Explaining Country Positions on Carbon Markets in Climate Negotiations

Carbon markets are a key policy tool to enable effective and cost-efficient greenhouse gas emission reductions. Negotiations on the introduction of a new international carbon market have been the focus of recent United Nations Framework Convention on Climate Change’s (UNFCCC) climate conferences, but so far, Parties to the agreement have been unable to agree on a suitable framework. Even though 96 parties to the UNFCCC have stated in their Nationally Determined Contributions that they are planning or considering using carbon pricing tools in order to meet their mitigation commitments, the difficulty lies in finding common rules for the creation and accounting of emission allowances. Sound regulations are crucial since poor market design bears the danger that low-quality certificates will be created, which could water down the emission reduction efforts. In order to come to an agreement on a well-designed international carbon market, it is important to understand who supports stringent carbon market regulation and why. Applying quantitative text analysis methods, we propose a novel approach to measure and analyze countries’ positions on the introduction of a new carbon market and their support for sound regulation. To do so, we collect and analyze written position papers related to carbon markets submitted by countries to the UNFCCC between 2007 and 2019 and derive positions from about 1800 such submissions. In a first step we use a keyword-based approach to detect and isolate sections of text that are related to carbon markets. We then apply computerized text analysis methods to automatize the process of classification of countries’ positions on the required level of stringency of carbon market regulations. On the basis of this data, we first apply graphic network techniques to visualize which countries have similar positions on carbon markets. We then use a quantitative approach to investigate the political economic variables that affect countries’ negotiation positions on carbon markets. Do existing political groupings under the UNFCCC negotiations – such as the North-South divide, or bargaining coalitions such as the Group of 77 and China, the Alliance of Small Island States, or the Umbrella Group of non-EU developed countries – influence country positioning on carbon markets? Or are interest-driven explanations more relevant, such as past use of carbon markets, holdings of Kyoto certificates and experiences with carbon trading and capacity building?