How will emerging markets benefit from new carbon trading rules?

With the help of pledges to eliminate coal use and to reduce methane emissions world leaders who attended this year’s UN Climate Change Conference (COP26) in Glasgow also decided to overhaul global carbon markets and to improve regulations on the carbon credit exchange. These are considered to be a key tool for decarbonisation transition.

Carbon trading refers to a method which allows governments to set limits on how much carbon which can be released, and divides that quantity into unit. The units are then allocated to different industries, groups and companies, and may later be traded just like any other commodity.

The carbon trading concept can eventually increase investments in eco-friendly solutions, since the price put on carbon makes fossil fuel projects less attractive, while also encouraging green energy sources like solar and wind.

In fact it is the case that The International Emissions Trading Association says carbon trading could be able to cut by half the costs of implementing national emission targets, resulting in savings of around 250 billion dollars annually in 2030. It further claims that it could aid in the elimination of 5 billion tons of CO2 per year without additional costs.

Although a few countries have emission trading programs that are in operation – and previously participated in cross-border emissions trading, COP26 saw the participants come to an agreement on a set of clear universal guidelines for international emissions trading.

These countries that struggle to reduce emissions may be able to achieve their climate targets by purchasing offset credits from countries that have already successfully cut their own carbon emissions.

The agreement also permits the creation of a distinct carbon offset market, which is managed by the United Nations, that allows private and state organizations can trade emission credits via low-carbon projects.

For instance, one person might pay another to build an solar power facility instead of coal-burning power facility. This latter, and, more broadly the entire globe will benefit from greener energy sources, while the former could generate carbon credits to the project.

When they signed off on the agreement that was signed by world leaders, they finally implemented the Article 6 in the Paris Agreement, which had been put off for six years due to several disputes between nations.

This agreement has also tightened the rules regarding the double counting of credits, which prevents carbon credit from counting both by the country that sells them as well as the buyer.

Carbon credit exporters

Although it has global implications in its effects but the implementation in Article 6 is expected to have different consequences for developed as well as emerging markets.

The majority of developed countries will likely to be buyers of carbon credits and the majority of emerging markets are likely to be exporters of carbon credits. This is why the rules that clarify international trade could give emerging markets significant opportunities.

For instance the Brazilian Ministry of the Environment claimed that the agreement was an “Brazilian victory” that will see the country expected to become an important exporter of carbon credit. Since Brazil is the home of a large portion part of Amazon and holds a significant opportunity for green energy infrastructure, introduction of Article 6 is tipped to boost investment in projects that are designed to drastically reduce emissions.

Additionally, the agreement will offer assistance emerging markets with the creation of an adaptation fund. About 5% of the profits from offset transactions will go into this fund. It will aid less-income countries as they attempt to counter the negative effects on climate change.

Indonesia exploring carbon trading

While carbon taxes and emission trading schemes are mostly concentrated in countries that are wealthier Some developing markets make headway in this regard.

Mexico, Colombia, Chile and South Africa are among those that have either planned or implemented an emission trading plan, also known as a carbon tax.

Another country that is likely to be included on in the coming days is Indonesia.

In the middle of November, international media informed that Indonesian government was approving new carbon trading.

Like other carbon trading models, the Indonesian model could have a cap-and-trade system which means that a limit is set for the overall degree of pollution. allowances are traded between companies.

The country is likely to implement a carbon tax April next year. the carbon market being fully developed to start operation in 2025.

Indonesia claims that without international assistance that it can to reduce its emissions by 29 percent by 2030. However the number increases up to 41% when foreign finance and technological advancement.

The door is open to greenwash?

While it is regarded by many as a crucial tool to help towards carbon reduction Emission trading isn’t generally praised.

The system, according to critics, could lead to greenwashing and might encourage industrialized nations to offset, not reduce their carbon emissions by buying carbon credits from other countries.

In the end some environmental groups claim they fear that this system may result in carbon credits being moved from one end of the globe to the other, with no positive effects on the environment.

In fact, Tina Stege, the Marshall Islands’ climate envoy said that more work remains to be done in order to reap the benefits of the COP26 accords.

“On Article 6, we must be vigilant against greenwashing, ensure the integrity of our environment as well as protect human rights as well as those of the indigenous,” she wrote on Twitter.

“But the effectiveness of a plan is effective if it is implemented. Every party are now required to go back to their homes and work to meet your Glasgow as well as Paris pledges.”

With the help of pledges to eliminate coal use and to reduce methane emissions world leaders who attended this year’s UN Climate Change Conference (COP26) in Glasgow also decided to overhaul global carbon markets and to improve regulations on the carbon credit exchange. These are considered to be a key tool for decarbonisation transition. Carbon…