EU Seen Using Carbon Markets to Tighten Climate Ambition

Mathew Carr, Brian Parkin and Jeremy Hodges

(Bloomberg) -- The European Union will only use carbon markets under the Paris climate deal to achieve even tighter emission-reduction targets, according to Germany’s climate minister.

The EU “would use these market mechanisms exclusively to increase our ambition” by tightening emission-reduction targets, Environment Minister Svenja Schulze said in an official document seen by Bloomberg News.

Almost 200 nations are meeting for two weeks for United Nations climate talks starting Monday. The conference in Madrid is aiming to draw up rules for carbon market mechanisms under Paris, Schulze said. That’s something envoys have so far failed to do after several years trying.

German Ursula von der Leyen, who took office as president of the European Commission on Sunday, has pledged to toughen the bloc’s existing 2030 emissions goal, which is for a 40% cut on 1990 levels, to 50% or even 55%. Such a move is designed to spur other countries to agree on more ambitious goals.

Carbon trading can encourage ambition because emerging nations selling carbon credits to rich nations may be willing to implement pollution-cutting policies if they bring in revenue from the sale of carbon credits.

The UN talks are seeking to improve or replace the Clean Development Mechanism of the 1997 Kyoto Protocol, where prices have plunged as demand dried up.

A prerequisite for the tighter EU target is that the international markets “reliably exclude” the ability of both buying and selling nations in carbon markets from claiming the emission cuts, Schulze said. Without those rules, the new system would effectively allow “double counting” of emissions-cutting effort, she said.

A year ago, a dispute on the issue -- pitting two groups of nations led respectively by Germany and Brazil -- held up work creating the new global markets.

Carbon credits from new markets could be used to help meet emission targets under the Paris agreement and they could also be bought by airlines in a new global market for that industry being set up by the UN, Germany said.

The Paris climate deal applies after 2020. It allows for a wide diversity of targets that are self determined by nations. In some cases, they are straight economy-wide carbon budgets created by targets, such as in the U.K. Others are carbon-intensity based, such as in China, which limits pollution per unit of economic production.

“So coming up with a system to rigorously account for transfers among these very diverse target types is technically very complex,” said Elliot Diringer, executive vice president of C2ES, an environmental lobby group in Arlington, Virginia.

(Updates with Germany official’s comments in ninth paragraph)

To contact the reporters on this story: Mathew Carr in London at m.carr@bloomberg.net;Brian Parkin in Berlin at bparkin@bloomberg.net;Jeremy Hodges in London at jhodges17@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson

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