Recommendations related to the role of carbon markets in the Paris Agreement

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Introduction

Only very few countries have outlined in their Intended Nationally Determined Contributions (INDCs) that they will use international trading as a means to help achieve their climate goals. However, despite the limited role of markets expressed by most industrialised countries in their INDCs, such as the EU and the US, the political reality regarding domestic carbon pricing schemes looks different: jurisdictions responsible for 40% of the global economy have already implemented carbon pricing mechanisms. Despite its domestic nationally determined mitigation commitment (NDMC), the EU is currently negotiating linking its Emissions Trading System with Switzerland with a view to a global carbon market at a later stage. China is currently fleshing out the rules to implement its national carbon market from 2017 onwards and in the Americas, carbon markets have also been linked in California and Quebec and could be expanded through linking to other regional emissions trading schemes, such as Ontario.

The latest Bonn negotiations have significantly changed how carbon markets are being discussed. There was initially no mention of them in the draft treaty text going into the October session. However, about 5 pages of language proposals for carbon markets have been added by Parties.

Article 3 (mitigation) includes key principles, such as avoiding double counting, ensuring that “mitigation outcomes” are “real, permanent, additional and verified”, and ensuring that carbon markets are “supplemental to domestic action”. A paragraph on “cooperative approaches” is expected to allow countries to achieve their pledges jointly e.g. by linking their emissions trading systems or through the use of offset credits. Paragraphs have been added for a “mechanism to support sustainable development” (Article 3ter) paving the way for the continuation of a revised version of the CDM or a New Market Mechanism. The establishment of a new “REDD-plus mechanism” (Article 3bis) is proposed separately and includes a suggestion for a Joint Mitigation and Adaptation Mechanism (JMA), which could be market or non-market. The accompanying draft decision text includes several paragraphs (para 30 and 34) on technical elements for implementing the treaty principles.

The text is open to discussion on all forms of carbon markets, including currently ineligible project types of credits, such as REDD. While there are well known concerns about the effectiveness of carbon markets, there is also a risk that the absence of clear international rules would allow countries to implement carbon markets without harmonised standards, rules to avoid double counting, necessary safeguards, and international oversight.

Against these considerations, our key recommendations are:

Include the following  key principles for the use of carbon markets:

  • Avoid double counting of mitigation efforts
  • Avoid double counting of mitigation efforts and financial flows
  • Ensure supplementarity
  • Avoid the trading of hot air credits
  • Ensure that carbon credits are real, permanent, additional and verified and contribute to sustainable development
  • Ensure a net atmospheric benefit
  • Place a share of proceeds on all UNFCCC carbon markets

Ensure that these market principles apply to a mechanism to support sustainable development and establish a project type negative list and an institutional safeguard system to prevent social and environmental harm of climate mitigation actions and uphold human rights

Do not allow the inclusion of REDD-plus into carbon markets

Ensure environmental integrity of pre-2020 mitigation action (WS2)

Address the international aviation and shipping sectors

Protect human rights in all climate related action:

For more detailed information, please see our recommendations here

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Recommendations PDF (English)