International market mechanisms after Paris

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The Paris Agreement includes Article 6 with several provisions, which allow for the use of the international carbon market. In this paper, Cooperative Approaches (CA, Art. 6.2-3) and the Mechanism for Sustainable Development and Mitigation (MSDM, Art. 6.4-7) will be considered as the market mechanisms, which constitute the basis of the international carbon market under the United Nations Framework Convention on Climate Change (UNFCCC). The purpose of this paper is to identify the main goals and aims of the international carbon market, take into account the general context and environment for carbon markets under the Paris Agreement, identify and discuss the main issues of the relevant paragraphs and analyse issues of the interaction and relationship of the provisions including synergies and conflicts. The paper aims at facilitating the discussion among UNFCCC parties while, given the dynamic nature of the topic, it can obviously only be a snapshot of the current status of the discussions.

Our analysis suggests that the purpose of international carbon markets has changed. While increasing economic efficiency was more prominent during the first development phase of international carbon markets, raising mitigation ambition may become more important in the phase to come. In terms of the design of the two market mechanisms pursuant to Art. 6.2 and 6.4, negotiations have just started. Many fundamental or more technical questions still have to be negotiated and it is not yet clear which positions individual parties will take. Some of these questions are overarching and are similar for both mechanisms, e.g. the relationship to Nationally Determined Contribution (NDCs) or procedures to ensure robust accounting. Others, such as the nature of the Internationally Transferred Mitigation Outcomes (ITMOs) or governance issues are quite different and very specific for each of the mechanisms.

Contacts for further information: Carsten Warnecke