UN climate negotiators failed to reach a deal on international carbon market rules after two weeks of talks in Katowice, Poland, after countries led by Brazil opposed proposals to require robust accounting of transfers of emissions reductions between countries.
The annual conference of the UN Framework Convention on Climate Change was meeting to agree a plan of work to craft the rules of the Paris Agreement, which will succeed the Kyoto Protocol in 2021.
After talks that ran more than 24 hours over their allotted two weeks, negotiators reached agreement to work on rules for reporting progress in cutting emissions, on assistance to vulnerable countries to adapt to the impacts of climate change, on reporting financial assistance to developing nations and on regular meetings to monitor progress and increase countries' carbon-cutting targets.
"The message from Katowice is that governments are committed to making the Paris Agreement work," Elliot Diringer, executive vice president of the Center for Climate and Energy Solutions, said in a statement issued after the end of the talks.
"Between the usual conflicts and new geopolitical strains, these talks could have foundered over any number of issues. The rulebook didn't come easily, and it's not perfect, but it gets the Paris Agreement off the ground."
However, a slate of proposals to establish market mechanisms through which countries could trade emissions reductions foundered, when Brazil rejected proposals for so-called "corresponding adjustments" to the emissions balances of countries when they buy and sell their reductions.
As a result, the market proposals were set aside from the remaining decisions on the Paris Agreement, and negotiators will take up these discussions again next year, before countries meet at the next UNFCCC summit in Santiago, Chile.
"While there was overwhelming support for common-sense accounting rules among countries, businesses, and non-governmental groups, a handful of countries, led by Brazil, thwarted progress by insisting that they should be allowed to cheat the atmosphere -- and their trading partners -- by double-counting their carbon credits," said Nathaniel Keohane, senior vice president at the Environmental Defense Fund.
"Such a loophole would undermine the integrity of the carbon market and contradict the basic principle that each ton of emissions reductions should only be counted once," he added.
Pressure group Carbon Market Watch also criticised the Brazil-led group for its opposition to the accounting measures.
"The fact that several countries are pushing with such strength against these basic safeguards shows that they are in full denial of the real world impacts of carbon markets," the group said in a statement released after the talks closed on Saturday night.
The collapse of discussions on carbon markets, which are established under Article 6 of the Paris Agreement, meant that proposals to transfer elements of the Kyoto Protocol to the new Paris mechanism were also inconclusive.
Many countries are hoping that the Clean Development Mechanism, a system that issues carbon credits to projects that reduce emissions in developing nations, can be transferred to the Paris Agreement and that projects can continue to generate reductions under the new system.
However, there was also disagreement over whether "corresponding adjustments" should apply to these projects after 2020, as well as over eligibility criteria for Kyoto-era projects.
Despite the disappointing outcome for market proponents, some were optimistic that carbon trading will persist and grow despite the lack of UNFCCC governance.
Dirk Forrister, president and CEO of the International Emissions Trading Association, pointed out that the Paris Agreement allows for countries to take bilateral or multilateral action to develop carbon trading networks and markets even in the absence of UNFCCC guidance.
"We shouldn't let this slow us down - we don't have time to waste," Forrister said after the talks. "While we wait for the rules to firm up, committed countries and businesses should team up to start building cooperative markets - and the rule writers can catch up later."
