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In Glasgow, one of several things to be negotiated is how Article 6 of the Paris Agreement will be implemented. This will determine the framework for the regulations that will succeed the so-called “flexible mechanisms” of the Kyoto Protocol, which expired in 2020.
What at first sounds very technical (and in fact is) will also have enormous political consequences. Overall, the Kyoto instruments—Joint Implementation (JI) and the Clean Development Mechanism (CDM)—have turned out to be extremely problematic (for an explanation of these instruments, see the infobox to your right). Only in rare instances did they lead to the reduction in emissions originally aimed for, and instead simply fostered the feeling that problems were only being displaced rather than solved. A successor system could produce similar outcomes.
Originally, climate protection projects initiated and financed by industrialized nations in the Global South (via CDM) or in other, often economically weaker industrialized nations (via JI) were supposed to make climate protection cheaper. They targeted options for emissions reduction that were cheaper to develop and no longer feasible in many Western industrialized nations, or which were not considered economically viable. At the same time, the intent was that such projects would promote sustainable development in the countries where they were implemented.
On balance, however, these instruments largely proved to be a failure. Not only did many of these projects not lead to any reduction in emissions additional to those that would have occurred anyway. In some cases they also resulted in human rights violations, land theft, and additional environmental damage, for example in the case of major dam projects. In the process, pre-existing injustices with colonial origins were simply perpetuated.
In concrete terms, emissions reductions in the so-called “host countries” were able to be used to fulfil the emissions reduction requirements of the countries funding the projects, such as within the European Emissions Trading System (EU ETS). Seen from a global perspective, this amounted to a zero-sum game when it came to emissions levels, essentially amounting to a cost-saving exercise. Furthermore, the climate protection projects, whose resulting emissions allowances (corresponding to the amount of emissions reduced) were then transferred, would need to deliver additional climate protection—and this in excess of the degree of climate protection which would have occurred without the project taking place. Should this not occur, and the purchased emissions allowances actually get used by the country that bought them, the result is a global increase in emissions. The “additionality” of such projects was thus from the outset an intransparent benchmark that was virtually impossible to evaluate.
This “grey area” within the system was exploited. Throughout the process of project approval, registration, and verification, dodgy dealings were commonplace, leading to the generation of dubious certificates. These cheap certificates flooded existing national or multi-lateral emissions trading markets. In Europe, for example, 1.6 billion tonnes of additional emissions allowances came into the market in this way between 2008 and 2020 (which corresponded to almost an entire year’s worth of the ETS sector’s emissions budget). Subsequently, CO2 prices plummeted, and the ETS had almost no effect on Europe’s energy and industrial sectors.
Currently, there are still hundreds of millions of unused emissions allowance certificates on the books of companies, burdening the system. These will only gradually be neutralized by means of several corrective instruments.
With the signing of the Paris Agreement, the parameters for the deployment of market-based project mechanisms have changed somewhat. In contrast to the Kyoto Protocol, all states now have emissions targets. This should result in “host countries” having a greater interest in only permitting the transfer of certificates issued on the basis of projects that have actually resulted in additional emissions reductions, as the transfer of certificates to buyer countries will have an impact on their own emissions balance sheet. In addition, Article 6 of the agreement also contains stipulations requiring that future mechanisms contribute to a global reduction in emissions alongside the emissions budget of a given country. The mere zero-sum approach—which was never even truly implemented—should now be a thing of the past.
The European Union, for its part, already decided last year that it would seek to reach its climate protection targets for 2030 without recourse to the purchase of certificates from project-based mechanisms. Some countries outside of the EU are intent on using such mechanisms, however. And on the UNFCCC level, the situation is more complicated. Different countries interpret Article 6 in different ways, with various economic interests in conflict with one another. It is highly likely that the outcome of negotiations concerning the Paris Agreement will result in a number of loopholes.
Furthermore, there is disagreement over how the transfer of the mechanisms from the Kyoto era into the framework of the Paris Agreement will be handled. Again, one wonders why solutions to an important aspect of the climate crisis are once more being sought via market mechanisms that have thus far proven totally ineffective.