From Homogeneity to Heterogeneity and the Fundamental Question – What Is Being Traded?

Abstract

The current negotiations to develop guidance on cooperative approaches under Article 6, paragraph 2, of the Paris Agreement, provide an opportunity to take stock of the fundamental, yet to date, poorly addressed, question of the nature of what is traded in the carbon market. In undertaking such an exercise, this paper argues that, in the context of Paris Agreement implementation, the value of what is traded is just as an important, if not an even more important consideration. The paper posits a view on how allowance units in emission trading schemes (as mitigation outcomes) should properly be considered and suggests a mechanism for their international trading. This approach highlights an urgent need to devise a methodology for placing a mitigation value on them. This is considered essential, if implementation of the Paris Agreement is to achieve the objectives of climate policy. The private financial sector can play an important role in this, and needs to be engaged.

Keywords: Paris Agreement, mitigation outcomes, mitigation value, Article 6 implementation, emissions trading schemes, nature of emission allowance, financial sector