Quick Facts on Article 6 - Market Mechanisms

This briefing paper has deliberately taken a step back to focus on a fundamental question regarding market mechanisms – namely what are the justifications for the continuation of market instruments post 2020? We have highlighted a range of potential benefits from the perspective of the buyer (i.e. lower compliance costs) and seller (i.e. capacity building / technology transfer) of ITMOs as well as the potential upside for the environment (i.e. net reductions in global emissions). However, these benefits can only be fully realised if the design of future market mechanisms under Article 6 avoid the risks that could ultimately undermine the environmental integrity of the PA. This will require learning from past mistakes and ensuring that safeguards are put in place to limit the transfer of potential hot air. If the market is harnessed correctly (i.e. perverse incentives are avoided), the market mechanisms under Article 6 could successfully work in tandem with the global stocktake to increase ambition levels amongst the Parties in future years.

Main report and case studies

• Germany’s international cooperation on carbon markets: Status and prospects in select partner countries

• Germany‘s carbon market cooperation with Ethiopia: Prospects for engaging with Article 6 of the Paris Agreement

• Germany‘s carbon market cooperation with Ukraine: Prospects for engaging with Article 6 of the Paris Agreement

• Germany‘s carbon market cooperation with Viet Nam: Prospects for engaging with Article 6 of the Paris Agreement