Offset market choices

The Paris Agreement, as a global response to climate change, aims to limit global warming to 1.5º. It established binding commitments for all Parties in order to prepare, communicate and maintain a Nationally Determined Contribution (NDC), and apply national measures to achieve them. Article 6 of this Agreement establishes a voluntary international cooperation mechanism, applicable to meet or achieve greater ambition in a country’s NDC. Finally, during COP 26 at Glasgow November 2021, international trading for carbon markets provided an  expected framework since the negotiations led into rules and procedures for Article 6 mechanism to be applicable.

Market and non-market cooperation mechanisms are contemplated. Article 6.2 refers to cooperative approaches, in which Parties could choose to meet their NDCs while using Internationally Transferred Mitigation Outcomes (ITMOs). Article 6.4, for its part, focuses on carbon credits that can be generated in host countries in order to benefit from clean energy and, at the same time, meet the objectives of the Paris Agreement. Apart from that, Article 6.8 not only recognizes the  importance of non-market approaches to assist NDC compliance to promote mitigation and adaptation ambition, but also increases public and private sector participation and offers opportunities for coordination between instruments and relevant institutional arrangements.

Governments have carbon pricing instruments that create carbon markets, such as Emission Trading Systems (ETS) or tax-and-offset hybrid. Some of them accept carbon credits. However, in the course of time, this possibility has been increasing. Undoubtedly, the voluntary cooperation mechanism established in Article 6 of the Paris Agreement opens up new market possibilities. The established market mechanisms create new mixtures for existing markets, blurring the currently-disappearing-line between voluntary and regulated markets.

We expect carbon offsets can be used to meet Paris Agreement goals or voluntary targets. But it depends on country policies. Getting into a clear landmark to know how these new possible markets will certainly require domestic decisions and regulations.

We invite you to read the full original article through this link

Communication ALLCOT