Analysing the interactions between new market mechanisms and emissions trading schemes

Through Article 6, the Paris Agreement offers states the opportunity to use market mechanisms for implementing ambitious climate protection goals. But how could such approaches be designed? And what kind of support do countries need? Following the adoption of the Paris Agreement, the project "Analysing the interactions between new market mechanisms and emissions trading schemes" has addressed these issues and is now delivering results.

Article 6 of the Paris Agreement allows states to cooperate in the implementation of their Nationally Determined Contributions (NDCs). Accordingly, it lays the foundations for post-Paris carbon markets. The conference in Katowice last year aimed to generate agreement about the so-called Paris Rule Book. This sets out the guidelines for implementation of the agreement. Crucially, Article 6 is the only one that is not reflected in this rule book. Therefore, this issue will once again be negotiated at the end of this year at COP25 in Santiago de Chile.

A research project carried out by adelphi on behalf of the Federal Environment Agency (UBA) evaluated how the different provision of Art. 6 can be implemented at the national level. Together with the NewClimate Institut and the Oeko Institut, adelphi examined the dynamic development of global carbon markets in the context of the Paris Agreement. This project analysed distinct country perspectives on Article 6 of the Paris Agreement based on three case studies - Ukraine, Vietnam and Ethiopia. Furthermore, existing options for Germany to help partner countries with developing market instruments were analysed. Lastly, concrete recommendations were formulated through comprehensive country research and stakeholder interviews as well as discussions with experts.

The project concludes that the ability of states to use the mechanisms set out in Article 6 varies substantially. Countries face challenges related to enabling factors, (technical) feasibility and the compatibility with NDCs. Various entry-points for supporting countries and enhancing their readiness for Article 6 are formulated. First, the importance of Article 6 for states needs to be clarified. Second, technical support plays a key role in enabling states to use all kinds of market instruments in the future. Finally, clear answers on the mitigation potential of Article 6 should be identified and incorporated into the NDCs.