When less is more: limits to international transfers under Article 6 of the Paris Agreement

International carbon markets can be an important tool in achieving countries’ mitigation targets under the Paris Agreement, but they are subject to a number of environmental integrity risks. An important risk is that some countries have mitigation targets that correspond to higher levels of emissions than independent projections of their likely emissions.

If such “hot air” can be transferred to other countries, it could increase aggregated emissions and create a perverse incentive for countries not to enhance the ambition of future mitigation targets. Limits to international transfers of mitigation outcomes have been proposed to address this risk.

This article proposes a typology for such limits, explores key design options, and tests different types of limits in the context of 15 countries. Its analysis indicates that limits to international transfers could, if designed appropriately, prevent most of the hot air contained in current mitigation targets from being transferred, but also involve trade-offs between different policy objectives.

Given the risks from international transfer of hot air and the uncertainty over whether other approaches will be effective in ensuring environmental integrity, this paper recommends that countries take a cautious approach and pursue a portfolio of approaches to ensure environmental integrity, in which case limits could provide for additional safeguards.