Carbon markets under the Paris Agreement: how can environmental integrity be ensured?

Blockchain solutions for carbon markets are nearing maturity

Carbon Trading: Who Gets What, When, and How?

Under the Paris Agreement, Parties must track the implementation and achievement of their nationally determined contributions (NDCs). In many cases, NDC targets are expressed as a greenhouse gas (GHG) emissions level and their implementation and achievement is tracked through national GHG inventories. To achieve their targets, it is thus essential for countries that the effects of mitigation measures are visible in their inventories. Inventory visibility is understood as the degree to which a change in GHG emissions or removals resulting from mitigation actions is reflected in GHG inventories. Inventory visibility can be assessed by identifying which emission sources and gases are affected by a mitigation action, determining the minimum inventory methods required for reflecting the related emission reduction, and identifying the completeness of and methods used by the current GHG inventory. In addition, it is useful to identify potential differences with the quantification approaches used under carbon market mechanisms. Inventory visibility is found to be generally high for measures that reduce CO2 emissions from fossil fuel combustion, while in parts of the industrial processes sector and in the forestry sector there is a higher risk that emission reductions are not visible. An analysis of the portfolio of Clean Development Mechanism projects shows that for most projects this risk is low; only 8% of the carbon credit supply potential is assessed to have a medium risk and 5% is assessed to have a high risk. However, as future carbon market mechanisms under Article 6 of the Paris Agreement may need to tap more into project types with medium to higher risk of non-visibility, national GHG inventory systems may need to be strengthened to assure visibility of mitigation projects.

ABSTRACTThe Paris Agreement establishes provisions for using international carbon market mechanisms to achieve climate mitigation contributions. Environmental integrity is a key principle for using such mechanisms under the Agreement. This paper systematically identifies and categorizes issues and options to achieve environmental integrity, including how it could be defined, what influences it, and what approaches could mitigate environmental integrity risks. Here, environmental integrity is assumed to be ensured if the engagement in international transfers of carbon market units leads to the same or lower aggregated global emissions. Four factors are identified that influence environmental integrity: the accounting for international transfers; the quality of units generated, i.e. whether the mechanism ensures that the issuance or transfer of units leads to emission reductions in the transferring country; the ambition and scope of the mitigation target of the transferring country; and incentives or disincentives for future mitigation action, such as possible disincentives for transferring countries to define future mitigation targets less ambitiously or more narrowly in order to sell more units. It is recommended that policy-makers combine several approaches to address the significant risks to environmental integrity.Key policy insightsRobust accounting is a key prerequisite for ensuring environmental integrity. The diversity of nationally determined contributions is an important challenge, in particular for avoiding double counting and for ensuring that the accounting for international transfers is representative for the mitigation efforts by Parties over time.Unit quality can, in theory, be ensured through appropriate design of carbon market mechanisms; in practice, existing mechanisms face considerable challenges in ensuring unit quality. Unit quality could be promoted through guidance under Paris Agreement Article 6, and reporting and review under Article 13.The ambition and scope of mitigation targets is key for the incentive for transferring countries to ensure unit quality because countries with ambitious and economy-wide targets would have to compensate for any transfer of units that lack quality. Encouraging countries to adopt ambitious and economy-wide NDC targets would therefore facilitate achieving environmental integrity.Restricting transfers in instances of high environmental integrity risk – through eligibility criteria or limits – could complement these approaches.

Under the Paris Agreement, countries must articulate their most ambitious mitigation targets in their Nationally Determined Contributions (NDCs) every five years and regularly submit interconnected information on greenhouse gas (GHG) aspects, including national GHG inventories, NDC progress tracking, mitigation policies and measures (PAMs), and GHG projections in various mitigation scenarios. Research highlights significant gaps in the definition of mitigation targets and the reporting on GHG-related elements, such as inconsistencies between national GHG inventories, projections, and mitigation targets, a disconnect between PAMs and mitigation scenarios, as well as varied methodological approaches across sectors. To address these challenges, the Mitigation-Inventory Tool for Integrated Climate Action (MITICA) provides a methodological framework that links national GHG inventories, PAMs and GHG projections, applying a hybrid decomposition approach that integrates machine learning regression techniques with classical forecasting methods for developing GHG emission projections. MITICA enables mitigation scenario generation until 2050, incorporating over 60 PAMs across Intergovernmental Panel on Climate Change (IPCC) sectors. It is the first modelling approach that ensures consistency between reporting elements, aligning NDC progress tracking and target setting with IPCC best practices while linking climate change with sustainable economic development. MITICA’s results include projections that align with observed trends, validated through cross-validation against test data, and employ robust methods for evaluating PAMs, thereby establishing its reliability.

This article quantifies the net aggregate impact in 2030 of commitments by individual non-state and subnational actors (e.g. regions, cities and businesses, collectively referred to as ‘NSAs’) to reduce greenhouse gas (GHG) emissions. The analysis was conducted for NSAs operating within ten major emitting economies that together accounted for roughly two-thirds of global GHG emissions in 2016. Our assessment includes 79 regions (e.g. subnational states and provinces), approximately 6,000 cities, and nearly 1,600 companies with a net emissions coverage of 8.1 GtCO2e/year, or a quarter of the ten economies’ total GHG emissions in 2016. The analysis reflects a proposed methodology to aggregate commitments from different subnational (i.e. regional and city government) and non-state (i.e. business) actors, accounting for overlaps. If individual commitments by NSAs in the ten high-emitting economies studied are fully implemented and do not change the pace of action elsewhere, projected GHG emissions in 2030 for the ten economies would be 1.2–2.0 GtCO2e/year or 3.8%–5.5% lower compared to scenario projections for current national policies (31.6–36.8 GtCO2e/year). On a country level, we find that the full implementation of these individual commitments alone could result in the European Union and Japan overachieving their nationally determined contributions (NDCs), while India could further overachieve its unconditional NDC target. In the United States, where the national government has rolled back climate policies, NSAs could become a potential driving force for climate action. Key policy insights Full implementation of reported and quantifiable individual commitments by regions, cities and businesses (NSAs) in ten major economies could reduce emissions by 3.8%–5.5% in 2030 below current national policies scenario projections. National governments’ mitigation targets could be more ambitious if they would take NSA commitments into account. With full implementation of such action, the European Union and Japan would overachieve their NDC targets. For the United States such action could help meeting its original 2025 NDC target in spite of rollbacks in national climate policies. The full universe of NSA climate action expands far beyond the subset of commitments analysed in this study; NSAs could become a strong driving force for enhanced action towards the Paris climate goals.

The effectiveness of the Paris Agreement in achieving its global temperature goal relies on countries adopting ambitious mitigation targets and introducing corresponding measures. But do countries adopt such corresponding climate policies? This paper introduces two Vertical Policy Harmonization Indices, which quantify the gap between a country’s nationally determined contribution (NDC) mitigation pledge and its national mitigation policies. These indices incorporate three dimensions of climate policymaking: emission reduction targets, the sectors covered by those targets, and the policy instruments introduced to reduce emissions. By focusing on policy instruments and mixes, we adopt a novel public policy approach for the harmonization assessment. While the Target Index compares the level and scope of reduction targets in the NDCs and national policies of 105 countries, covering approximately 91% of global greenhouse gas (GHG) emissions, the Policy Effort Index also incorporates a comprehensive evaluation of the policy mix of selected countries. With the Policy Effort Index, we investigate 37 countries, covering over 70% of global GHG emissions. The indices show that three-quarters of the 105 countries have so far failed to translate their NDC targets into national policy. The remaining quarter has harmonized or even more ambitious national policies. Furthermore, countries show the most complete national policy mix in their most GHG-intensive sector, usually the energy sector. These insights demonstrate the indices’ potential for enabling future research explaining the deviations between countries’ domestic actions and their international pledges and evaluating the effectiveness of the progression mechanism as countries update their NDCs.

Regional impacts of launching national carbon emissions trading market: A case study of Shanghai

From 2021, an increasing percentage of the carbon emission growth in international air transport will be subject to offsetting under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Presently, it is still unclear if, and how, the existing EU emissions trading scheme (ETS) for aviation will continue. We assess the environmental impacts of different options (not) to continue with the EU ETS for aviation alongside CORSIA, and also discuss resulting monitoring, reporting, and verification (MRV) requirements. Our results indicate that any form of continuation of the EU ETS would have positive environmental effects especially in the early 2020s, when the coverage and environmental impact of CORSIA, which only tackles any post-2020 emission growth in international aviation, will still be low. If, moreover, a certain failure of CORSIA Certified Emission Reductions (CERs) to actually achieve emission reduction elsewhere is assumed, the environmental net benefit of CORSIA will be even lower. From both the policy and economic perspectives, these aspects may further strengthen the need to continue with the EU ETS for aviation. Possible options are to maintain the EU ETS in operation for domestic flights only, as a complement to CORSIA, or to keep it alive even for international flights within the European Economic Area (EEA), replacing CORSIA there as an equivalent measure. Another option to increase the environmental effectiveness of CORSIA, at least to some extent, could be to voluntarily extend it to domestic EEA flights. Administrative-wise, the CORSIA MRV system could be applied to a continued EU ETS to reduce transaction costs and to assure globally similar or even identical MRV standards, e.g., with regard to exemptions and eligible fuel monitoring methods.

In this paper, we adopt a computable general equilibrium model to investigate the impacts of achieving Taiwan’s target of nationally determined contributions (NDC). We consider two types of scenarios: one implemented with the emission trading system (ETS) and the other designed under cap without trade. Our findings suggest that Taiwan’s NDC target is achievable in two policies but with different economic costs. On the one hand, ETS reconciles the demand and supply for emission allowances. More participants in the ETS increase the chance that a buyer can match the seller; moreover, the carbon price is lower. On the other hand, in the cap-without-trade scenario, industrial sectors have to pay higher prices for emission allowances if there is no market for emission–allowance exchanges. Furthermore, we find that the initial distribution of free emission allowances affects not only sectoral emissions but also GDP loss. In 2030, the GDP loss ranges from 1.8 to 2.2% in the cap-without-trade scenario and around 1.8% in the ETS. Therefore, the ETS helps achieve Taiwan’s NDC target with a lower economic loss. Taiwan, an independent energy system isolated from other countries or regions, can achieve its NDC target with the launch of ETS.

The Paris Agreement establishes provisions for using international carbon market mechanisms to achieve nationally determined contribution (NDCs). In international negotiations on the rules governing the Agreement, an important question is whether and under which conditions mitigation outcomes that are not covered by the scope of NDCs should be eligible for international transfer and use by another country to achieve its NDC. Allowing the transfer and use of outside-scope mitigation could facilitate the identification of mitigation potential and reduce the costs of achieving NDCs. It could, however, also provide disincentives for countries to enhance the scope of their NDCs, be perceived as unfair towards countries with similar circumstances and economy-wide targets, reduce countries’ incentives to ensure the quality of carbon market units generated, and lead to double counting. To address these concerns, international rules could: require transferring countries to account for such transfers by applying ‘corresponding adjustments’ even though the emission reductions occur outside the scope of NDCs, or to bring relevant sectors and greenhouse gases into the scope of their next NDCs; adopt safeguards for unit quality, e.g. through international oversight or strict additionality tests; impose other restrictions; and/or require countries to quantify and specify the scope of their NDC in terms of sectors and greenhouses gases covered. Key policy insights: Not allowing the transfer of outside-scope mitigation outcomes, or allowing such transfers without a corresponding adjustment by the transferring country, would both require determining whether a mitigation outcome occurs within or outside the scope of NDCs, which can be difficult in some instances. Requiring corresponding adjustments for outside-scope mitigation is more easily implemented than other options seeking to address possible disincentives for broadening the scope of NDCs but could discourage countries from engaging in outside-scope transfers. Providing temporary exemptions, accompanied by other safeguards such as international oversight and strict additionality tests, may therefore be an appropriate means of giving countries time to build capacity and gather data and to expand their NDCs in the future. Which exemptions apply, and for how long, are important policy choices when balancing different goals, perspectives and practical implementation challenges.

In this paper, we compare 2015 satellite-derived natural gas (gas) flaring data with the greenhouse gas reduction targets presented by those countries in their nationally determined contributions (NDC) under the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement. Converting from flaring to utilization is an attractive option for reducing emissions. The analysis rates the potential role of reduction of gas flaring in meeting country-specific NDC targets. The analysis includes three categories of flaring: upstream in oil and gas production areas, downstream at refineries and transport facilities, and industrial (e.g., coal mines, landfills, water treatment plants, etc.). Upstream flaring dominates with 90.6% of all flaring. Global flaring represents less than 2% of the NDC reduction target. However, most gas flaring is concentrated in a limited set of countries, leaving the possibility that flaring reduction could contribute a sizeable portion of the NDC targets for specific countries. States that could fully meet their NDC targets through gas flaring reductions include: Yemen (240%), Algeria (197%), and Iraq (136%). Countries which could meet a substantial portion of their NDC targets with gas flaring reductions include: Gabon (94%), Algeria (48%), Venezuela (47%), Iran (34%), and Sudan (33%). On the other hand, several countries with large flared gas volumes could only meet a small portion of their NDC targets from gas flaring reductions, including the Russian Federation (2.4%) and the USA (0.1%). These findings may be useful in guiding national level efforts to meet NDC greenhouse gas reduction targets.

Under a new climate regime, parties can voluntarily participate in cooperative approaches that include internationally transferred mitigation outcomes (ITMO) and use them in the achievement of mitigation targets in their nationally determined contributions (NDCs) on the basis of Article 6.2 of the Paris Agreement. This leaves room for parties to accomplish their NDC targets in a flexible way, but robust accounting needs to be applied in order to avoid double counting of ITMO transferred and used for NDCs between participating countries. This way of robust accounting is called corresponding adjustment. Specific implementation rules on Article 6 of the Paris Agreement were finally fleshed out in November 2021 at the 3rd conference of the parties to the Paris Agreement, and the methods and procedures to apply corresponding adjustment were also formulated. Previous studies on corresponding adjustment explored i) fundamental principles, ii) design elements (such as timing, accounting metric, target standard, reporting, NDC timeframe, etc.), and iii) diverse methods that have to be considered in the formulation of the most appropriate rules of corresponding adjustment. Now that we have specific rules, it is time to explore the ways to apply corresponding adjustment at the national level in the most appropriate way. Therefore, this paper attempts to analyze the specific implementation rules on corresponding adjustment, explore the policy-wise points of consideration for national application, and finally draw out the most appropriate policy responses. For this, specific implementation of rules on corresponding adjustment are classified into three categories: i) corresponding adjustment method and application, ii) acquisition tracks of ITMO as a subject of corresponding adjustment, and iii) reporting and risk of corresponding adjustment. This paper concludes by summarizing policy implications for the appropriate paths forward regarding Korea’s application of corresponding adjustment in the future.


 
 
 This paper analyzes the international climate protection instrument Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which is based on the International Civil Aviation Organization (ICAO) Assembly No. A39-3, and its relation to the European Union Emissions Trading System (EU-ETS) in aviation, which is based on Directive 2008/101/EC. It is still unclear whether or to what extent the already existing EU-ETS in aviation can continue due to CORSIA. Questions regarding the implementation, enforcement and practicability of the climate protection instruments remain. The aim of this paper is to present a comparative analysis of the two climate protection instruments. In particular, to explore the question of the legal relationship between CORSIA and the EU-ETS in aviation as well as the legal compatibility of the two climate protection instruments is essential. It will also explore how the European Union (EU) and especially Germany intends to implement CORSIA in parallel to the EU-ETS in aviation. Germany actively participates in international and European discussions and contributes towards harmonizing the implementation of CORSIA with the EU-ETS, however, implementing CORSIA raises environmental concerns and brings challenges due to conflicting European and international rules. Therefore, this paper explores how Germany manages these conflicts and strives to strike a balance between regional and global approaches to mitigate the environmental impact of aviation. This conceptual paper analyzes relevant international, European, German legal instruments and textbooks, journal articles, academic works, and reports.
 
 

Accounting for Nationally Determined Contributions (NDCs) under the Paris Agreement is needed to allow Parties to track individual progress towards their own mitigation-related NDC targets, understand others’ NDC targets and their progress toward them, and assess collective progress towards the long-term mitigation goal. This paper aims to assist Parties and stakeholders in framing thinking around the nature of accounting for mitigation targets given the diversity of target types in NDCs, and also to discuss how accounting guidance could be applied at various stages in the NDC cycle. It provides a summary and unpacking of the key accounting provisions under the Paris Agreement and Decision text, discusses the implications of the range of NDC target types, then discusses the particular issues of accounting for co-operative approaches and for the land sector. It then explores how accounting guidance may be applied within the NDC cycle.