The latest IPCC report made clear the scale of emission reductions required, with a total atmospheric carbon budget remaining of less than 950 Gt C0 2 for a ‘likely’ chance to stay below 2C temperature increase, with an even stricter budget required to stay below 1.5C as called for by island nations and the least developed countries.
It is still technically and economically feasible to limit temperature increases to below 1.5C, but this requires real ambition, from both developed and developing countries, to have any chance of averting a climate catastrophe. Despite the urgent situation, governments are continuing to talk about establishing new carbon markets under the Convention. The current negotiations on carbon markets evolved out of the Bali Action Plan paragraph on ‘various approaches... to promote cost effective mitigation actions’. This discussion has evolved into the linked agenda items on Framework for various approaches (FVA), the New market-based mechanism (NMM) and Non-market-based approaches (NMA).
This is despite a growing lack of evidence that carbon trading can actually reduce emissions and contribute to averting a climate catastrophe. With emission trading schemes around the world in decline or being disbanded, and evidence that existing carbon trading are possibly increasing emissions, focusing on market-based instruments in the form of emissions trading limits capacity to develop the effective responses that are needed.
There are a number of concerns around markets mechanisms and carbon trading that need to be thoroughly considered. These involve both fundamental problems inherent to the design of emissions trading systems, as well as problems related to implementation, governance and resource distribution from market mechanisms. These are discussed in more detail below.
Ambition is not conditional on access to flexible mechanisms
The stated purpose of the Framework on Various Approaches (FVA) under the UNFCCC is to allow Parties to increase mitigation ambition, including via market and non-market based mechanisms. This raises the question of sequencing, with developed country Parties saying that ambition, in the form of increased mitigation pledges, is conditional on access to markets and flexible mechanisms. Other Parties have questioned the logic of this sequencing, saying that access to carbon markets does not in itself create ambition - ambition must be secured before there can be any consideration of flexible mechanisms.