Financing sustainable development

Under the United Nations Framework Convention on Climate Change (UNFCCC), countries have created international market mechanisms to provide a more tangible economic incentive to reduce emissions. The next generation of global carbon markets has their foundation in Article 6 of the Paris Agreement.

Specifically, Article 6 establishes a “mechanism to contribute to the mitigation of greenhouse gases and support sustainable development”, commonly referred to as the Sustainable Development Mechanism (SDM). Together with Internationally Transferred Mitigation Outcomes (ITMOs) and non-market approaches also set-out under article 6, the SDM could mark the beginning of a new era where sustainable development is finally valued and promoted in UNFCCC markets.

Building on the experience from the Kyoto Protocol’s International Emissions Trading, Joint Implementation (JI), and the Clean Development Mechanism (CDM), as well as on the rules of existing funds such as the Green Climate Fund or the Adaptation Fund, countries are currently negotiating rules for the functioning of the new mechanism.

The CDM and JI worked primarily as offsetting mechanisms which at best could only deliver a zero sum outcome for the atmosphere by allowing more emissions elsewhere. Research has shown that the vast majority of initiatives would have happened anyway or did not reduce as many emissions as they claimed. While the SDM can learn from the experiences of the CDM, designing it should not be a simple copy-paste exercise.

As opposed to the Kyoto Protocol that required emissions reductions only from rich countries, the SDM must function in a world where all countries make contributions towards the overall goal of limiting global warming to 1.5 degrees. In addition, all signatories to the Paris Agreement have also adopted the 17 UN Sustainable Development Goals (SDGs) outlined in the 2030 Agenda.

In order for the SDM to deliver on its goals, Carbon Market Watch advocates for abolishing carbon offsetting and instead designing it as a tool for results based climate finance. A robust governance structure is paramount to ensure that projects deliver both sustainable development benefits and reduce emissions, having consent and full support from local communities that are affected by the projects. This will require a combination of both positive and negative criteria to make sure that good projects are promoted while harmful projects are excluded.