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Carbon markets in the Paris Agreement - an early holiday gift
07 January 2016

Carbon markets in the Paris Agreement - an early holiday gift

Vikram Widge, World Bank "Development in a changin climate" 17 December, 2015.

Last Saturday, UN climate negotiators from 195 countries agreed on a historic climate change accord in Paris after two weeks of intense negotiations. While many of us were hoping for a hook that would support the use of markets, we were happily surprised to see the extent and detail on carbon markets that was ultimately included in the Paris Agreement.

The agreement acknowledges that markets are needed to get countries on a low emissions development pathway and enhance ambition to keep warming to well below 2 degrees. It paves the way for a renewed international carbon market that will look and be different. Carbon Markets 2.0, if you will.

The World Bank Group’s consistent engagement in the past few years positions it as a desirable partner in the discussions on the design of a future market architecture, as well as a partner of choice to help client countries implement market-based carbon pricing approaches and deliver on their nationally determined contributions (NDCs).

Among other aspects, the agreement and accompanying decision include:

1) Recognition of voluntary cooperation to implement NDCs and achieve lower emissions using ‘internationally transferred mitigation outcomes’ or ITMOs – a new class of carbon assets;

2) Support for results-based payments to implement policy approaches; and

3) A UNFCCC-governed mechanism that will support mitigation and sustainable development post-2020, which enables international transfers of emission reductions while delivering overall mitigation in global emissions. That last bit will make it very different from the Clean Development Mechanism (CDM), but will be informed by the breadth of experience that the CDM helped create.

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