Carbon removal market in modern political economy: global and European approaches

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The process of mitigating negative climate-effective measures in national development includes several general (involving altering political economy’s facets, etc.) and specific means (like adaptive measures concerning increasing healthy environment and reduction of emissions, etc.). The article deals with some aspects of these pressing issues.  

For the first time in January 2024, after the world has experienced the hottest year on record in 2023, the global governance crossed the 1.5°C threshold on a yearly account. Most states are on the way of adopting new and often quite complicated measures in managing the negative impacts of climate change. Besides, there is still need for urgent effective mitigation strategies world-wide. One of the vital elements in national efforts to implement climate policy frameworks is the emissions trading systems, ETS which offers a market-based approach to reducing emissions.

Background
The global community tries to facilitate solutions that support the climate-related UN Sustainable Development Goals, SDGs while addressing core human needs for food, shelter, mobility as well as access to alternative value chains aligned with those SDGs. Such approaches complement current innovative efforts for climate solutions tended to be incremental, sector-based and problem-oriented with additional transformative solution-oriented processes.
The United Nations Framework Convention on Climate Change, UNFCCC strives to push the main global powers and climate leadership towards “fruitful dynamism” in combining public and private sectors in both transforming political economies and actively use available and new financial means. The ultimate idea is to provide a global cross-disciplinary practice in sharing most optimal ideas and cooperatively design climate solutions. Key participating actors include governments at multilateral, national, regional and local levels, urban planners, digital businesses, corporate entities, accelerators, scientists and researchers.
Specifically, the ETS can be implemented at various national, city and local levels; the ETS could operate supra-nationally (e.g. in all EU member states); many ETS are in force in the same jurisdiction, such as Germany and Austria, where some emissions are covered by the EU ETS and others by the German or the Austrian national ETS.
Similarly, on the global level, China national ETS currently has covered power sector emissions while other province- and city-level ETS plans regulate emissions from a variety of economic sectors. There are several provincial or state-level ETS in North America, with some linked domestically and/or internationally.
The global climate neutral initiatives launched by the UNFCCC are supposed to increase climate action by engaging several stakeholders: sub-national governments, companies, organizations and individuals. The idea was launched in 2015 (after the Paris climate accord) and was based on a mandate to promote the voluntary use of carbon market mechanisms recognized under the convention.
The climate neutral initiative encourages and supports organizations to active measures in order to achieve a climate neutral world by 2050, as enshrined in the Paris climate agreement. Besides, it is aimed to promote additional voluntary action on climate providing a feasible recognition for participants through three main steps: measuring, reducing and contributing.
More in: https://unfccc.int/climate-action/climate-neutral-now

International agreements concerning climate issues: legal aspects
There are, generally, two main agreements that fundamentally navigating then climate mitigation efforts: one is a specific-climate –the Paris Agreement, another one is more general and cross-sectoral, i.e. the SDGs; both were adopted in 2015 and entered into effect in 2016.
The Paris Climate Agreement requires each participating state/region to “prepare, communicate and maintain” successive nationally determined contributions; e.g. the US decided to reduce its “nationally determined contributions”, NDCs concerning the US greenhouse gas emissions by 28 percent below the 2005 level by 2025.
The agreement (art.4.11) provides that a state “may at any time adjust its existing [NDC] with a view to enhancing its level of ambition”; hence it is clear that, if a country chooses to revise its existing targets, it is encouraged to do so in a more ambitious direction. However, higher ambition is not a legal requirement, and the agreement does not legally prohibit any country from adjusting its NDC in a more positive direction (like the EU states did).
As to the correlation of national-global commitments, the agreement postulates that a country “shall pursue domestic mitigation measures, with the aim of achieving the objectives of its NDC”. Thus, the Paris agreement do not impose any domestic legal obligations on national executive and/or legal branches; besides, adoption of any national climate-related measures (such as renewables and/or clean energy, alternative domestic strategies, etc.) or even a failure of achieving emissions reduction targets would not violate the agreement.
But a positive sign is that all the member-states regularly meet, share progress (if any) and renew their pledges of climate action, encouraging every country to step up its commitments. However, the main aspect of numerous international agreements is enforceability: while the Paris accord requires monitoring and reporting of carbon emissions, it does not have the ability to force a country to reduce emissions.
Nethertheless, the UNFCCC has “been unequivocal” describing the Paris Agreement as a “legally binding international treaty on climate change”.
See, e.g.: https://www.c2es.org/wp-content/uploads/2017/05/legal-issues-related-paris-agreement.pdf

The UN has made another vital move towards “clean future”: it established the sustainable development goals, SDGs as a set of 17 interconnected goals aimed at tackling pressing social, economic and environmental challenges. While the SDGs provide a comprehensive roadmap for sustainable development, the role of law in advancing and realizing these goals is quite weak: generally the SDGs are not legally binding. However, the “sustainability’s law” highlights the importance of legal means and executive efforts in implementing sustainable strategies.
Effective SDGs realisation requires coherent and coordinated policy efforts: law plays a critical role in aligning national political economies with the goals and ensuring their effective implementation. Governments can adopt laws and regulations that encourage sustainable practices, promote responsible business conduct, and incentivize sustainable investments. Legal mechanisms, such as environmental impact assessments and strategic planning processes, can help integrate sustainability considerations into decision-making at all levels. Moreover, robust legal frameworks provide accountability mechanisms to monitor progress, track compliance, and address potential violations or setbacks.
Besides, the SDGs “necessitate” closer international cooperation and global governance where the legal instruments play a crucial role in addressing modern trans-boundary challenges, such as climate change, biodiversity loss, environmental pollution, etc. By ratifying and implementing these legal instruments, countries commit to collective action and cooperation, and fostering a shared responsibility for achieving the SDGs.
More in: https://www.linkedin.com/pulse/law-sdgs-sdgsandme

Both examples have shown that the national political economies, even being dramatically altered during last five years,

International efforts
Most vital in the Paris Climate Agreement, PCA-2015) is that it provides for a robust and ambitious basis for the use of international markets to tackle the climate crisis; it also reinforces international targets, transparency and the accountability of the PCA’s participating states/parties.
From the regulatory background -although the PCA is not legally binding- the PCA is recognizing the “importance of international carbon markets” (art. 6); the article allows states: a) to use international trading of emission allowances to help achieve emissions reduction targets, b) establishes a framework for common robust accounting rules, and c) creates new and more ambitious market mechanisms.
The EU is a founding member of the International Carbon Action Partnership, ICAP which brings together countries and regions with mandatory cap-and-trade systems; the ICAP provides a forum for sharing experience and knowledge on climate mitigation efforts. Thus, the EU supports the development of domestic carbon markets through the Partnership for Market Readiness, PMR which is a platform for the exchange of experience on carbon market instruments and assists some 17 countries in preparing and implementing progressive measures. The ICAP ETS in a world-wide aspect depicts emissions trading systems currently in force, under development or under consideration: as of January 2024, there have been 36 ETSs in force; another 14 are under development and expected to be in operation in the next few years. Other 12 states are also considering the ETS role in their climate change policy mix.
In bilateral cooperation, there are two vital examples: e.g. at the EU-China summit in 2018, the EU and China signed a Memorandum of Understanding to further enhance cooperation on emissions trading. It provides a reinforced basis for the policy dialogue, including through further forms of cooperation such as the joint organisation of seminars and workshops, joint research activities and ad-hoc working groups.
Another example is that of the Korean emissions trading system, KETS (launched in 2015); it covers over 65 percent of Korea’s total greenhouse gas emissions and is the first mandatory emissions trading system among the states not adherent to UNFCCC. The KETS could trigger the expansion of emissions trading among emerging economies and developing countries. The European Commission supports Korea through a technical assistance project focused on building the necessary capacity to implement the KETS.
On market mechanisms in UNFCCC: https://unfccc.int/topics/what-are-market-and-non-market-mechanisms

The worldwide growth of emissions trading is spectacular over time: in contrast to previous years, the 2024-outcomes shows the share of global GHG emissions covered by emissions trading is over 18 percent, more than triple the amount when the EU ETS was launched in 2005. Changes are mostly driven by the addition of new sectors and systems, as well as by the counteracting trends of declining caps in many systems and growing global emissions. Among the sectors covered are almost all types of national economic activities; sectors are considered covered when at least some entities in the sector have explicit compliance obligations. Typically, not all facilities in the sector are regulated because of limits like inclusion thresholds. In addition, not all gases or processes of a given sector may be covered.

Market and non-market based approaches in the PCA
States/Parties negotiating the Paris Climate Change Agreement recognized the benefits for the countries cooperating to reduce emissions under a market-based system.
Under the PCA, such cooperation should promote: a) greater ambition, in terms of mitigation of emissions and adaptation to the effects of climate change; b) it should foster sustainable development; and c) it should encourage broad participation in climate action from the private and public sectors.
In market mechanisms, the countries set a limit (and/or cap) on greenhouse gas emissions, GHGs, which creates a kind of “value component” to the “right to emit”; when the countries apply market principles and rules to GHGs, the companies that reduce emissions below their limits can “sell the unused right to emit”, measured in tons of CO2 equivalent. On the other hand, those states/firms that do not meet the target can buy the “allowances to pollute”, which is often called the emissions trading system. In the system of accurate measurements, clear rules and transparency, the mechanisms are supposed to work.
There are a number of benefits to emissions trading: e.g. flexibility could be vital and companies can better plan their capital investments and climate action in the medium and long term, knowing that in some years they can buy units to help meet their reduction targets; in other years they might have units to sell. Another benefit of emissions trading creates a monetary incentive to reduce emissions. For example, the Kyoto Protocol created three such “market mechanisms”. The first, emissions trading, as described above, has led to a growing number of emissions markets in countries around the world. Perhaps the best known is the European Union Emissions Trading System (EUETS). The other two market mechanisms are project-based: the Clean Development Mechanism (CDM) and joint implementation (JI).
Under Joint Implementation, JI the countries with commitments under the Kyoto Protocol are eligible to transfer and/or acquire emission reduction units (ERUs) and use them to meet part of their emission reduction target.
More on JI in: https://ji.unfccc.int/index.html
On CDM methodologies in: https://cdm.unfccc.int/methodologies/index.html
On CDM registry in: https://cdm.unfccc.int/Registry/index.html

Projects under CDM and JI do not gain “privileges” by reducing emissions below a set cap: they “earn units” by reducing emissions below “business-as-usual” methods: i.e. the emissions that would occur without the market mechanism; just like in emissions trading, for such mechanisms to work a ton-reduction must represent a “real ton”. This means that the calculation of the “business-as-usual” emissions must be based on good information, for example of past emissions and accurate measurement of the emissions once any project is implemented. The project earns the difference between the two – the business-as-usual emissions and the post-project emissions, again, measured in tones of CO2 equivalent.
The units are called under the CDM as certified emission reductions, CERs; under JI they are called emission reduction units, ERUs. Companies under the EUETS could use CERs and JI units to cover a part of their obligations. Likewise, countries with an emission reduction obligation under the Kyoto Protocol could use the units to cover a part of their obligation. Thus, the incentive creates a led to registration of more than 8000 projects in 111 developing countries eager to earn saleable CERs – spurring everything from wind power projects, to bus rapid transit schemes, to projects that spread the use of more efficient cook stoves. Likewise, JI incentivized projects, not in developing countries but in countries with an emission reduction commitment under the Kyoto Protocol.

Parties negotiating the Paris Climate Change Agreement decided they liked the benefits of countries cooperating to reduce emissions, like they can do under a market-based system. Under the Paris accord, cooperation should promote greater ambition (in terms of mitigation of emissions and adaptation to the effects of climate change); it should foster sustainable development and it should encourage broad participation in climate action from the private and public sectors. Parties to the Paris agreement also recognized that there are other ways to cooperate on climate action, i.e. other than market-based approaches.

The Paris agreement (art. 6) recognized the possibility of “cooperative implementation among the parties” and agreed to create a new market mechanism that should be built drawing on the lessons from e.g. CDM and JI. They also agreed to create a framework for non-market approaches mechanism. Just as the details of the new market mechanism need to be hammered out, Parties need to agree on how their new framework of non-market approaches mechanism will function. Until they decide otherwise, the non-market approaches mechanism can cover everything; however, the agreement expressed that the non-market approaches mechanism will focus on cooperation on climate policy to include fiscal measures, such as putting a price on carbon or applying taxes to discourage emissions.
For over a decade, ICROA has been a leading voice in the voluntary carbon market, providing quality assurance, and guidance on emissions reductions and high-quality carbon credit usage. The ICROA Code of Best Practice aims to define international best practice in carbon crediting and represents the minimum requirements that all ICROA accredited organisations must meet.
Source: https://icroa.org/icroa-code-of-best-practice/

The EU-wide vision
Being a member of the International Carbon Action Partnership, ICAP the EU brings together countries and regions with mandatory cap-and-trade systems. The ICAP provides a forum for sharing experience and knowledge and organizes regular training courses. The EU also supports the development of domestic carbon markets through the Partnership for Market Readiness, PMR which is platform for the exchange of experience on carbon market instruments and assists some 17 countries in preparing and implementing adaptive measures.
The new ICAP Emissions Trading Worldwide Status Report-2024 shows a growing number of systems under development or consideration in such states as Argentina, Brazil, India, Turkey, Vietnam, etc. Developed economies such as Canada and the EU also want to create new systems to expand carbon pricing to new sectors in a bid to drive down emissions.
The recent report also includes, for the first time, an overview of key trends around the world. Another important resource available in the report is the detailed information on all ETSs provided in a comprehensive set of factsheets. These are accompanied by infographics that highlight and make visually accessible the key figures and trends that emerge from systems around the world.
On ICAP in: https://icapcarbonaction.com/en/news/out-now-new-icap-status-report-2024-presents-latest-developments-emissions-trading-systems

The EU ETS continues to be the largest system in force, in terms of trading volume and value. In the first half of 2023, the EU adopted important reforms of the EU ETS framework as part of the “Fit for 55” package, to align the system with the bloc’s 2030 climate target of at least 55% net emissions reductions compared to 1990 levels. These reforms increased the ambition and expanded the scope of the EU ETS to maritime transport, and introduced a new, separate ETS for buildings, road transport and additional sectors.
For example, Germany launched its national ETS for heating and transport fuels in 2021; by 2023, the government successfully completed all legislative adjustments to the ETS. Starting in January 2023, the system expanded to GHG emissions from coal, and from January 2024, it also encompassed fuels from waste incinerators. A late 2023 court decision drastically reduced the national budget, resulting in a greater-than-planned increase in the CO2 price in January 2024.
Source: https://icapcarbonaction.com/system/files/document/icap-2024-status-report-executive-summary_en.pdf

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