Moving Towards Next Generation Carbon Markets Observations From Article 6 Pilots

Climate Focus, Perspectives Climate Group

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Abstract: The Paris Agreement (PA) has established a long-term future for carbon markets through Article 6. Article 6 international market mechanisms, in conjunction with domestic market-based policy instruments, are poised to play a central role in delivering the nationally determined contributions (NDC) of many countries. The central premise of these instruments is that they allow economically efficient greenhouse gas (GHG) reductions to be harnessed through international cooperation, thereby enabling more ambitious climate action. At the same time, both international and domestic carbon markets have also been mired by controversy as their effectiveness and integrity depend on carefully crafted rules and compliance mechanisms. While multilateral rules have yet to be finalized, Article 6 is already moving toward conceptualizing and implementing practical pilot activities from which important early experiences and observations can be drawn. This study provides a comprehensive overview of these ongoing Article 6 pilots. To set the scene, we provide a brief overview of the evolution of carbon markets related to the UNFCCC process, followed by an update on the ongoing negotiations to finalize the Article 6-related aspects of the PA rulebook. We then illustrate what types of pilot activities are emerging and reflect on their early experiences. An annex with factsheets providing key information on all of the covered pilot activities concludes this study.