But in fact, carbon markets are just a means of financing mitigation actions, and in order to consider them to be included in the various approaches they should demostrate to be cost-effective, and to be environmentally friendly in general. An interesting date is that under the Clean Development Mechanism (CDM, the best-known market mechanism of the Kyoto Protocol), depending on the project type, only 2 to 20% of the price paid in carbon units, flows to investment and maintenance of mitigation projects.1

Problems with carbon markets

Furthermore, it has to be taken into account that developed countries still emit 4 times more per capita than developing countries. If we are seeking climate equity, the logical thing to do would be to reduce emissions where per capita emissions are high, and to permit slight increases, where they are low. Carbon markets, through offsetting, do just the opposite: they transfer emission rights from developing countries to developed countries. In that way, developed countries do not reduce domestically their emissions, and they are able to preserve their unsustainable lifestyles.
It has been extensively documented that the experience of the carbon markets under the Kyoto Protocol show they are a very unfair and ineffective way of promoting mitigation. The following issues have been raised:
• Additionality problems;
• Accounting problems, among which inflated baselines and double counting;
• Lack of cost-effectiveness,
• Lack of effective transfer of technology to developing countries and other co-benefits;
• Negative impacts of market based mechanisms, among which other environmental problems, and human rights abuses;
• Fraud in carbon markets and its impacts;

The pre-Durban text on 1bv, paragraph 68, demanded that the future consideration of new mechanisms should take into account the lessons learned and prevent repetition of reported problems, and therefore elaborate a work program considering all the above mentioned points.

In the new negotiation text, this paragraph just disappeared. It seems there is no political will to learn from the past, but on the contrary there is a lot of pushing to implement even bigger carbon market schemes.

It is here not the place to describe extensively all the intrinsic problems with carbon markets. Instead, let’s have a look in the problematic negotiation text which is being proposed.

What may come out of Durban?

The text actually has 4 working options:

Option 1: Decides to establish an enhanced mitigation mechanism and to ask SBSTA to implement a whole working program on it during the next year.
Even though it doesn’t explicitly say that this ‘enhanced mitigation mechanism’ will be markets, it is very clear that this would be the working direction.
The facilitator of this group presented it as representing the minimum common ground and being streamlined. Not all countries seemed to agree with that, but the remark gives an indication of what is expected as an outcome for Durban.

This ‘streamlined option’ is considered the alternative if the work in option 2 wouldn’t advance sufficiently. This option contains all the text that countries put in it, in other words it is the “wish list” of Parties. It is rather immature, but it gives a very good idea on what is really being envisaged as the future of carbon markets. It are the ideas expressed in this option that are analysed below.

Option 3 is a repetition of the mandate of the Bali Action Plan, which is another way of saying: let’s just keep on working, but up till this moment nothing is being decided on.

Option 4 is ‘nothing to be decided’, which is the option of those — countries and civil society alike – that don’t want any new carbon markets to be developed.

What is being projected as the future for Carbon Markets?

Prolongation of Kyoto market mechanisms?
There is a big debate on this issue: some say: only those parties that ratify the second commitment period of the KP, can have access to the benefits of its market mechanisms. On the other hand, many countries, especially developed ones, want the KP mechanisms to be prolonged, no matter what happens with future commitment periods. Therefore they state:

50. [Building upon existing mechanisms means retaining the existing Kyoto Protocol mechanisms (CDM, JI and international emissions trading), (…)]

The same fight also happens within the chapter on ‘market mechanisms’ of the negotiations on the Kyoto Protocol.

New kinds of mechanisms

New market mechanisms that are being proposed are the ‘sectoral trading’ and ‘NAMA crediting.
Contrasting the CDM mechanism, that accounted offsets project by project, sectoral trading accounts them for a sector as a whole, such as electricity, steel industry, cement, etc. NAMA crediting accounts for a country as a whole. This would imply developing countries emissions as a whole would become subject to carbon markets.

Apart from many of the other problems the CDM-offsetting scheme has, and which would only get worse in this scenario, for sectoral and NAMA crediting two additional problems are remarkable:
• Baseline setting; If the baseline is high, it is very bad news for the environment. Indeed, a high baseline means that everything under it, is or being emitted in the developing country, or being transferred as offset to a developed country. If the baseline is low, it is bad news for the developing country: it will have to make a lot of effort to go under it and to finally sell some credits.
• Result based mechanism; Developing countries will have to make substantial efforts to go under the defined baseline. But they will only be able to sell the credits after they have proven that they emit less. With which financial means will they do all the necessary investment to shift to a cleaner development path? And what if, after all those efforts, at the time of selling, the carbon credits are worth scratch? (quite a probability if we see the actual carbon markets develop).

Free design for markets

A new tendency is that several parties call for market mechanisms to be designed according to national circumstances.

66. Agrees that new market-based mechanisms should be built in a way that individual countries are also allowed to design, establish and implement their market mechanisms, reflecting their own national circumstances, following the basic principles directed by the COP. (…)

Those would be “Sustainable Development Approaches (SDAs)”. This implies that any party can propose any kind of mechanism, which would then have to be approved by a “Sustainable Development Approach Standards Board (SDASB)”. The approach is called the ‘bottom up’ approach, as it allows for any national initiative to be approved at the international level.

This tendency is most dangerous, as virtually any kind of mechanism can be approved. Generally speaking, a board is much less transparent, and less inclusive than the COP, and therefore a lot more flexible. As there would grow such a variety of different market mechanisms, the transparency and accountability of the mechanisms themselves would be extremely difficult to follow-up.

For comparison: the CDM has a fixed list of allowed project types. The amplification of this list is taking several years already, with no clear results, exactly because there are well-founded reasons for not including certain project types. One of the examples of not approved project types is nuclear energy. If this new bottom-up approach would be implemented, a board could approve in one session what the COP couldn’t decide on in several years.

Governance

Much attention is being paid to governance for the market mechanisms. The text calls for new governance bodies and structures. Any new body or structure is automatically derived from the COP, and gives only some report to the COP. This means that such important issues as the approval of new market mechanisms, their coherence with the UNFCCC system in general, and the environmental integrity specifically will be decided upon by a little group of people, and with few possibilities of reverting those decisions.

Readiness

As future carbon markets tend to be very complex in its structure, ways of applying, and especially ways of accounting, it will be very complicated for developing countries to participate. In order to prevent these difficulties, the text provides for “readiness”, which is help in capacity building and baseline measurement, in order for countries to prepare for their future market participation.
The most ironical point is that, while for climate change finance in general, it seems public funds will be hardly available, and developing countries will have to rely on private fund-raising and market funds, for readiness there will be public funding:

113. Recognizes the role of public sources of finance in the implementation of market readiness activities;

The worrying point is furthermore that all the funds that go to readiness activities, are climate change funds that don’t go to any direct mitigation action.

Voluntary participation

It is repeated all over the text that participation in carbon markets would be voluntary. In fact there is no need to state so, as any kind of mechanism established under the UN counts with voluntary participation and nothing can be forced on a sovereign state.
But this is not the point. The point is that, knowing that carbon markets are damaging our climate by offering false solutions, a country must be able to oppose such a system as a whole. Not because it does not want to participate, but because it wants to protect its own survival and ultimately the survival of Mother Earth.

1 – For most CDM projects: statistics available in: A quantitative analysis of the cost-effectiveness of projects in the CDM pipeline, , Gavin A Green, UNEP Riso Centre,
CD4CDM Working Paper series, Working Paper n° 4, september 2008
– For HFC projects: Green group accuses China of climate blackmail which says: “The EU has banned HFC-23 offsets because they are inefficient: the value of credits is 70 times the cost of destroying HFC-23 gases.”

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