COP23 may well prove a watershed moment in testing national commitments to emissions reduction if negotiations begin to stall and unity fragments.

The main item on the agenda for the next Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), or COP23, which is being held between 6-17 November 2017, is the drafting of the rulebook for the implementation of the Paris Agreement. This work commenced soon after COP21 in Paris and must be completed before COP24 in Poland next year; the Paris Agreement is meant to come into force in 2020.

The celebrations which greeted the entry into and subsequent early ratification of the Paris Agreement have in some respects been dampened by the election of Donald Trump as US President, and his announcement earlier this year of the USA's intention to withdraw from the Paris Agreement. It remains to be seen what impact this will have on the ongoing negotiations to implement the agreement by the other 195 parties, with many US States and corporations committing to deliver on the USA's NDC notwithstanding any change in national policy. This, however, is by no means the only challenge awaiting delegates in Bonn, with market-based mechanisms a key focus for Australia.

What the Paris Agreement does

The Paris Agreement set a collective goal to hold the increase in global average temperature to well below 2 degrees Celsius above pre-industrial levels. The parties to the Paris Agreement have committed to achieving this by implementing Nationally Determined Contributions, or NDCs. These NDCs outline each country's commitments to reduce emissions, and are to be reviewed at least every five years with increasing levels of ambition required with each review.

The review of NDCs will be informed by periodic global stocktakes of all commitments, and whether those commitments will be sufficient to meet the stated goal. The first global stocktake will take place in 2018 but a UN Environment Program Report released in October 2017 confirmed what was already known ‒current NDCs, assuming they are implemented in full, will only deliver about one-third of what is needed to stop the worst effects of climate change.

Australia's position and its NDC

Australia remains committed to the NDC which it submitted in advance of the Paris conference. That NDC involves a 26-28% reduction in emissions by 2030 based on 2005 levels. This requires a reduction in emissions of approximately 1btCO2-e. The policy suite to achieve that target across all sectors, not just the energy sector, is in a state of flux with the results of the Government's review of climate policies yet to be released.

Irrespective of the contribution that current or future policies will make to the abatement objective, given Australia's emissions-intensive economy, it is generally accepted that Australia will require access to international credits to meet its target. For this reason, Australia has taken a strong interest in Article 6 of the Paris Agreement.

Article 6's routes for developing market-based mechanisms for emissions reduction

Article 6 of the Paris Agreement recognises that countries may establish market-based mechanisms to enable emissions reductions to be achieved at lowest cost, while also supporting sustainable development. Article 6 outlines in broad terms two potential market mechanisms:

  • Article 6.2, which provides a framework for voluntary co-operative approaches between member countries, which involve internationally transferred mitigation outcomes or ITMOs.

This mechanism is seen as not dissimilar to Japan's Joint Crediting Mechanism by which Japan enters bilateral agreements with host countries to develop projects which reduce emissions in the host countries, but for the parties to share in the abatement outcomes.

  • Article 6.4, which foreshadows a mechanism for sustainable development and mitigation.

In some respects this mechanism, sometimes referred to as the Sustainable Development Mechanism, is seen as the successor to the Clean Development Mechanism under the Kyoto Protocol. Like its predecessor, the Sustainable Development Mechanism is to be supervised by a body to be established by the parties to the Paris Agreement. Unlike it, however, the new mechanism is not expected to be limited to project-based crediting activities, but would extend to include a broader scope of activities to maximise emissions abatement opportunities.

The rules for both of these mechanisms will be critically important in the successful development of credible international emissions abatement, while at the same time providing for the highest levels of assurance with respect to governance and accounting of abatement between countries.

The challenges for COP23

One of the principal challenges to developing robust guidance on these market mechanisms, especially Article 6.2, is the significant variance in the NDCs that have been submitted, with some involving use of carbon budgets, single and multi-year targets, absolute and intensity-based targets, and different base years, periods for implementation and scope/coverage. This variance makes it difficult to develop one set of rules or guidance that would account for ITMOs towards meeting a country's NDC. Clearly, identifying and avoiding double-counting is fundamental to the integrity of the mechanism.

Australia's recent submission on the structure and content of Article 6.2 outlines how some of these challenges can be overcome, particularly through ensuring environmental integrity of the mechanism, transparency in the co-operative approaches and robust accounting. The key to maximising the effectiveness of co-operative approaches will be sustaining confidence in the mechanism while not constraining opportunities for co-operation (including private sector participation).

So far negotiations over Article 6 remain at the framework level, with no technical work having commenced on the rules themselves. Concern has been expressed at the rate of progress, which has been exacerbated by some parties seeking to include items on the agenda unrelated to Article 6. There has also been criticism of the decision to exclude observers from non-government organisations from the negotiation sessions. This is seen to be at odds with the recognition in the Paris Agreement itself of the significant role non-State actors can have in achieving the Agreement's goal and contributing to emissions reduction.

The concern is that COP23 will devolve into a typical UNFCCC negotiation unless more determination is shown by the parties to progress the drafting of the Paris rulebook, especially around those mechanisms such as in Article 6 which have the capacity to mobilise markets and private finance to deliver significant emissions abatement.

While the announcement by the Trump Administration to walk away from the Paris Agreement has not been used as an excuse by other parties to date to re-examine their own level of commitment, COP23 may well prove a watershed moment in testing those commitments if negotiations begin to stall and unity fragments.