EMC Working Papers

In 2015, under Article 6 of the Paris Agreement, two new international carbon markets were decided on. During COP26 in Glasgow, technicalities and guidelines for these new markets were finalised, which allows for the full implementation of the Paris Agreement.

Voluntary cooperation to achieve climate goals

Under Article 6.2 of the Paris Agreement, the first carbon market allows countries to voluntarily trade greenhouse gas (GHG) reductions or sequestration amongst each other. A country that has overachieved its climate pledges can sell the extra emission reductions to another country, which can use them to reach its own climate targets.

Under Article 6.4, the second mechanism creates a carbon market where emission reductions from either states or private entities can be traded, and which will be governed by a UN body.

Generally, trading GHG reductions can help countries and private entities to efficiently meet their emission reduction targets, which for countries are known as nationally determined contributions (NDCs).