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Published on 31/05/2016

What role do carbon markets play in the Paris Agreement?

On 12 May 2016, GRET organised a workshop for Coordination SUD on the future of the flexibility mechanisms of the Kyoto Protocol within the Paris Agreement (adopted at the last Conference of the Parties on climate change – COP21 in December 2015). Prior to the inter-sessional meetings of COP22 in Bonn devoted to implementing the agreement, the role of carbon markets in the future climate regime was examined with a panel of experts.

Before entering into the debate, a brief background. The Kyoto Protocol was adopted in 1997 and entered into force in 2005. It is an international agreement that sets mandatory targets in terms of reducing greenhouse gas emissions in industrial countries that are responsible for climate change. The second commitment period ends in 2020. The Paris Agreement, adopted on 12 December 2015 at COP21 by 165 countries, which could be ratified in 2018, lays the foundations for a post-Kyoto climate regime. It is based on the implementation of national contributions, i.e. the commitments that the signatory countries made in favour of the fight against climate change in terms of attenuation of greenhouse gas emissions and adaptation to the effects of climate change.

To make it possible to achieve industrial countries’ targets in a cost-effective manner, the Kyoto Protocol includes an international system for trading greenhouse gas emissions allowances, as well as two project mechanisms consisting of funding reductions of emissions in another country in exchange for credits to contribute to a country reaching its own national targets. This is called carbon offsets. In countries that have a Kyoto target, these mechanisms are termed “Joint Implementation” or JI, and in developing countries they are “Clean Development Mechanisms” or CDM.

Following the European system for trading allowances, approximately forty regional compliance markets emerged, but enthusiasm for the projects had decreased by the end of the first Kyoto commitment period, due to a lack of visibility of the outlook post-Kyoto. There is no agreement on forestry carbon offsets in the European market. The principle of an international mechanism to remunerate avoiding deforestation has been the subject of discussions since 2007, initiated by countries where the change in use of these lands is the main source of emissions. In the absence of a legal framework, an increasing number of REDD+ (Reducing Emissions from Deforestation and Forest Degradation) pilot projects are being set up and are now giving way to jurisdictional programmes (at federated state or provincial level). To date, the only possible outlets for carbon offsets generated by these projects are voluntary markets (that meet CSR policy objectives, not binding targets) with limited absorption capacity.

And in the Paris Agreement? On 8 April 2016, GRET, Geres and CCFD – Terre solidaire represented Coordination Sud during a meeting with Dimitar Nikov and Jean-Paul Torre, members of the French team of negotiators at the Climate Convention. The discussions focused on the outlook for the forthcoming technical meetings (SBSTA) of the Convention and the scope of articles 5 and 6 of the Paris Agreement in preparation for the workshop.

The expression “carbon market” is not explicitly referred to in the text of the agreement. But article 6 provides for:

  • the interconnection of existing carbon markets under the “transfer of attenuation results” category, whose type and the methods of which remain to be defined,
  • a new sustainable development mechanism under the United Nations Convention on Climate Change (UNFCCC) replacing the flexibility mechanisms of the Protocol,
  • a non-market mechanism promoting holistic approaches.

Although article 5 of the agreement calls for results-based payments to support REDD+, it does not rule on the eligibility of international compensation mechanisms for forestry carbon offsets generated by its implementation, thus expanding outlets for REDD+ projects and programmes aiming to generate negotiable offsets.

During the workshop on 12 May, Matthieu Wemaëre (a lawyer specialised in climate law and adviser to the Moroccan presidency for COP22) presented the similarities and differences between the Protocol and the Agreement. Aki Kachi (International Political Director) and Alain Karsenty (socio-economist with Cirad) respectively presented critical assessments of the implementation of CDM and REDD+. Benoît Leguet (Director with I4CE) outlined options for recycling CDM methodologies.

GRET is preparing an analysis brief on the issues of implementation of these mechanisms, on the legal scope of article 6 in light of the mechanisms created by the Kyoto Protocol, an assessment of the implementation of these mechanisms and of Redd+, and the issues of operating the agreement. This brief will be published in the collection of briefs produced by the Coordination SUD Climate Commission, within which GRET is coordinating this project.

More information (in French)
More information on Coordination SUD’s climate positions (in French)