The Paris Agreement offers Parties the opportunity to cooperate with one another when implementing their nationally determined contributions (NDCs). The cooperation mechanisms enshrined in Article 6 of the Paris Agreement form the legal framework to allow use of market-based climate change mitigation mechanisms.
The Paris Agreement contains a range of principles which apply when Parties intend to use cooperation mechanisms to achieve their NDCs:
After years of negotiations, the Parties agreed on a set of rules for Article 6 at the Climate Change Conference in Glasgow (COP26). Detailed provisions are now available for all three different approaches to international cooperation.
Under Article 6.2, Parties can cooperate directly with one another (Article 6.2). This makes it possible for emission reduction measures to be implemented in one country and the resulting emission reductions to be transferred to another and counted towards its NDC. This requires a transparent process and accurate accounting of the emission reductions achieved. The new rules prohibit emission reductions from being counted more than once – for instance, in the emissions inventory of the country in which the reduction activities are conducted and also in the country to which the resulting emission reductions are transferred. It also enables national and regional instruments such as the EU Emissions Trading Scheme to be linked to similar schemes to create a common, cross-border carbon market. While international supervision of these cooperation activities is not foreseen, comprehensive reporting and accounting requirements have been introduced. This also aims to ensure sustainable development benefits and to avoid negative impacts. For example, the states involved in the mitigation activity have to provide information that the activity is compatible with the sustainable development goals of the host country, how negative impacts are avoided and that human rights and other rights are respected.
A second cooperation option involves the use of the newly created mechanism to contribute to the mitigation of greenhouse gases and support sustainable development (Article 6.4), which is a successor of the Clean Development Mechanism (CDM) of the Kyoto Protocol. As with the bilateral cooperation approaches provided for under Article 6.2, the emission reductions achieved using this mechanism can be transferred from the country in which they were achieved to another country and counted towards its NDC. In contrast to direct bilateral cooperation under Article 6.2, this mechanism will be supervised by a body designated by the Conference of the Parties. In addition, the Conference of the Parties adopted rules, modalities and procedures which must be observed when implementing activities under Article 6.4. Thus, standardised procedures are followed in the design and implementation of emission reduction activities and when verifying the results achieved. Activities, for example, must first be approved by the host country before they can be registered with the Supervisory Body after successful validation by an independent verification organisation. Another unique aspect of the mechanism is its goal of mobilising the private sector to participate in climate change mitigation by providing suitable incentives. The Paris Agreement will thus offer actors at sub-national level an opportunity to directly use the mechanism established under Article 6.4.
The Paris Agreement not only requires that the mechanism result in raised ambition. In addition, use of the mechanism should also lead to an overall net reduction in global greenhouse gas emissions (contribution to overall mitigation). It has been determined that 2% of the emission reduction certificates will be cancelled in a transaction to ensure that overall global emissions are reduced in this way. In addition, activities under Article 6.4 must make financial contributions to the Adaptation Fund, as they previously did under the CDM.
With a view to possible negative social and environmental impact, the establishment of an independent grievance mechanism was decided at COP26. Complaints from individuals and communities who are negatively affected by the mitigation activity will thus be investigated by an independent body. Similar to Article 6.2, the rules for Article 6.4 include requirements for reporting on the sustainable development impacts of the host country.
As a concession to some Parties, old CDM emission reduction allowances may also be used to a limited extent for achievement of climate change commitments under the Paris Agreement. CDM activities can be transferred to the new mechanism under Article 6.4, provided they meet the relevant requirements and are approved by the host countries.
As a third option, use of non-market-based approaches is provided for under Article 6.8. As the name suggests, market-based climate change mechanisms play no role at all. During the COP26 negotiations, it was decided to establish a Committee on Non-Market Approaches (NMA) to implement the work programme of Article 6.8 until 2027. The committee will identify and take action to promote NMAs in specific "priority areas". The initial priority areas of the work programme include: "Adaptation, resilience and sustainability", "Mitigation actions to address climate change and contribute to sustainable development" and "Clean energy development". Other priority areas may be added in the future.