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Photographer: Krisztian Bocsi/Bloomberg Photographer: Krisztian Bocsi/Bloomberg

The international effort to rein in fossil fuel pollution took a step backward this weekend after envoys at a marathon round of United Nations talks watered down language on issues they had agreed on in previous years.

The delegates from almost 200 nations left Madrid after more than two weeks of discussion, agreeing only on the “urgent need” for countries to make deeper cuts to greenhouse gases. They shelved work on adding market mechanisms as a tool for countries to meet their goals and couldn’t agree about finance needed to fix the problem.

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The result undercut principles of the 2015 Paris Agreement on climate change, under which all countries agreed to deliver increasingly ambitious policies to cut pollution. It also walked back on a three-decade-old commitment from the richest industrial nations to help developing countries shoulder the costs of global warming.

“There is a lot of disappointment with the outcome on this COP,” Krista Mikkonen, Finland’s environment minister, said after the meeting that was known as COP25. “No one can be proud. We are really lacking the big countries, the big economies to understand that we need action.”

President Donald Trump’s retreat from U.S. pledges to cut emissions sapped momentum. China and other nations were reluctant to embrace stiffer language promising tighter emissions pledges.

The result contrasted with a rising tide of protests from environmental groups, whose figurehead this year Greta Thunberg has inspired millions of students to speak out on the issue.

The envoys at COP25, drawn from environment and energy ministries, have promised to work toward limiting temperature increases in the atmosphere to 1.5 degrees Celsius since the start of the industrial revolution. That would still mark the quickest shift in the climate since the end of the last ice age.

Heating Up Source: Climate Action Tracker

“The international community lost an important opportunity to show increased ambition on mitigation, adaptation and finance to tackle the climate crisis,” UN Secretary General Antonio Guterres said in a post on Twitter. “We must not give up, and I will not give up.”

Setback for Carbon Markets

For financial markets and companies, the biggest disappointment was the lack of progress on markets. The envoys for a second year in a row were unable to agree on the details of Article 6 of the Paris Agreement. That called for countries to use market mechanisms to meet goals on reducing greenhouse gas emissions.

The impasse leaves companies that encouraged carbon trading, including the oil major Royal Dutch Shell Plc and the Spanish utility Iberdrola SA, with fewer price signals showing how quickly the cost of pollution is rising. In an op-ed in the Financial Times on Monday, Goldman Sachs Group Inc. Chief Executive Officer David Solomon urged governments to put a price on the cost of carbon, whether through a cap and trade system, carbon tax or other means.

Carbon market advocates say trading mechanisms could shave $320 billion a year off the cost of reducing emissions by helping countries and companies identify the most efficient projects. Environmental groups and many nations saw them as a loophole and way to shift around the responsibility for cutting pollution.

“People all over the world are asking for urgent action and several countries only offered accounting tricks and cover for climate inaction,” said Sam Van den Plas, policy director at Carbon Market Watch, a research group following the talks. “What was on the table here could have been a real disaster for the Paris Agreement. We need carbon markets to increase climate action, not undermine it.”

The highly technical measures are important because they give countries the ability to generate tradable credits representing emissions cuts. A deal would have encouraged the spread of carbon cap-and-trade markets like the one working in Europe, which has put a price on pollution for thousands of power plants and industrial plants.

“Many of these national plans are already banking on the existence of Article 6 mechanisms,” said Jean-Marc Ollagnier, chief executive officer of Accenture’s resources businesses. “As a result, many pledges could be watered down due to the ongoing lack of clarity regarding market mechanisms. Countries may even choose to delay submission of their pledges until they have clarity on the rules.”

Inaction this year was a blow to developers who participated in the Clean Development Mechanism and other programs that sprang up out of the last major climate pact, the 1997 Kyoto Protocol. The CDM has fed $138 billion into thousands of climate-related projects, but its credits have become nearly worthless today because of questions about the system’s credibility.

To some extent, the consequences of failure this year are low. Markets were the main agenda item, and many nations and green groups were skeptical about involving those mechanisms. They see carbon trading as a distraction from the broader need for much deeper and faster cuts in emissions, which no market mechanism would force.

“It symbolizes profits for their private sector and the chance to give the appearance that they are meeting their commitments while continuing to pollute and operate business as usual,” said Tina Stege, the climate envoy for the Marshall Islands.

Climate Ambition Estimated global greenhouse gas emissions and temperature increases by 2100 under various scenarios Notes: “Baseline” refers to the Business-as-usual scenario of the IPCC Fifth Assessment Report. Figures as of December 2019.

Failure in Madrid puts a spotlight on the U.K., which is hosting next year’s talks in Glasgow. The agenda there was focused on raising the ambitions of countries to promise deeper cuts than they have set out for the Paris deal. Markets will now complicate that discussion.

The envoys agreed to use texts drawn up in the closing hours of the Madrid meeting as the basis of their discussions next year, saying much progress had been made.

“For Glasgow to be a success, we need a clear message that countries will be called to revise and improve their climate action plans,” said Mohamed Adow, director of Power Shift Africa, an environmental group. “If that doesn’t come through, there’s going to be little that we can be able to harvest in Glasgow.”

While markets were the backbone of this year’s talks, it was the language around “ambition” that drew the most attention.

In previous years, the envoys endorsed similar terms to what Paris set out, promising a tightening ratchet on pledges for reducing pollution. Those voluntary cuts were set down when the Paris deal was negotiated in 2015. Next year’s talks in Glasgow, Scotland, was to be the focus of getting countries to promise more. The weakness of this year’s language suggests many are getting cold feet on those ambitions.

Debates about wording of texts in Madrid pushed the conclusion of the meeting into Sunday morning. That gave COP25 an inauspicious comparison with the COP meeting in 2000, when envoys in The Hague suspended talks around 1 p.m. in 2000 with nothing agreed.

“It’s hard to encourage countries to do more when the biggest polluter in the world is not doing enough,” said Ian Fry, who represented Tuvalu at the talks in Madrid.

( Updates with Goldman Sachs commentary in 10th paragraph )