Market-based approaches of the Paris agreement: Where are we now?
Article 6 of the Paris Agreement (PA) focuses on a framework for countries to voluntarily cooperate using market and non-market based approaches to raise climate ambition. In the process there is also recognition of the need to establish an emissions accounting framework that will promote sustainable development, and environmental integrity.
This discussion paper focuses on the market-based mechanisms of Article 6 (particularly, Art. 6.2 and Art. 6.4). It attempts to provide a discussion around the key areas of deliberation on Article 6 by assessing various country positions and views on the new market-based regime for trading in emissions or mitigation outcomes. This has been done by assessing the last round of submissions (October 2017), then taking into account the emerging areas of discussion at the May 2018 Subsidiary Body for Scientific and Technical Advice (SBSTA) meeting held in Bonn.
The areas of discussions emerging from SBSTA 48 have been captured by interpreting the informal notes. These informal notes were meant to inform the continued intersessional discussions at SBSTA 48-2, to be held in Bangkok, Thailand from 3-8 September 2018.
Among several observations in the conclusion of the report, it is also to be noted that emission reductions outside the scope of NDCs have not been thoroughly discussed in the informals. Potentially, the usage of emission reductions could be applied for the achievement of targets under other carbon pricing initiatives, such as emission trading systems (ETS) at international, regional, national and subnational jurisdictions. Carbon Offsetting Reduction Scheme for International Aviation (CORSIA) and Partnership for Market Readiness (PMR) are examples of carbon pricing initiatives at the international level, and several national level ETSs have launched or are in the process of launching, such as the one in China and the ones launching in Argentina and Singapore. Full discussion on the methods for integrating these existing trading mechanisms into the new mechanism is also wanting. For this purpose, there is a need for extensive market analysis of existing ETSs the size, nature, and volume of demand consumed by such markets along with the development of comprehensive methodologies for a universally relevant MRV structure. This should include a transparent and robust accounting system for host Parties and other Parties under Article 6, which stipulates provisions for avoiding double counting, addresses the need for corresponding adjustments, and nominates the appropriate institutional arrangement to overlook it. The similarity in the method for accounting and measurement between countries will additionally contribute to environmental integrity.