Executive Summary
The Paris Agreement breaks away from the division of “developed” vs. “developing” countries which was enshrined in the Kyoto Protocol. It sets a new dynamic which will inevitably impact the next generation of carbon markets.
It further sets new objectives for these mechanisms, such as contributing to overall mitigation of global GHG emissions and fostering sustainable development, while avoiding double counting of achieved reductions. To design a coherent set of rules which supports these objectives, a single mechanism under Article 6 needs to be established.
This mechanism -currently referred to as the Sustainable Development Mechanism (SDM)- should support a move beyond the concept of carbon offsetting and incentivise real domestic climate action for all countries by establishing a system for results-based climate finance under which mitigation outcomes are not claimed to meet emissions reductions targets, but rather are bought and counted towards climate finance transfer commitments.
However, with the aviation sector having already committed to using mitigation outcomes to offset part of its emissions, the new mechanism for international transfers will need to be designed in a way which incentivizes the transition of all sectors away from offsetting, including aviation.
To this effect, the present briefing suggests the introduction of a ratchet mechanism on the scope of nationally determined contributions (NDC) which progressively phases out offsetting while expanding NDC coverage to all sectors of the economy.
