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The global carbon market

Emissions trading schemes can be introduced at various levels (international, national, subnational) and, depending on their design, can cover either businesses or governments. Under the Kyoto Protocol, an international emissions trading scheme was created in which national governments participated in certificates trading: the Protocol sets both a common emissions ceiling along with individual targets for Annex B countries and enables direct trading between them. The Kyoto Protocol also saw the introduction of the first two internationally recognised crediting mechanisms: Joint Implementation (JI) and the Clean Development Mechanism (CDM). It was especially with the CDM that valuable initial experience was gained – more than 8,000 emission reduction projects have been registered under the CDM so far.

Prices had dropped dramatically in recent times due in part to the fact that the EU Emissions Trading Scheme – once the most important source of demand for emissions certificates generated with the flexible mechanisms of the Kyoto Protocol – had almost ceased to generate certificate demand. The market had also suffered due to the uncertainty regarding the future of registered projects and of the market as a whole. An introduction to the discussion on the future of the CDM can be found here.

With the Paris Agreement and its Article 6, which will apply from 2020, the global carbon market has finally regained a long-term perspective. Under the Paris Agreement, Parties have agreed for the first time that all countries must push forward with legally binding climate action. All countries are required to draw up national emission reduction targets – called nationally determined contributions (NDCs) – which they must regularly submit to the UNFCCC. The actual targets and the associated levels of ambition are, however, left to the countries to decide. It was also agreed that each new NDC must be more ambitious and exceed its predecessor. The Paris Agreement offers Parties the opportunity to cooperate with one another when implementing their NDCs. The cooperation mechanisms enshrined in Article 6 of the Paris Agreement are designed to assist this process and should not only make it easier to achieve existing reduction targets, but also to raise ambition in future efforts and to promote sustainable development. For more details on the different cooperation possibilities under Article 6 and the current decision situation, please click here.

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