Striking deal on emissions-trading scheme proves elusive again at COP26

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After six years of failed efforts, there is hope COP26 could produce a long-awaited deal on rules for a global carbon market, seen as key to helping countries and companies cut emissions while driving investment into low-carbon projects.

Generally, most countries are in favour of a carbon-trading system as a way to cut the emissions behind climate change. 

But a major stumbling block in the negotiations has been agreeing on how a carbon-trading system would work and how much credit each country could earn toward their emissions targets.

A general framework was included in the 2015 Paris Agreement, which more than 190 countries have ratified. But the specifics are still unclear â€" and that's why it remains a proposal instead of a solid agreement.

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During the two-week climate conference in Glasgow, COP26 president Alok Sharma remarked that while progress had been made on the issue, there also was much more work to be done.

"Clearly there's a political consensus that has to be built on this," he said, while also describing how people will be "astonished" if talks once again fail, since "we've been discussing this for six years."

Establishing a system

The system would allow countries that have exceeded their emissions reductions to sell that credit to other countries; credit which would then be used in the name of meeting their own climate targets â€" known as an offset. It could also create a trading market for such credits, to be used by both public and private sectors.

There is a sense of urgency to these talks, however, as some private carbon markets already exist in various regions of the world â€" but without any established accounting rules or oversight.

A number of companies are prepared to spend on environment projects in order to earn carbon offsets in the name of helping them reach net-zero climate goals, including technology and energy companies in Canada.

WATCH | How a global carbon-trading market could work:

Why businesses are closely following the COP26 negotiations about a carbon-trading market18 hours agoIETA's Andrea Bonzanni explains what the challenges are in establishing a global carbon market. 1:46

The aim is that all of those dollars could ultimately help fund clean energy projects around the globe.

The carbon-trading system is officially referred to as Article 6 of the Paris Agreement and there are two main elements under negotiation.

The first is about allowing an exchange of carbon credits from one country to another, essentially allowing one nation to pay another to cut emissions on its behalf. 

The other is focused on creating a global marketplace for trading offsets.

Altogether, the value of such transfers could reach up to $300 billion US annually in 2030 and as high as $1 trillion US in 2050, according to the International Emissions Trading Association (IETA), which is a proponent of an emissions-trading system.

"The vast majority of [countries] agree that an international carbon market should be there and should be operationalized," said Andrea Bonzanni, a policy director with the IETA.

"How to do it and the specific rules are proving very challenging to agree on."

'So far away from that now'

Right now, the Canadian government has no plans to use the provision in Article 6 to meet its climate targets, although it could in the future, Environment Minister Steven Guilbeault said Friday during a media availability in Glasgow.

"There was this idea at one point in not-so-distant history, where Canada's plan was to meet the majority of its emission-reduction [target] abroad. We're so far away from that now, where our plan currently provides for meeting 100 per cent of our emission reduction at home," he said.

John Kerry, the U.S. special envoy for climate change, said Friday that good progress has been made on Article 6.

"A lot of parties, I think, are now converging on ideas. For the U.S., we think it's critical that any package is one that has environmental integrity and a clear accounting and strong baselines, which are essential," he said

But some environmental groups are concerned an offset system would do little to reduce emissions or to discourage the phase-out of fossil fuel production.

At COP26, countries debated a proposal for a transaction tax of sorts on carbon trading, which would set funds aside to help the least developed countries protect themselves from the harmful impacts of climate change.

Another point of contention is the accounting rules, to ensure that if one country buys credits from another, the reduction in emissions isn't claimed by both nations. 

Similarly, there needs to be rules in place to prevent double-counting when it comes to transactions involving companies; for example, if a Canadian company builds a carbon capture project in a foreign country or funds a reforestation project overseas, it isn't counted by both sides.

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