Australia’s devastating bushfire season shows how much we have to lose in a warming world and how badly we need a global solution. But the latest round of UN climate negotiations, held in Madrid last month, are being called a failure – and some have criticised Australia’s role. Is either charge correct? I was at there from beginning to end, representing Australian industry and ultimately speaking on behalf of global business. What I saw was much less than success and much more than failure. It was a snapshot of a global fight against climate change that is flawed, slow and frustrating – but also essential and inescapable, especially for Australia. We are a constructive player, but every country, including Australia, is going to have to do more.
It’s remarkable that the COP25 climate summit happened at all. Civil unrest led Chile to bow out as hosts just one month out; Spain stepped in and put on a remarkably smooth event. But the negotiations themselves were difficult. COP25 went further into overtime than any previous meeting – so long that at the closing plenary ministers and ambassadors kept accidentally interrupting by falling asleep with their fingers on the ‘intervention’ button. Despite this extra time, some key issues up for decision could not be agreed.
The formal agenda at COP25 was complex
The central focus for many of us was detailed rules for Article 6 of the Paris Agreement. While most of the Paris Rulebook was agreed at COP24 in 2018, rules on international carbon cooperation under Article 6 of the Agreement were heavily contested and pushed back for further discussion at COP25. They include accounting for cooperative linkages between two or more countries (Article 6.2, already possible but easier with agreed detail on accounting), a new carbon market mechanism for all countries to access (Article 6.4, unable to start without agreement on the rules), and non-market approaches (Article 6.8, insisted on by countries suspicious of markets but never particularly well-defined).
Countries differ in their opportunities to cut emissions and sequester carbon. The potential gains from trade and cooperation are huge. Research for the International Emissions Trading Association indicates that a successful Article 6 could cut the costs of meeting all countries’ current targets (their Nationally Determined Contributions, or NDCs) by more than US$250 billion per year by 2030 – or enable the doubling of those abatement targets at no extra cost. With many current NDCs off track, and all collectively far short of what’s needed to halt climate change, Article 6 is key to easing success and unlocking greater ambition. But many fear that weak rules could instead see double counting, dodgy credits or projects that violate human rights – all charges that have been levied at the old Clean Development Mechanism under the Kyoto Protocol. The negotiation was full of difficult technical issues and big political questions.
Beyond Article 6, the agenda included:
But the formal agenda is only part of a COP. More than 27,000 people registered for Madrid, and more than half were not negotiators but observers and media – representatives of business, environment groups, farmers, indigenous peoples, researchers, trade unions, youth and more. The panels and side events put on by civil society and national delegations at COPs are an unrivalled opportunity to learn about what’s going in other countries and what is happening in climate research and technology solutions.
I learned a lot. Carbon pricing is growing in breadth and sophistication, though it remains less common than regulation or renewables mandates. Europe’s carbon market has been reformed to rebalance supply and demand, driving higher carbon prices that are reshaping the electricity sector. The EU Green Deal, announced during COP25 by European Commission President Ursula von der Lyon, includes a proposal for a carbon border adjustment mechanism that would impose a carbon price on imports. That could incite trade war or demonstrate a new tool for addressing competitiveness impacts – the greatest reservation that groups like mine have about climate policy. Either way, the EU border adjustment is one to watch.
But Europe’s carbon market is about to be eclipsed; Chinese officials were confident that their national emissions trading scheme (ETS) would be operational and trading by the end of 2020. Initially covering only the power sector, where data is more reliable, the scheme will still be the biggest in the world and is likely to extend to industrial sectors as experience grows. China sees this as one of its most important initiatives to fight climate change, and much rides on its success or failure.
South Africa is bedding down its carbon tax; Mexico is complementing its own with an ETS. Germany is introducing a national carbon price to cover the sectors outside the EU ETS. Indonesia is designing an ETS and so – of all countries – is Saudi Arabia. Canada’s national carbon price appears secure following its national elections. The World Bank is working with many countries across Asia and Africa to ready them for carbon prices of their own.
Technological advances are essential to cut the cost of a clean economy, and much is happening. Advances continue in low-emissions power, where the global solar industry is confident of further deep cost reductions over the next decade. But equally important is the focus on hard-to-abate activities like steel, cement, and heavy long-distance transport. In 2019 India and Sweden founded a global collaboration on innovation for industrial transition, and Minister Angus Taylor announced at COP25 that Australia would join. Carbon capture and storage is attracting intense focus, not so much for power – where analysts at Shell, for instance, expect it to be outcompeted by renewables – as for heavy industry and the negative emissions badly needed to give the world a chance at the Paris temperature goals. Smarter use of energy and resource efficiency through a circular economy are also prominent.
Researchers unveiled their latest work on many topics at the COP. Scientists are gaining greater understanding of the potential triggers for collapse of the West Antarctic Ice Sheet, for example. If triggered, the collapse would be unstoppable and contribute an additional 0.5-1 meter to sea levels this century, and up to 15 meters over the longer term depending on how high greenhouse emissions go.
Economists like Lord Nicholas Stern are critiquing existing economic models, which greatly underestimate the costs of climate change and overestimate the costs of climate action; the next assessment report of the Intergovernmental Panel on Climate Change, due in stages over late 2020 and early 2021, will include much-improved analysis of the economic pathways to mitigation and the mix of technologies that can contribute over time.
The exchange of knowledge at the COP is at least as important as the formal negotiations – which is lucky, as the latter are extremely difficult. Observers often reduce these negotiations to stories of heroes and villains. But decisions must be taken by unanimous consensus among 190 parties with different circumstances, priorities and view of the world. This is very hard, and every putative villain is the hero of their own story.
This year’s negotiations were particularly fraught. Advanced economies with children marching in the streets and small island states with waves climbing higher up their shores were pushing for more ambition on emissions cuts. Developing countries, especially in Africa, were pushing for wealthy countries to fulfil commitments on finance to help them adapt to climate change. Brazil, India and China pushed common interests around the transition of old Kyoto credits to the new Article 6.4 mechanism; Brazil pushed almost alone for rules others saw as allowing double-counting; a new Unconventional Group of high-ambition rich and poor countries pushed back on double-counting and the use of any old units; a panoply of other groupings clashed and collaborated; the United States – set to leave the Paris Agreement the day after the 2020 Presidential election – pushed for workable rules that might make it easier to return in future.
Despite all this contestation, COP25 achieved reasonable outcomes across most of its agenda, moving the ball forward for the ‘Ambition COP’ in Glasgow in 2020, where Boris Johnson’s re-elected Conservative Government intends to elicit greater commitments from all countries and showcase Britain’s transition to net zero emissions by 2050. But to the frustration and disappointment of most governments, businesses and market-minded environmentalists, rules for Article 6 fell just short of agreement. The gulf over double-counting between coalitions centred around the EU and Brazil could not quite be bridge, at least this time.
Parties will try again on Article 6 at COP26 and intersessional negotiations, using the negotiating texts developed by the Chilean Presidency as a starting point. But it is quite possible that this piece of the Paris rules is never agreed. If so, the Paris Agreement will go on – its core rules on accounting and transparency have been agreed. It wouldn’t be the end for international carbon markets either: more than 30 nations have already announced their intent to negotiate their own cooperative approaches under the existing Article 6.2 accounting rules and a new set of stringent “San Jose Principles”. But the option of a single global carbon market mechanism would remain in limbo until and unless a future COP agrees the necessary rules under Article 6.4.
As I stated on behalf of global business and industry at the close of COP25, we need international carbon markets with high environmental integrity and low transaction costs. There will be increasing focus on making Article 6.2 cooperation work to facilitate the greater ambition and stronger revised NDCs that are needed from all parties.
What does all this mean for Australia? Some have accused Australia of undermining the talks. It is true that our current policy of carrying over overperformance against our Kyoto targets, and relying on that for the bulk of our plan to achieve our current Paris NDC, has come in for widespread criticism. But Australia’s hard-working and professional diplomats played a positive and constructive role at COP25. They pushed hard to protect the rights of indigenous peoples. They helped overcome resistance to the new Gender Action Plan. And I heard gratitude from environmental advocates for Australia’s role in protecting the voice of climate activists at the conference, particularly by interceding to help reverse the banning of many following an unauthorised but peaceful protest.
However, the outcome of COP25 leaves Australia with some hard work ahead. Our stance on carryover will continue to be a source of tension in the negotiations, with the texts forwarded to Glasgow still including options that would block it. If, as is likely, Article 6.2 cooperative approaches are the main vehicle for international carbon markets in the medium term, the emergence of the expanding bloc of countries committed to the San Jose Principles may lock Australia out of markets unless an accommodation on carryover can be reached. Access to markets is critical for Australia, both to cut the cost to industry of achieving our goals and to attract global investment in our potential to sequester emissions.
Most importantly, the call for higher ambition – and action to meet that ambition – will need to be answered over the coming year. Australia has building blocks to work with. The Federal Government’s emerging Technology Roadmap and Long Term Strategy for emissions are important initiatives. They could be strengthened by expanding and extending national funding for clean economy innovation; by connecting with industry-led efforts like the Industry Energy Transition Initiative; and by cooperating with the States and Territories, all of whom have now adopted the goal of net zero emissions by 2050.
Climate policy has been intensely difficult in Australian politics, but it doesn’t have to be that way. The UK’s recent election, where the parties offered a choice between very ambitious climate policy and extremely ambitious climate policy, is a case in point. The continuing work of the Australian Climate Roundtable is another, bringing together businesses, environmentalists, farmers, investors, unions and the social services sector to find common ground. COP25 is a reminder that while international negotiations are important, it is ambitious and voluntary national action that is the foundation of the Paris Agreement and our hopes of global success in the fight against climate change. Australia’s horror bushfire season highlights how much we have at stake. This is a challenge to which we should all rise.
Tennant Reed is Director - Climate Change and Energy at Ai Group. He has worked on these issues since 2008, advising Ai Group’s Leaders’ Group on Energy and Climate Policy; coordinating joint research and advocacy with wider energy stakeholders; facilitating the Australian Climate Roundtable; developing reports on energy prices, carbon border adjustments and business energy use; reviewing emissions targets for the State of Victoria; and closely observing international climate negotiations.
