Market mechanisms that enable the international transfer of greenhouse gas emission permits or emission reduction credits have been part of the international climate regime for two decades. They aim to reduce the cost of achieving mitigation goals by providing flexibility in how and where emissions are reduced.
Article 6 of the Paris Agreement includes provisions for international carbon market mechanisms, allowing countries to use international units to meet their nationally determined contributions (NDCs) and establishing a new crediting mechanism under UNFCCC authority.
Ambitious economy-wide mitigation targets are central to ensuring that international emissions trading supports the goals of the Agreement, as they provide strong incentives for countries to ensure the environmental integrity of units they transfer to others. Targets that are weak or of limited scope, in contrast, could undermine the objectives of Article 6.
Conversely, absent adequate precautions, participation in international market mechanisms could dissuade policy-makers from pursuing ambitious and comprehensive mitigation targets.
Robust accounting for international unit transfers is crucial and will require not only avoiding double counting, but also appropriately accounting for the vintage of emission reductions, oversight on market mechanisms, and transparent tracking of the issuance, transfer and use of units.
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