Brazil dug in its heels to oppose rules to guard global carbon markets from double counting and old credits, as UN climate negotiations ended yesterday in San Jose, Panama and nicaragua ,.
Delegates failed to overcome several major sticking points on establishing a new global market mechanism for carbon offsets.
Brazil, India and China wants to trade its surfeit of old credits in the previous regime, known as the Clean Development Mechanism (CDM), around the new market established through the Paris Agreement.
Observers warn an inadequate outcome on carbon markets in the Cop25 climate summit in Chile this December has the potential to undermine the entire Paris accord.
Brazil has led the resistance to tougher rules. The country’s president Jair Bolsonaro has criticised the worldwide deal to cut emissions as an attack on Brazilian sovereignty over the Amazon rainforest and it has a number of climate deniers in the ministry.
The object from the new mechanism, known as the Sustainable Development Mechanism (SDM), is to allow countries who make additional emissions reductions beyond their climate pledges to market these as offsets to other countries or businesses.
Avoiding the “double counting” of emissions remains one of the major sticking points. This could ensure emissions reductions aren't counted in both in the united states that built them into and the country that bought the offsetting credit..
To ensure a credible system, countries who sell credits abroad will need to reduce their very own reported emissions reductions through the same amount. But the rules remain under discussion, with Brazil arguing this so-called “corresponding adjustment” is not needed initially.
Without robust rules, a single tonne of emissions reduction could end up being used by several countries at the same time towards their climate targets, said Gilles Dufrasne, policy officer on carbon pricing at Carbon Market Watch.
SDM will replace the Clean Development Mechanism (CDM) setup underneath the Kyoto Protocol, that has been widely criticised.
Brazil, China and India – who together hold most the credits – insist they must be able to bring forward old CDM credits into the new SDM market mechanism.
But others say this might flood the marketplace with cheap credits which have not actually achieved any reductions. A 2023 EU-commissioned report discovered that just 2% of CDM projects were highly likely to ensure “additional” emissions reductions.
Speaking to Climate Home News on Wednesday, Brazil's lead negotiator, Leonardo Cleaver de Athayde, made it pay off the country remains firm in the position. “We think it’s extremely important and it’s absolutely necessary that we have a transition between CDM and SDM [Sustainable Development Mechanism],” he explained.
Attempted to strike a conciliatory tone he added that Brazil takes the concerns on CDMs flooding the marketplace “seriously”.
“We think this can be a legitimate concern,” he explained. “We’re prepared to work with delegations who are concerned about this on possible provisions that would reassure them this wouldn’t happen.”
One such provision Brazil suggested this session was a “price stabilisation mechanism” where CDM credits would be guaranteed a fixed price in a bid to avoid decreasing the price of credits.
But Dufrasne this would just benefit the ones that hold credits at the moment. The real problem of utilizing credits that don't represent genuine emissions reductions would remain, he adds.
Countries for example Tuvalu and Switzerland are pushing for strong social safeguards to make sure projects authorized by the new mechanism don't wind up causing social harm.
This means ensuring there's participation of residents in projects, safeguards against impacts on health and food security, along with a grievance mechanism that will allow local communities to stop a project, based on Sébastien Duyck in the Centre for International Environmental Law.
Social safeguards were little discussed at the three-day session in San Jose, known as a “pre-Cop”, which brought together diplomats from around the world in order to make progress on tricky and time consuming topics in front of the Cop25 meeting.
No formal outcome was expected from the session, but negotiators remain far from a resolution raising the prospect of a collapse in Chile.
Speaking in a press conference on Tuesday, Chilean minister Carolina Schmidt, president of the UN talks in December, said agreement on carbon markets, known by their Paris Agreement clause ‘Article 6’, was “fundamental”. “The important thing would be to arrive, advance and shut this chapter in Cop25,” she said.
But some of those in the talks fear a push to reach a political deal can lead to a market mechanism with no needed safeguards. Many feel no deal are the best than the usual weak one.
Failure to achieve consensus in December could open the doorway to some smaller group of countries establishing their own market mechanism, said Alex Hanafi from the Environmental Defence Fund (EDF).
“There is space for any small number of countries who care about high integrity standards to come together and set the bar for which cooperation under Article 6 could look like,” he said.
A higher ambition coalition may be forming, having a wide group of countries reportedly agreeing on key points during this session. This was not released publicly, however.
