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On 14 September, the second high-level meeting of the new Open Coalition on Compliance Carbon Markets was held in Wuhan, hosted by the Chinese government. What is it? Since the adoption of the Paris Agreement in 2015, and particularly with the Glasgow COP26 in the immediate aftermath of the pandemic, the world of international climate policy has seen a fair number of initiatives aimed at driving climate action “from the outside” emerge, rarely grow, but more often fail.
Many of the initiatives launched by governments and multilateral actors in Paris were already dead or dying by the time of Glasgow. Others born at the Scottish COP – think of the many promises to halt the extraction of fossil resources overseas, or commitments on electrification, methane and deforestation – subsequently remained at the level of political pledges or have remained dead letters. In any case, they almost never reached a sufficient level of institutional maturity to acquire a structure, a secretariat or a website. Anyone like me who was in Glasgow will remember the frenetic moments of the second week of that COP, with the then British prime minister Johnson rushing from one office to another, moving between national delegations to persuade aligned governments to sign thematic declarations of intent.
The Open Coalition on Compliance Carbon Markets (an open coalition on carbon markets, or, we could say, jurisdictional, such as carbon taxes and ETS systems) has emerged in a very different political context, and with perhaps more promising foundations. First and foremost, it is a high-level framework for cooperation between governments, launched at COP30 by Brazil, the host country, and jointly participated in and managed by the European Union and China. Its first and most obvious added value lies precisely in this new grouping’s ability to bring Brussels and Beijing together on climate policy at an otherwise deeply difficult moment for international relations, particularly on climate, a subject that has been largely sidelined, and on the politically sensitive issue of energy.
The point of contact here is regulated carbon markets, an area in which the European Union and China have already been cooperating for years, with European support for the development and relaunch of China’s ETS. This is therefore a partnership between the economy with the world’s oldest and most mature system (the European one) and the one with the largest system in terms of national coverage and emissions (the Chinese one) mediated by a country that is only now moving towards completing the construction of its own ETS: Brazil.
The political and diplomatic story that led to the coalition’s launch in Belém during COP30 may prove inconsequential in hindsight, but it sheds light on certain dynamics and unspoken considerations. In the days immediately preceding COP30, Brazil had overreached diplomatically by announcing a new coalition, with the EU and China, focused on the harmonisation and interoperability of carbon markets. The term “harmonisation” subsequently disappeared from official statements, although some partners brought it up on several occasions during the group’s first meetings. This dynamic illustrates the broader debate over the need to work towards interoperability between ETS systems internationally and, in turn, between different national rules governing the trading of credits, without necessarily talking about harmonisation. Although the term is one that Beijing is fond of, in this particular context it could risk implying a willingness – one that China does not have – to bring its system for validating emissions-reduction certificates into line with Western ones. It is important to remember in this regard that CCERs, the Chinese certificates valid for trading allowances within the Chinese ETS, are developed and validated entirely in China, with no interaction with international standards such as Verra or Gold Standard.
In light of these initial tensions, but also of what is, all in all, a constructive willingness on the part of the three capitals to cooperate on the climate agenda, the coalition’s work plan, adopted in Wuhan, can be seen as offering more concrete prospects than most of the “declaratory” initiatives of the past. The plan, which envisages an initial bedding-in phase overseen by an online secretariat jointly run by the member countries, is organised around five strands of work, two primarily administrative and three thematic: convergence in instrument design; monitoring, registries and interoperability; the use of high-quality carbon credits; and alignment of policies with Article 6 of the Paris Agreement. Each of these strands deserves closer scrutiny in the context of EU-China cooperation.
The search for convergence, or for practical tools to achieve it, builds on the work that has been underway for years, as mentioned above, in which the European Commission plays the role of what one might call a capacity-building partner within the Chinese context. Beijing has, in fact, experienced years of poor performance in its ETS system, currently national but originally based on regional and provincial pilot schemes. Now that the Chinese system has been adjusted and relaunched, with a gradual move away from free allocation towards full market pricing of allowances on the domestic market by 2030, part of this new partnership is rooted in that earlier cooperation – which was never interrupted, even at moments of greatest political tension. And, apart from high-level policies and statements, relationships matter: European Commission officials and their counterparts in the Chinese ministry have known one another for years and have worked together on a wide range of dossiers. That helps.
Work on monitoring (or MRV: monitoring, reporting, verification), registries and interoperability opens the framework up to interaction with other countries, particularly with a view to building ministerial capacity in capitals that currently lack sophisticated tools for pricing emissions or are still developing them. Both in Brussels and Beijing, it is clear that the key to the further, decisive expansion of carbon-pricing systems globally – today, between taxes and ETSs, these policies cover around 30% of global emissions – lies in building the basic tools needed to oversee such policies at national level. These are often extremely difficult not only to put in place, but also to keep operational over time (to use the language of development cooperation, in terms of sustainability after the end of a project).
It is worth noting that a fair number of private and philanthropic actors appear to have developed an unprecedented interest in this area in recent months, based on the recognition that at least part of the ambition of the Paris Agreement may survive precisely through the expansion of carbon-pricing systems. This trend is also being driven by the entry into force of the European and British carbon border adjustment mechanisms (CBAMs).
The final strand of work, on the use of carbon credits in conjunction with Article 6 of the Paris Agreement, closes the circle by establishing a link, now also of a political nature, between national and international markets under the auspices of the UN, which are finally moving towards greater and more meaningful operationalisation following the decisions on the minimum rules of engagement adopted in Baku in 2024 and, specifically as regards methodological standards under Article 6.4, now being defined following the COP.
The European Union is developing its own approach to integrating carbon credits into domestic and international climate policy, with a cautious reopening in 2025 now taking concrete shape (as we saw in a previous article in The Carbon Observer) in the development of increasingly precise demand for credits for the 2036–2040 period. It is hardly surprising that a country such as Brazil, historically active in the carbon credit sector, through the former UN Clean Development Mechanism and in voluntary markets, should now want to support this kind of work. Of primary importance, however, is China’s openness to this strand of work, even more so within a coalition that political scientists would, at least at this stage, describe as minilateral. China has never officially signalled a political intention to participate in bilateral or multilateral agreements under Article 6 of the Paris Agreement, even though numerous observers had described, over the past year, a shift in Beijing’s approach as imminent and, all things considered, hidden in plain sight.
The Open Coalition will now continue to work behind the scenes ahead of the next high-level meeting, the third, which will be held in Florence, Italy, in May 2027, once again hosted by the European University Institute, as was an interim working meeting held a few months ago. In the meantime, technical-level meetings are planned, with a global update on the initiative’s progress probably expected during COP31 in November. Meanwhile, the number of member states continues to grow (there are 11 at present, United Kingdom, France, Germany, Türkiye, Singapore, Canada, New Zealand and Norway have joined) and this will certainly lead the three founding governments, in the coming months, to ask themselves legitimate questions about the governance of an experiment that, as expected, will gradually evolve from minilateral to plurilateral, in any case under the sword of Damocles of the outcome of Brazil’s elections.
Cover: Wuhan, photo by Andrew Horne via WikiCommons