This year's COP25 summit has one major job — finalize the working of global carbon markets under the Paris climate agreement.
The issue is turning into a bare-knuckle fight with national ministers now in Madrid for the final week of negotiations.
The latest draft of the rules for such markets was released late Monday.
The idea is, at its core, straightforward — to use the power of markets to help deal with global warming.
Carbon markets are mentioned in Article 6 of the Paris Agreement — taking up less than two pages of text — but the details weren't spelled out in Paris in 2015 because negotiators failed to agree. They also deadlocked at last year's COP24 summit in Katowice, Poland.
The rules negotiated in Madrid are meant to allow an accounting system to register when countries with high levels of pollution buy emissions permits from better performers to make up shortfalls. They're also supposed to establish a new international mechanism to trade credits from investing in climate projects such as building a wind farm, planting a forest or funding water filters.
If properly crafted, carbon markets can cut emissions by boosting investments in climate-friendly projects.
The International Emissions Trading Association, whose membership includes many big emitters like cement, oil, gas and energy industries, says that trading emission reduction projects “could yield cost savings in the order of $249 billion per year by 2030, $345 billion per year by 2050 and $988 billion per year by 2100."
Trading credits could also generate carbon market values “of about $167 billion in 2030, $347 billion in 2050, and $1.2 trillion in 2100," it said.
The rulebook
The trick is crafting airtight rules.
One concern is over how countries calculate their emissions. They might be tempted to set very low emissions thresholds and then sell off surpluses, but that defeats the larger purpose of the exercise — halting global warming. To prevent that, negotiators need to set common accounting standards.
Then there should be certainty that the emissions reductions are real.
“You want the private sector to pay, you have got to give the private sector something, they don't just write a check. They want a credit as a reward for their investment," said Jeff Swartz from South Pole, a for-profit company working on climate action projects.
Talks have bogged down over how credits should be counted.
Brazil — home to the world's largest tropical forest, and keen to be the target of a lot of climate mitigation projects — wants to make it possible that buyers and sellers of carbon credits both claim the emissions reduction.
The EU is adamant that it won't allow such “double counting."
Brazil, meanwhile, argues it wants to strike a deal. “It's not trivial what we're trying to do. It's not easy, either," Marco Tulio Cabral, the foreign ministry's top environmental official, said in Madrid on Tuesday. “As far as we are concerned, we came here with a very constructive spirit. We want to have a deal here, and if it doesn't happen it will not be for Brazil."
Projects should also ensure that vulnerable people aren't hurt.
Environmental campaigners and indigenous groups are fighting to ensure the carbon rules include references to human rights and a system that allows communities to voice grievances about proposed projects.
The end game
Chile's COP presidency is keen to bring the summit to a successful conclusion at the end of the week — or Saturday if negotiations spill over, as they did in Katowice when carbon market negotiations nearly blew up talks.
Major players such as the EU are on board with striking a deal, but not at any price.
“We don't want to push it over another time; there is political will to wrap it here … but not at any price," said Jochen Flasbarth, state secretary in the German environment ministry, adding that the EU “won't allow for tiny holes."
That could push the issue to next year's COP26 in Glasgow.
