CARBON MARKETS

CARBON MARKETS

TOPIC: Environment

Context- The COP-26 Summit at Glasgow in November last finally agreed on a “rule-book” for two new carbon market mechanisms that were created in the 2015 Paris Agreement.

Concept-

About Carbon Markets:

• Carbon markets allow for buying and selling of carbon emissions with the objective of reducing global emissions.
• Carbon markets under international law were first set up under the Kyoto Protocol (1996) and became operational in 2000.
• The protocol mandated binding reductions in emissions by developed countries, but not in developing ones, and set up three carbon market instruments:
  • Emissions trading under which developed countries could trade abatements exceeding their mandates with others which fell short;
  • Joint Implementation (JI) covering negative carbon generated from individual projects which could be traded between corporates in developed countries;
  • Clean Development Mechanism (CDM) by which such credits could be generated from projects in developing countries and traded to corporates in developed countries.

Carbon Markets under the Paris Agreement:

• The provisions relating to setting up a new carbon market are described in Article 6 of the Paris Agreement.
• Article 6.2 enables bilateral arrangements for transfer of emissions reductions.
• Article 6.4 is about a wider carbon market in which reductions can be bought and sold by anyone.
• Article 6.8 provides for making ‘non-market approaches’ available to countries to achieve targets.