LONDON/WASHINGTON DC, 14 April – The use of market mechanisms can help governments cut emissions even more than the minimum amounts offered in pledges under the Paris Agreement, according to a new report by IETA and Environmental Defense Fund.
With national leaders set to sign the Paris Agreement on 22 April and signalling their commitment to taking it forward, this new analysis highlights an important economic underpinning to its ultimate success. The paper analyses the 188 Intended Nationally Determined Contributions (INDCs) for the Paris Agreement and finds that 90 of these plans mention access to a carbon market will be needed to achieve the respective government’s goals. In several cases, the INDC specifies that a greater goal is possible, if market access and climate finance are available.
Since many INDCs represent the minimum of what governments will do to fight climate change, access to an international carbon market could provide the sound economic foundation to allow climate ambition to be raised – while driving costs down.
The Paris Agreement recognises the valuable role of market-based approaches (including the use of internationally transferred mitigation outcomes) in enabling ambitious reductions in climate pollution.1 Next month, climate negotiators will meet in Bonn to begin work on guidance for emissions accounting to further support cross-border transfers of mitigation outcomes, as well as rules governing a mechanism for mitigation and sustainable development.
“Market mechanisms are an important tool in the climate change fight, as their inherent flexibility allows environmental goals to be met faster and at lower cost than old-style regulations,” says IETA CEO and President Dirk Forrister. “As governments make preparations to implement the Paris Agreement, we urge them to accelerate work on the market elements of the agreement and to engage with all stakeholders in a transparent, open manner.
“The business community has a wealth of experience with the world’s carbon markets that policymakers can utilise in forming the rules for the next generation of these systems.”
The paper also considers what the Paris Agreement means for the potential formation of “carbon clubs” to advance climate action. For example, governments could cooperate in the development of rules and standards to ensure the integrity of international emissions trading and to promote greater harmonisation among domestic carbon markets. Numerous economic studies have shown that such cooperation could lower the costs of effective action, leading to even greater emissions cuts than what could be accomplished by countries acting on their own.
“The Paris Agreement was a landmark in the fight against climate change – and the provisions on international cooperation, including through markets, were the unsung hero of the agreement,” says Nathaniel Keohane, Vice President for Global Climate at Environmental Defense Fund.
“Markets have a critical role to play in realising the promise of Paris, by helping countries not only to meet the INDCs they have already announced, but to ratchet up their ambition going forward. The good news is that the Paris Agreement provides all the foundation that countries need to move forward with market-based policies, not only in their domestic actions but also through international cooperation.”
The full paper is available online.
1 See article 6 of the Paris Agreement
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