Carbon Finance in Cancun: A Decade Later

The 2010 United Nations Climate Change Conference (COP16) in Cancun, Mexico, was a pivotal moment in the evolution of carbon finance. While not establishing legally binding emission reduction targets globally, the Cancun Agreements laid the groundwork for significant advancements in climate finance mechanisms and fostered greater international cooperation.

Prior to Cancun, the Kyoto Protocol’s Clean Development Mechanism (CDM) was the dominant force in carbon finance, allowing developed countries to invest in emission reduction projects in developing countries and receive carbon credits (Certified Emission Reductions or CERs). Cancun acknowledged the limitations of the CDM, including concerns about additionality, permanence, and geographical imbalances. The conference sought to improve existing mechanisms and explore new avenues for channeling finance to mitigation and adaptation efforts in developing nations.

A key outcome of Cancun was the establishment of the Green Climate Fund (GCF). The GCF was envisioned as a major channel for climate finance, aiming to mobilize $100 billion per year by 2020 to support developing countries in their climate action. While the $100 billion goal was not fully achieved by 2020 and remains a point of contention, the GCF has become a significant player in funding projects ranging from renewable energy deployment to climate-resilient infrastructure. Cancun also established a Technology Mechanism to facilitate the transfer of climate-friendly technologies to developing countries.

The Cancun Agreements recognized the importance of reducing emissions from deforestation and forest degradation (REDD+). While REDD+ had been discussed in previous COPs, Cancun provided a clearer framework for financing REDD+ activities. This included the establishment of a fund to support REDD+ readiness activities and the development of guidelines for measuring, reporting, and verifying (MRV) emission reductions from forestry projects. These developments paved the way for the development of carbon finance mechanisms focused on forest conservation and sustainable forest management.

The legacy of Cancun extends beyond specific financial instruments. The conference fostered a greater understanding of the diverse financing needs of developing countries and the importance of country ownership in climate action. It highlighted the need for a mix of public and private finance and for innovative financial instruments to leverage public funds and attract private investment.

Ten years on, the progress made in Cancun regarding carbon finance is a mixed bag. The GCF has proven crucial, however, the amount of finance mobilized falls short of the initial aspirations. REDD+ has advanced, but issues of permanence, leakage, and benefit sharing remain challenges. Furthermore, the carbon market landscape has evolved with the rise of voluntary carbon markets and a growing focus on Article 6 of the Paris Agreement, which deals with international cooperation on emission reductions.

In conclusion, while the carbon finance landscape is constantly evolving, the Cancun Agreements remain a significant milestone. They provided a framework for scaling up climate finance, fostering international cooperation, and developing new mechanisms for supporting climate action in developing countries. The challenges that remain underscore the ongoing need for innovation, ambition, and equity in the pursuit of a climate-resilient future.