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Carbon markets under the Paris Agreement – how to guarantee effective climate action?

The Paris climate change agreement paves the way for next generation carbon trading. It is nevertheless essential that any new market based climate tool fosters higher ambition, ensures environmental integrity, contributes to sustainable development and upholds human rights.

Last year at the Paris climate negotiations, world leaders reached a landmark deal to reduce emissions in order to limit global warming to 2 degrees Celsius and to strive to limit it under 1.5 degrees.

With some of the biggest polluters in the world – the United States, China, India, Brazil and the European Union – ratifying the agreement in the past month, the real work is now beginning and it is time for  governments to turn promises made in Paris into actions.

New role for carbon markets

Article 6 of the Paris Agreement lays out what many expect to be the next generation of international carbon trading after 2020.

Following the precedent of the Kyoto Flexible Mechanisms – the Clean Development Mechanism (CDM) and Joint Implementation (JI) – the Paris agreement establishes a new ‘mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development’.

smake-and-parisWhile the new mechanism bears some similarity to the CDM and JI, it will function in a radically changed world with a global commitment to a new 1.5 °C target and longer term de-carbonisation, as well as  a new climate regime in which all countries make contributions.

However, the world is rapidly using up its carbon budget under a 1.5°C and even a 2°C scenario, which underlines the urgency to radically reduce emissions, rather than simply offset them.

Further, multiple lessons must be learned from the experience with the Kyoto Protocol’s flexible mechanisms, including problems with environmental integrity, perverse incentives, and human rights abuses.

Higher ambition to support long-term mitigation benefits

Any role for markets in climate action should be to increase ambition. This means that if and when countries choose to use international climate mitigation credits, they should be in addition to and beyond domestic action.

In a world that is determined to move towards a low-carbon future, there can be no incentives to invest in fossil fuels and they should be excluded from the new mechanism’s scope. The same applies for activities that create perverse incentives, such as improving the profitability of high emitting installations, or refraining from more ambitious action in order to credit them.

Robust accounting rules guarantee high environmental integrity

Climate mitigation projects under the new global mechanism must lead to actual emission reductions that have measurable, real, additional, permanent, and  long term benefits.

In order to guarantee that this is the case, it is important to establish robust accounting rules and a governance structure to avoid, among other things, that credits from one project can be counted towards multiple climate goals (so called double-counting).

Past lessons underline the need for strong human rights safeguards

Future climate mitigation actions should be tied to the UN’s Sustainable Development Goals. Ideally, activities that promote these goals should be favored when choosing projects to be financed under the new climate mechanism.

Various examples of CDM projects with human rights violations highlight the need to provide strong human rights safeguards in future mechanisms.

For example, local stakeholder consultations should be conducted in a manner that protects the right to full and effective participation of affected communities should be required for projects carried out under the mechanism.Furthermore, an institutional grievance process should be established for peoples and communities that are adversely affected by  climate mitigation projects.

Parties and observers to the international climate talks submitted their views on the Article 6 in September. Carbon Market Watch’s full submission is available here.

By Juliane Voigt


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COP28: Article 6 failure avoids a worse outcome 

Torn between countries demanding that Article 6 carbon markets be available with virtually no restrictions and countries insisting on upholding transparency, human rights, and climate ambition, negotiators at COP28 failed to break the deadlock. With all the unresolved problematic issues, the fact that they reached no deal was better than agreeing to a bad one that would torpedo the Paris Agreement.

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