Double trouble counting on carbon

11 October 2019

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Frank Jotzo is Director of The Centre for Climate Economics and Policy at Crawford School, and director of the School’s Resources, Environment and Development program. He currently teaches the graduate courses Domestic Climate Change Economics and Policy and Issues in Development and Environment.

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The Paris Agreement foreshadowed that countries will be able to use carbon markets to help meet their 2030 targets. The rules for these are the one big thing still missing from the Paris rulebook, and the UN climate conference in Chile in December is meant to make progress. 

In a new article published in the journal Science, a group of authors from leading universities and research institutes in Europe, the United States, China and elsewhere, including Crawford School’s Frank Jotzo, explain why double counting could undermine the Paris goals, and how a robust outcome could be achieved.

“There is a looming threat to the environmental integrity of the agreement: potential double counting of emissions reductions, where both the ‘selling’ and ‘buying’ country attribute the emissions reductions to themselves. It is one of the barriers preventing consensus on the Paris Agreement rules,” Professor Jotzo said. 

He added that trading could be big: almost half of the Parties to the Paris Agreement have signalled that they want to use carbon markets. In addition, airlines might become major buyers of emissions credits. 

“Australia might well invest in emissions reductions in other countries, if we take on a stronger target. Such carbon reduction transfers could help with the transition to low-emissions systems in industries where change is inherently slow, such as parts of industry and agriculture.

“The cost savings that result from carbon markets could make it easier for countries to take on more ambitious targets. In that case, trading will ultimately result in greater emissions reductions. But if trading rules are lax, then carbon markets could lead to higher global emissions than without trading.”

The solutions to the problem are simple in principle: use double-entry bookkeeping and strictly subtract any trade of emissions reductions from the seller’s balance. But not all countries agree. Brazil, for example, argues that emissions reductions in developing countries should be considered on a project-by-project basis and sales not linked to national emissions balances, as was the case under the Kyoto Protocol. Some other countries argue that any trades with the global aviation industry should not be subtracted, because they would happen under a separate international treaty.

“Most of these objections to rigorous accounting arise from narrow national self interest,” Professor Jotzo said.

“The international community should not allow such positions to rip holes into a future international carbon trading framework. Otherwise, carbon trading could undermine the Paris Agreement.”

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