On Earth Day 22 April 2016, world leaders were in New York to sign the Paris Climate Change Agreement. Two years on, governments are working on the rulebook to put the historic deal into practice. Ahead of the Bonn Climate Change Conference, we take a look at the Paris Agreement market provisions and lay out steps to ensure that they increase – and not undermine – climate ambition.

It’s time to phase out the CDM

Only 2% of the projects under the UN’s Clean Development Mechanism (CDM) clearly reduce emissions, while several of them have violated human rights. It is essential to learn from past mistakes and to drastically improve the environmental integrity of UN market mechanisms.

A zero-sum offsetting system is incompatible with the Paris Agreement spirit, and there is no future for the CDM post 2020. Its successor, known as the Sustainable Development Mechanism (SDM), should be established as a results based climate finance scheme rather than as an offsetting system. This would see countries buy credits and cancel them, thereby using the SDM to meet climate finance targets rather than to substitute domestic emission reduction efforts.

Climate action and sustainable development must go hand in hand

Carbon markets need a new and improved approach to make sure that climate projects bring co-benefits for local communities. The SDM must actively promote sustainable development and the first step to achieving this is to avoid adverse impacts on local populations.

To that effect, local stakeholders must be involved throughout the design and implementation of a project. This requirement should be enshrined within the Paris rulebook by establishing clear rules on how to conduct local stakeholder consultations. In addition, a transparent process should be detailed in the SDM rules to lay out how stakeholders can seek recourse against adverse impacts.

There is great potential for the SDM to correct the mistakes of previous market mechanisms, and be designed as a system which truly reduces emissions while benefiting local communities.

However, as the negotiations currently stand, the balance could still tip both ways. It is therefore important that negotiators show ambition and avoid the pitfall of creating a copy paste CDM market.

Uncontrolled aviation pollution will blow a hole in the Paris Agreement

While it is clear that all sectors must contribute to the fight against climate change, international aviation was left out of the Paris Agreement. In 2016,  the International Civil Aviation Organisation (ICAO) agreed to set up the Carbon Offset and Reduction Scheme for International Aviation (CORSIA) to compensate the growth in aviation emissions above 2020 levels.

The scheme will do little to put the sector in line with the 1.5°C target but carries a risk to the environmental integrity of the Paris Agreement. Seen that it will create a lot of demand for carbon credits in the future, a key issue is to ensure that emissions reductions are not counted towards both national commitments under the Paris Agreement and the targets set under the future aviation offsetting scheme.