Implications for environmental integrity of carbon markets under Article 6 of the Paris Agreement

Averaging or multi-year accounting?

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Single-year targets present considerable challenges if countries use international carbon markets to achieve their Nationally Determined Contributions (NDCs) under the Paris Agreement. This paper assesses the environmental integrity implications of the two main options – averaging and multi-year approaches – for accounting for internationally transferred mitigation outcomes (ITMOs) under Article 6 of the Paris Agreement. The paper finds that the choice of the accounting approach affects the mitigation effort needed by countries to achieve a given NDC target. Averaging is found to be a problematic accounting approach, for two main reasons: First, it can lead to higher aggregated emission compared to the situation that the countries would not engage in international carbon markets. Second, under averaging, year-on-year fluctuations in emissions, as commonly observed by countries, involve considerable uncertainty for countries in terms of the number of ITMOs needed or available for transfer. The paper recommends that countries engaging in Article 6 move over time towards robustly defined multi-year targets or trajectories and that the risks associated with inflating multi-year trajectories be addressed through international guidance on the establishment of trajectories.