The historic Paris Agreement adopted in December 2015 represents 196 countries’ best plan for avoiding the worst impacts of climate change and the strongest signal yet that the international community may rise to this existential global challenge. A month after the agreement was reached, climate scientists confirmed that 2015 was the hottest year since modern climate record keeping began in 1880, shattering previous records.
The Paris Agreement is different from previous attempts to strike an international deal on climate in that it requires all countries, not just those deemed to be “developed,” to submit national climate plans. Its Article 6 creates the space for a market-based mechanism that would allow countries to trade internationally transferred mitigation outcomes (known as “ITMOs”).
Unlike the Clean Development Mechanism (CDM), which was created for developed countries to purchase emissions reductions units from developing ones, a market-based mechanism under the Paris Agreement could potentially include any country, and transfers could flow in any direction. Any transfer of emissions reductions among parties must therefore ensure that ITMOs are clearly defined and that each emissions reduction is counted only once. Such a market-based mechanism would not fully go into effect until 2020 when countries become accountable for their national contributions to the global effort, but its rules will be debated over the coming years. The Paris Agreement also leaves the door open for the many bottom-up market-based mechanisms. Emissions reductions units created through domestic markets would not fall under UNFCCC rules unless they were traded internationally, and some jurisdictions may even choose to incorporate offsets originally developed for the voluntary markets.
Still, a key question with all of these developments – perhaps the key question – is what the role of voluntary carbon offsetting will be in a world in which nearly every country is effectively under a compliance agreement to reduce emissions. No matter what the compliance targets, there will always be companies that want to demonstrate “above-and-beyond” action as part of a corporate social responsibility strategy, or simply because their leadership has seen the (climate change) writing on the wall and wants to do everything it can to preserve a livable planet.
Source: Raising Ambition: State of the Voluntary Carbon Markets 2016, by Forest Trends’ Ecosystem Marketplace (EM).