Negotiations on how carbon markets can be used by countries to meet their global warming goals under the Paris accord go down to the wire this week as United Nations climate talks enter their final days in Madrid.
Technical experts worked past midnight on Monday, but left some of the thorniest issues for environment ministers and senior officials – who have arrived in Madrid for the high-level section of the talks on Tuesday.
Carbon markets are seen by some as an opportunity to lower the cost of reducing greenhouse gas emissions and enabling countries to commit to more ambitious targets. Others see them as a way to stall more aggressive action to combat emissions.
The focus in Madrid is on article 6 of the Paris Agreement, which creates rules addressing the stringency of carbon markets and creating a new global carbon offsetting mechanism.
Carbon offsetting involves helping to fund a cut in emissions elsewhere, such as through preventing deforestation.
"Article 6 is the only part of the Paris Agreement that directly engages with the private sector, helping them contribute to climate action," said Patricia Espinosa, Executive Secretary of the UN Framework Convention on Climate Change as she appealed to negotiators to seek ways to break the deadlock.
Ministers from New Zealand and South Africa are leading efforts to find consensus around issues like what to do with old offsets generated under the Kyoto Protocol's Clean Development Mechanism and how to account for carbon credits between countries with single year and multi-year emission targets.
"All of the provisions regarding environmental integrity (of carbon markets) have not been resolved," said Kelly Kizzier, vice president for international climate at the Environmental Defence Fund.
One of Europe's main concerns is how any emission reductions made under carbon markets would be accounted for.
European officials want to ensure there is no double-counting, whereby the emission reduction is counted both by the country that has bought the credit and the country where the actual emission reduction has taken place
"We cannot afford to count emission reductions under global carbon markets twice," said Sam Van den plas, policy director at NGO Carbon Market Watch at a side event in Madrid. "Cheating the climate system does not get us anywhere."
The United States, which is still participating in negotiations despite officially starting the one-year process to withdraw from the Paris agreement, said it is working to ensure American companies involved in carbon markets have clear, transparent rules.
"On article 6 we are working on a set of rules that create a level playing field for U.S. businesses working around the world," a U.S. official said.
Negotiators are also at odds over what to do with billions of carbon credits already generated under the CDM, called CERs, designed to help countries meet commitments under the 1997 Kyoto Protocol.
Chairman Mohamed Nasr of the African Group of Negotiators, which represents all 54 countries on the continent, said there should be compromise so some but not all Kyoto-era credits are honoured.
"I think there is a willingness to compromise but the difference is of course there are four countries that have a lot of CERs in their accounts ... they don't want to lose that value," he said.
Brazil, South Korea, China and India account for almost 85% of all CERs issued to date.
GRAPHIC: Certified Emission Redutions issued to date
But other countries argue allowing these credits to be carried over would potentially flood the market with credits for past accomplishments and not advance future emissions reductions under the Paris accord.
Van den plas said almost 19 billion permits had been created under the various Kyoto systems including the CDM. "This is the equivalent of running 700 coal plants for 10 years permanently. So, it's a huge threat," he said.
Environmental and indigenous groups are also raising concerns about whether article 6 will address human and indigenous and human rights, and whether strong enough safeguards are put in place.