BRICS Carbon Markets Partnership: Building a Common Framework for Carbon Trading
Context
Following the reaffirmation of the BRICS Carbon Markets Partnership in the New Delhi Declaration, the focus has shifted towards developing practical mechanisms to improve cooperation among member countries and address fragmentation in their domestic carbon markets.
Understanding Fragmentation in Domestic Carbon Markets
BRICS countries follow different approaches to regulating and trading carbon credits, creating institutional and technical barriers to market integration.
- Different Emission-Capping Approaches: China and India primarily adopt emissions-intensity targets, linking permissible emissions to economic output, whereas Brazil is moving towards an absolute emissions cap-and-trade framework.
- Divergent Trading Mechanisms: India’s Carbon Credit Trading Scheme (CCTS) combines compliance and voluntary mechanisms, while other members follow different regulatory and market structures.
- Restrictions on Carbon Offsets: Several countries prioritise credits generated within their domestic jurisdictions. For instance, China recognises its Certified Emission Reduction (CCER) credits, limiting their automatic acceptance across borders.
- Different Legal Frameworks: Carbon credits are classified differently across member states, ranging from regulated financial instruments to administrative permits and exchange-traded commodities.
These differences make the immediate creation of a unified carbon trading platform difficult.
Common Trading Platform vs Common Rulebook
A common trading platform and harmonised carbon accounting standards represent two different levels of cooperation.
| Dimension | Common Trading Platform | Common Rulebook and MRV |
|---|---|---|
| Primary objective | Direct cross-border trading and financial settlement | Harmonisation of carbon measurement and verification |
| Feasibility | Low due to regulatory and economic differences | Relatively high through existing international standards |
| Trade benefits | Enables direct exchange of carbon credits | Provides credible emissions data for exporters |
| Institutional requirements | Requires extensive multinational financial infrastructure | Can utilise existing institutions such as the New Development Bank |
Therefore, establishing common measurement, reporting and verification (MRV) standards is a more practical starting point than immediately linking national carbon markets.
External Pressures Driving Cooperation
The need for a coordinated BRICS carbon accounting framework has increased due to emerging climate-related trade restrictions.
- European Union’s CBAM: The Carbon Border Adjustment Mechanism imposes a carbon cost on specified carbon-intensive imports, including steel, aluminium and cement, based on their embedded emissions.
- Emerging UK Regulations: The United Kingdom is also developing carbon border measures, increasing compliance requirements for exporting economies.
- Risk of Higher Export Costs: Exporters may face additional financial burdens if they cannot demonstrate the carbon price paid in their domestic markets.
- Importance of Verified Emissions Data: Inadequate monitoring and verification can result in the application of default emissions values, potentially increasing exporters’ liabilities.
- Collective Bargaining Power: A common BRICS framework could strengthen the negotiating position of emerging economies against unilateral climate-related trade measures.
Key Priorities for the BRICS Carbon Markets Partnership
- Harmonising MRV Standards: Develop common carbon accounting methodologies aligned with internationally accepted frameworks, including ISO 14064, to ensure consistency and credibility in emissions reporting.
- Mutual Recognition of Verifiers: Establish mechanisms to recognise accredited verification agencies across member countries, reducing duplication of compliance procedures.
- Interoperable Carbon Registries: Develop compatible digital registry systems to prevent double counting, duplicate credit issuance and discrepancies in carbon accounting.
- Article 6.2 Cooperation: Initiate bilateral and trilateral pilot projects under Article 6.2 of the Paris Agreement to facilitate internationally transferred mitigation outcomes without requiring complete market integration.
- Institutional Support: Utilise the New Development Bank (NDB) to support technical cooperation, capacity building and shared registry infrastructure.
Way Forward
- Adopt a Phased Integration Strategy: Begin with common accounting standards and gradually move towards mutual recognition and limited cross-border trading.
- Strengthen Domestic Institutions: Improve the transparency, credibility and enforcement capacity of national carbon markets.
- Address Financial Barriers: Develop appropriate mechanisms to manage currency conversion, capital-account restrictions and cross-border settlement.
- Ensure Environmental Integrity: Introduce safeguards against double counting, inflated emission reductions and low-quality carbon credits.
- Promote Equitable Cooperation: Ensure that common standards recognise different national circumstances and development priorities while maintaining environmental credibility.
Conclusion
The BRICS Carbon Markets Partnership can become an important instrument for strengthening climate cooperation and protecting emerging economies from carbon-related trade barriers. Rather than pursuing premature integration of trading platforms, BRICS should prioritise common accounting standards, interoperable registries and mutual recognition of verification systems. Technical convergence must precede financial integration to build a credible, transparent and inclusive carbon market.
Source : The Hindu