Article 6, paragraph 2 of the Paris Agreement outlines how Parties must comply with guidance provided by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA) when engaging in “cooperative approaches that involve the use of internationally transferred mitigation outcomes towards nationally determined contributions” (ITMOs).
Although not explicitly outlined as a ‘market’ or ‘flexibility’ mechanism, Article 6, paragraph 2 is broadly understood to mean that a country can use emission reductions from another country towards its own target under the Paris Agreement. This follows the precedent of previous carbon markets, notably the international emissions trading (IET) under the Kyoto Protocol. However, under the new terminology, the carbon market units are called ITMOs instead of Assigned Amount Units (AAUs).
In contrast to the Kyoto Protocol, trading of ITMOs would take place in a radically changed world where Parties have committed to a new 1.5 C degree target, longer term deep de-carbonization, and a new climate regime in which all Parties make a variety of contributions.
However, without limits, rules, robust accounting and oversight, international transfers of mitigation outcomes potentially pose a risk of contaminating ambitious NDCs with hot air carbon units, subsequently undermining environmental integrity and ambition.
At the same time, the window of opportunity to prevent catastrophic climate change is rapidly closing. The remaining carbon budget to limit average temperature increase to well below 2ºC and pursue best efforts to limit the temperature increase to 1.5ºC in the second half of this century leaves calls for urgent action in all sectors: “and-and” strategies.