Solving the “Paris equation”: The role of carbon markets in meeting the Paris Agreement’s ambitious goals

Source: UN,

Source: Flickr, UN Photo/Mark Garten

As nations around the world consider the results of the historic climate agreement reached at the 21st annual climate talks in Paris last December, one thing is clear: the Paris Agreement is contributing to – and a sign of – growing momentum around the world to address climate change. For the first time in history, nearly all the countries of the world have put forward concrete pledges to cut pollution and address the impacts of climate change on local communities.

Two significant outcomes of the Paris Agreement reflect that momentum:

  1. A more ambitious global goal, in which nations agreed to hold warming to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial levels, and “pursue efforts” to limit warming to no more than 1.5 degrees Celsius (2.7 degrees Fahrenheit).
  2. A requirement that nations come back to the table every five years to strengthen their individual pledges, in order to achieve their collective goal over time.

While the pathway necessary to limit warming to 2.7 or even 3.6 degrees Fahrenheit is not specified by the Paris Agreement, nations did agree that they would achieve a “balance” between anthropogenic (i.e., human-caused) emissions of greenhouse gases (GHGs) and anthropogenic removals by so-called carbon sinks, such as via reforestation or afforestation, “in the second half of this century.” That translates to the following simple equation, which nations agreed to solve no later than 2100:

(anthropogenic emissions of GHGs) – (anthropogenic removal of GHGs by forests and other sinks) = 0

Notably, nations also provided several market- and transparency-related tools that could help solve this “Paris equation”:

  • Provisions that facilitate high-integrity, “bottom-up” linkages of domestic carbon markets to cut carbon pollution. These linkages (described in the Agreement as “cooperative approaches”) promise to reduce costs, and unlock the finance needed to drive deeper global emissions reductions;
  • A new, centralized market mechanism, governed by the UN Framework Convention on Climate Change (UNFCCC), to reduce GHG emissions and contribute to sustainable development; and
  • An enhanced transparency framework, requiring regular reporting and review of all nations’ climate efforts.

These three elements of the Paris Agreement reflect the widespread recognition among nations that carbon markets accompanied by a clear, comprehensive transparency framework will help drive the deep emissions reductions called for by science.

 

What the Paris Agreement means for carbon markets

By affirming a role for carbon markets in international climate cooperation, the Paris Agreement recognizes the realities already on the ground, where emission trading systems are at work in over 50 jurisdictions home to nearly 1 billion people. When China adopts a national carbon trading system, beginning in 2017, that number will rise to 2 billion – almost a third of the world’s population.

Figure 1:  Existing, Emerging, and Potential Carbon Pricing Jurisdictions

And more than half of the world’s countries are using, or plan to use, carbon markets to stimulate the innovation and investment needed to meet their Paris climate pledges.

With the UN now blessing the growing use of bottom-up cooperation between jurisdictions to link their markets and spur greater efficiency, as California and Quebec have done, the challenge now becomes how to accelerate the transparent, high-integrity international cooperation needed to solve the Paris equation.  That cooperation – needed both inside and outside the UNFCCC – is the subject of my next post.

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