COP28, currently taking place in Dubai, will seek to address many questions on climate change, including how carbon markets will help reach Paris Agreement targets.  The Paris Agreement, agreed to in 2015, adopted Article 6 in 2021 which is a “rulebook” for internationally tradable carbon units. Formal rules on Article 6 will allow the market for internationally tradable carbon units to further mature, presenting opportunities for countries, project developers and investors like ECP.

The United Nations’ COP28 annual Climate Conference is underway in Dubai with negotiators working on a familiar list of climate objectives. At this annual conference negotiators representing nations that are signatories to the UN Framework Convention on Climate Change focus on agreement on issues such as emission targets, monitoring and reporting of emissions, financing for clean energy and decarbonization, and adaptation to warmer temperatures.

Notable agreements from prior COPs include the Kyoto Protocol (adopted during COP3 in 1997) and the Paris Agreement (adopted during COP21 in 2015).

 

The Kyoto Protocol resulted in the first ever binding emissions target by developed countries and included market-based mechanisms which allowed for the financing of emission reduction projects and transfer of the associated emission reduction credits between developing and developed nations. 

 

The Paris Agreement is a much broader successor to the Kyoto Protocol. It is the first legally binding global treaty on climate change, with 195 signatory nations committing to keep the rise in global average temperature to "well below” 2°C, and ideally 1.5°C. In 2021 at COP26 in Glasgow, the rulebook for the Paris Agreement was adopted which includes Article 6 that focuses on internationally tradeable mechanisms. These mechanisms will provide countries with the flexibility they need to achieve their climate targets and potentially benefit from achieving excess emission reductions beyond their targets.

Negotiations to make Article 6 fully operational are a key part of COP this year that ECP is tracking closely. Under the Paris Agreement, each country can develop emissions reduction plans that are most appropriate for their context which they submit as their Nationally Determined Contribution (NDC). The development of carbon markets subject to the frameworks in Article 6 is likely to attract participation from both governments and corporations striving to achieve their respective emission reduction targets. This year key technical recommendations are expected that will shape these markets as they develop.

Another key item at COP28 is to evaluate the progress countries have made towards emissions cuts. This will be the first progress assessment countries have made in implementing the 2015 Paris Agreement. Decarbonization has not been in line with commitments and emissions are high. Accordingly, the evaluation is expected to create pressure for fast action and for pledges of deeper cuts.

A third key focus in Dubai is to work on specific language regarding the future of fossil fuels. Groups and countries aligned with more aggressive climate action seek language agreeing to a full phase out of fossil fuels.  Other groups aligned with fossil fuel supply seek to keep language for “abated” fossil fuels, such as fossil fuels combined with carbon capture and storage, to contribute to meeting energy demands going forward.

Cumulatively, the ambition of parties, and the effectiveness of the frameworks established via the UNFCCC via successive COPs is likely determine whether the goals of the Paris Agreement are met.