Switzerland has struck a carbon offsetting agreement with Peru, in what the two nations say is the first deal of its kind under Article 6 of the Paris agreement.
While negotiators at UN climate talks have yet to overcome deep divisions on the design of a global carbon market, a framework is in place for countries to strike bilateral deals.
The deal signed on Tuesday allows Peru to fund sustainable development projects, while Switzerland gets to count the resulting emissions cuts against its national targets.
Peru’s environment minister Kirla Echegarry said the deal took two years to negotiate and was “an example of how cooperation between countries can facilitate the fulfillment of our climate goals and —at the same time— bring prosperity as well as well-being for our citizens.”
Gilles Dufrasne, policy officer at Carbon Market Watch, said the agreement had “several good elements” and established principles that “could form a basis for the ongoing article 6 negotiations”.
Dufrasne praised the provision to avoid double counting, so Peru and Switzerland cannot both claim credit for the same emissions reductions.
On the other hand, Dufrasne said: “What we’re still missing is a system to go beyond the zero-sum nature of offsetting.” This means that the system should reduce pollution rather than move it around.
Dufrasne added that a grievance mechanism was needed where any stakeholder could make a complaint about a project. “This has been missing in international carbon markets until now,” he said.
The agreement gives the Swiss government the option to transfer the rights to retire the offsets to local government or to private companies headquartered in Switzerland.
The money for these projects comes from Swiss motor fuel importers. In practice, they can pass these costs on to their customers, who are charged a levy when filling up their cars. Transport accounts for around a third of the small, rich nation’s greenhouse gas emissions.
The transactions are to be managed by the Klik foundation, which was set up by the Swiss CO2 act to find 35-54 million tonnes worth of carbon offsets up to 2030. The Swiss and Peruvian governments will determine which activities are eligible to generate carbon credits.
Klik’s international co-head Mischa Classen told Climate Home that it is considering initiatives like a $50m green credit line for small and medium-sized businesses to invest in energy efficiency and electric buses.
Classen said the Swiss government has ruled out investment in nuclear power and “they don’t want to refurbish coal power – not to prolong the business case of coal, oil and gas”.
He said that the Swiss government was in talks with several other countries that could sign a similar agreement to Peru. “The next in line” he said was Ghana and talks are ongoing with Senegal, Morocco, Thailand, Mexico, Chile and Argentina. “These processes are not always straightforward” though, he warned.
In 2015, Switzerland pledged to reduce its greenhouse gas emissions by 50% between 1990 and 2030. The government intends to meet up to a quarter of the goal through international offsets. According to Climate Watch Data, Switzerland’s GHG emissions reduced by 8% between 1990 and 2017.
Counting offsets towards reduction targets is controversial. While countries like Switzerland, Norway and Canada have indicated they will use them, others like Finland and the UK have said they will not.
Peru is one of the Amazon nations and around half of its emissions come from land use, land use change and forestry.