Carbon Markets

ALERT: Goodbye CERs? Paris Accord may impact offset use

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After two decades of diplomatic promise and failed outcomes, the Paris COP has delivered a landmark agreement to limit global warming to below 2 degrees, beating expectations by delivering a legally binding framework, and a broader ambition to limit global warming to 1.5C above pre-industrial levels.

While a number of elements remain unresolved, the Paris Agreement has established a number of key outcomes, including:

  • Temperature increases – Governments have agreed to limit warming to “well below” 2C, with broader ambition to “pursue efforts” to limit temperate increases to 1.5C above pre-industrial levels.
  • Pledges – 187 countries have put forward plans for emissions cuts in the form of nationally determined contributions (NDCs), which are voluntary, established via a bottom up process. Pledges will be reviewed every five years, with a voluntary “stocktake” to take place in 2018.
  • Voluntary cancellation of Kyoto units – The final text encourages parties to voluntarily cancel units issued under Kyoto, including certified emissions reductions that are valid for the second commitment period as a result of past performance.
  • Carry-over after 2020 – Text around the potential carryover of Kyoto units after 2020 was not resolved under the Agreement and is expected to be refined at subsequent meetings.
  • International market mechanism – Provisions supporting a new international market-based mechanism were agreed. The new mechanism is expected to replace the Clean Development Mechanism (CDM) and Joint Implementation (JI) programs established under Kyoto, with the final rules to be designed over the upcoming years, ahead of the launch of the scheme after 2020. The new mechanism will be open to developed and developing countries and is expected to be overseen by the UNFCCC.

While the Paris Agreement is a major step forward, there is still plenty of work to be done on the detail of a number of sections of the Agreement, including the ‘transparency framework’, which will set out how individual country efforts will be monitored and reported, plus the design of the new international market mechanism and the transition from existing Kyoto programs such as the CDM and JI.

In addition, for Australian stakeholders, text around the potential carryover of Kyoto units after 2020 was not resolved, and is expected to be refined at subsequent meetings, with pressure growing for Parties to voluntarily cancel Kyoto units.

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