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10 Dec 2019

COP25 03: Mid-way stocktake

By Brendan Bateman

The battle over carry over credits is one that Australia‘s delegation will need to fight this week.

Mid-way through COP25 and with the Ministers beginning to arrive for the political segment of the conference, it is timely to take stock of the first week’s negotiations, especially on the critical Article 6 of the Paris Agreement.

By all accounts the technical negotiations during the first week of COP25 were regarded as slow and tedious, particularly around the rules for the important Article 6 of the Paris Agreement. A sense of urgency crept in at the end of the week with a revised draft text for Article 6 being issued on Saturday evening. This removed a number of the options and bracketed text from the previous draft and was described as a “big leap forward” by some delegates and observers. The release of the revised draft text is both good and bad:

  • it identified clearly the issues which require a political solution during the second week of negotiations between Ministers – there remain many (see below);
  • most of the parties were uniformly unhappy with the revised text which may signal difficulty during the political segment of negotiations; and
  • the rush to get out revised text meant that the drafting leaves something to be desired in that wording was not able to be refined and streamlined, which may create problems down the track in interpretation.

Further negotiations were scheduled in order that a draft text can be presented to Monday’s Subsidiary Body for Scientific and Technological Advice plenary, before being handed over to the political process which will unfold over the next few days.

The political battle lines

The political issues with the draft rules for Article 6 are numerous and some are very important for Australia: The issues include:

  • issues around metrics including whether instruments created under Article 6.2 should be denominated in tCO2-e;
  • the limits and safeguards on the application of Article 6 mechanisms such as whether there should be limits on the transfer of ITMOs;
  • accounting issues with Article 6.4, in particular avoidance of double counting of emissions reductions. This tackles head on Brazil’s position that emissions should be able to be counted both in the country where the emission reduction occurs, and by the country that acquires the emissions reduction through the sustainable development mechanism;
  • Share of proceeds including how levies might be applied to trades under Articles 6.2 and 6.4; and
  • the transition of the Kyoto Protocol into the new mechanisms under Article 6, including the ability to use any credits under the protocol to meet obligations under a Nationally Determined Contribution (NDC).

The carry over issue

The carry over of credits from the Kyoto Protocol is quite critical to Australia’s strategy to meet its less than challenging 2030 emissions reduction target of 26-28% below 2005 levels. The Federal Government released its 2019 Emissions Projection Report just last week which made clear that Australia can essentially rely almost entirely on meeting that target through the use of “carry over” credits from the Kyoto Protocol commitment periods. The Government’s report states that to meet its target, it will need to reduce emissions by 395 to 462Mt CO2-e, but has 411Mt CO2-e in “carry over” credits, meaning that it will only need to find an additional 51Mt CO2-e of cumulative emission reductions over the period 2020 to 2030 to meet 28%, or none to achieve 26%. In effect, Australia would not need to do anything to meet its current NDC target.

The use of “carry over” credits has been roundly criticised both prior to and at the conference by a large number of countries, especially developing countries. It is viewed as being inconsistent with the principles of the Paris Agreement which requires significant real emissions reduction by all countries to achieve the goals of that agreement including achieving net-zero emissions by 2050. One of the options that still remains in the draft text for Article 6 is a proposal to ban the use of Kyoto Protocol credits by any country to meet its NDC. Australia has stated that it is against excluding the right to use carry over credits.

This will be one battle that Australia‘s delegation will need to fight this week, with Australia being the only country to have signalled its intention to reserve the right to use carry over credits. Any compromise on this position may put Australia under significant pressure to implement new or expanded policies to meet its current target, let alone a more ambitious target expected under the Paris Agreement. The outcome will also be just in time to inform Australia’s long-term net zero emissions strategy, the draft of which is due for release early in 2020 for consultation.

Brendan Bateman is attending COP25; stay tuned for further reports on its progress.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.