Since the adoption of the UNFCCC's Kyoto Protocol in 1997, a number of emissions trading markets have been created, including the self-imposed, rather stringent European emissions trading system ("EU ETS"), as well as a number of voluntary markets and exchange of carbon units or Kyoto credits. In addition, some nations or regions have adopted a carbon taxation scheme, thus giving a monetary value to carbon emissions. However, none of these systems is global, so far, and fragmented markets may not be as efficient as the potential, future worldwide carbon pricing system in order to disincentive emissions.
One of the uncertain outcomes of COP 21, which took place in Paris last December, was whether an agreement would be reached, or a framework proposed, to price carbon dioxide emissions.
On December 12, 2015, COP 21 adopted the Paris Agreement together with a decision in which all 195 Parties recognized "the important role of providing incentives for emissions reduction activities, including tolls such as domestic policies and carbon pricing" (§137 of the Decision). This statement is the only direct reference to carbon pricing in the Paris Agreement and appears in the Decision, acting as preamble to the Agreement. It is considered, at this stage, to be nonbinding, compared to the provisions of the Agreement itself.
Furthermore, the Paris Agreement allows the use of "internationally transferred mitigation outcomes to achieve nationally determined contributions" (Art. 6 §3 of the Agreement), on a voluntary basis. Such provision paves the way for countries seeking to buy or sell carbon credits as a way to offset greenhouse gas emissions. While such provision recognizes the existence of current emissions trading systems, it should also help the implementation of a renewed international carbon market, through mutual recognition of existing schemes or the creation of links between regional trading systems.
Additionally, Article 6 §4 of the Paris Agreement refers to a mechanism to contribute to the mitigation of greenhouse gas emissions, under the authority of the Conference of the Parties. Such mechanism, the details of which are yet to be defined, is expected to take over after 2020, potentially in a manner that differs from the existing Clean Development Mechanism under the Kyoto Protocol. In any case, this provision also calls for emissions trading, and thus carbon emissions pricing, though on a voluntary basis.
The addition of such language in the Paris Agreement is therefore one step closer to a global, harmonized carbon pricing system.
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