Market Mechanism Under Paris Agreement

Such compromises can be bad news not only for the climate, but also for the parties that probably want to take advantage of these markets, as Forrister explains: about 96 climate change promises per country – about half of CNN – refer, according to a World Bank report, to the use of carbon pricing initiatives. It proposes that the cost of running the current NPNs be 50% “in principle… a global, friction-free carbon market.” The second mechanism would create a new international carbon market, managed by a UN body, for the exchange of emissions reductions, which will be created around the world by the public or private sector. Carbon credits could be generated, for example, by a new renewable power plant, by a modernization of the carbon-efficient plant or by the restoration of a wooded area. It seems clear that the nation organizing the sale should not count these loans in its own climate objectives. If allowed, this would result in a double count of these emission reductions, jeopardizing efforts to reduce CO2 emissions. “ensures that a portion of the revenue from activities under the mechanism under paragraph 4 is used to cover the costs of adapting administrative expenditure and to assist parties to developing countries that are particularly vulnerable to the adverse effects of climate change.” The Article 6.4 mechanism effectively replaces the Clean Development Mechanism (CDM) of the Kyoto Protocol. The CDM and other KYOTO CO2 trade agreements have long been the subject of controversy and accusations of “hot air production.” In other words, emission reductions that have virtually no value, because they would have already occurred. “Some countries and stakeholders are concerned that [the transfer of credits from Kyoto to Article 6.4] may overpert the market under the Paris Agreement and have expressed concerns about the robustness of the CDM`s rules with respect to the quality of the RSPs issued.” Simply put, the first mechanism would allow a country that has passed on its Paris climate promise to sell any over-execution to a nation that is not at odds with its own objectives.

This over-execution could be done in terms of reducing emissions, but could also cover other types of targets. Some countries have set targets, for example, for renewable energy capacity or forest development. However, many parties, particularly those concerned with the integrity of these carbon markets and their ability to release more emissions, may not be willing to compromise in the interests of an agreement in Madrid. The final mechanism of Article 6 for “non-market approaches” is less precisely defined, but it would provide a formal framework for climate cooperation between non-trade countries, such as development assistance. The mandates of the A6.2 and A6.4 focus on the main objective of the mechanisms: to achieve a cost-effective reduction in greenhouse gas emissions rather than creating carbon markets for themselves. One of the risks is that market mechanisms can easily become withdrawal mechanisms, or worse, poor design can create ways to avoid measures and increase total emissions that go beyond what would otherwise have been done without the mechanism.

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