The use of project mechanisms - the crediting of reduction results between countries and the international crediting of climate protection projects - is an important climate protection instrument. You can find a detailed overview on this page.
Climate action requires a global commitment and a global approach. The signatory states of the Paris Agreement and its predecessor, the Kyoto Protocol, set themselves the goal of curbing climate change. Important instruments for achieving this goal are the use of project mechanisms, crediting reduction results between countries and the international crediting of climate protection projects. These are regulated in Article 6 of the Paris Agreement. The mechanisms help to ensure that emission reductions are realised in areas where reduction costs are minimised. This can increase overall ambition and contribute to sustainable development at the same time. The basic idea is that where emissions are reduced is of secondary importance for climate protection.
Objectives of the Paris Agreement and the Role of the Project Mechanisms
Compared to the Kyoto Protocol, whose main objective was to reduce greenhouse gases, the Paris Agreement specified the objective in a more comprehensive way.
In addition to reducing emissions, the Paris Agreement’s key objectives are:
limiting the increase in the global average temperature (to below 2°C, preferably 1.5°C, compared to pre-industrial levels),
strengthening the capacity of countries’ ability to deal with the impacts of climate change (adaptation to climate change) and
redirecting financial flows towards an economy with low greenhouse gas emissions and sustainable development (channelling financial resources).
The way and approaches the countries adopt to achieve their climate protection targets is not specified. Nevertheless, the Paris Agreement, like the Kyoto Protocol, offers the possibility of utilising (project-based) market mechanisms, although it uses a general wording. Specific rules and modalities as well as technical details for the implementation of these mechanisms are being developed. Both climate protection agreements are regarded as the basis for the creation of an international market for emission credits.
The mechanisms in Article 6 are an important instrument of the Paris Agreement: they enable the transfer and crediting of mitigation results between countries and the international crediting of climate protection projects. This is intended to enable cost-efficient fulfilment of climate protection targets and increase overall ambition. Furthermore, the mechanisms are supposed to support sustainable development with additional reductions in global emissions (raising ambition, achieving further ecological and social goals) and incentivise the use of environmentally friendly technologies (transformation).
These approaches are expected to cover the demand of the signatory countries for options for international cooperation in the carbon market.
Project mechanism
Description
Agreement and article
Period
Co-operation mechanisms
Three approaches for an international carbon market are explicitly specified:
Collaborations aimed at the use of internationally transferred reduction results to achieve the nationally determined contributions (Article 6.2)
An internationally monitored mechanism for reducing a country’s emissions by transferring the reduction results and supporting sustainable developments with additional reduction of global emissions (Article 6.4)
Non-market-based approaches to promote mitigation and adaptation (Article 6.8).
Paris Agreement, Article 6
Starting in 2021
Clean Development Mechanism (CDM)
Countries or companies were able to use these projects in developing and emerging countries (without their own reduction commitment) to acquire emission credits (CERs) that could be offset against their own commitments.
Kyoto Protocol, Article 12
From 2008 to 2020
Joint Implementation (JI)
In JI projects, two industrialised countries worked together in partnership to achieve their specified goal of reducing emissions. One of countries financed a climate protection project in the other country. In return, reduction certificates (Emission Reduction Units (ERUs)) were offset towards the reduction target. The host country, in turn, had to reduce its own emission allowances by the number of certificates exported.
Kyoto Protocol, Article 6
From 2008 to 2020
Paris Agreement Project Mechanisms
The Paris Agreement adopted in 2015 has applied to global climate protection since 2021. Within this agreement Article 6 also envisages the international use of market-based mechanisms. Consequently, the Paris Agreement project mechanisms have once again become an important instrument of cooperation.
Source: MEDDE - Arnaud Bouissou
The market mechanisms named in Article 6 of the Paris Agreement explicitly specify three approaches for an international carbon market:
Collaborations aimed at the use of internationally transferred reduction results to achieve the nationally determined contributions (Article 6.2)
An internationally monitored mechanism for reducing a country’s emissions by transferring the reduction results and supporting sustainable developments with additional reduction of global emissions (Article 6.4)
Non-market-based approaches to promote mitigation and adaptation (Article 6.8).
These three approaches are expected to cover the needs of all countries for international cooperation opportunities within the carbon market. The mechanisms are available to all countries for voluntary use in order to achieve the Paris Agreement’s interdisciplinary goals. This means that reduction results from climate protection projects can be transferred between countries and used to offset mutually agreed targets.
In addition to reducing emissions or enhancing carbon dioxide removal (for example by rewetting peatlands or reforestation), this instrument is also intended to contribute to sustainable development and the financing of adaptation measures. Not only should countries become active but also private stakeholders such as airlines can be considered as buyers of these reduction credits.
A robust accounting system that reliably prevents double counting and other risks to environmental integrity is essential.
Our Research Results for Article 6
The research project "Strengthening the transformative impact of market approaches under the Paris Agreement" (research index 3719 42 504 0) analysed and developed prerequisites for Article 6 of the Paris Agreement and while doing so it focussed on stronger transformative approaches. Where possible, these should be designed and applied in such a way that transformation paths are ambitiously pursued and maintained.
The research team defined the term ‘transformation’ or ‘transformative change’ in the project as follows: "A fundamental, sustainable change in a system that ends established carbon-intensive practices and contributes to an emission-free society in line with the Paris Agreement's goal of limiting global warming to 1.5-2°C and the United Nations’ Sustainable Development Goals".
Four features are particularly relevant to the objectives of Article 6: ‘digitalisation’, ‘private sector and governments’, ‘carbon pricing’ and ‘dynamic baselines’.
A further research project "Adapting CDM methodologies for use under Article 6 of the Paris Agreement" includes a „Lessons Learned“ report and a final report. The Lessons Learned report summarizes key findings from the project-based mechnismens oft the Kyoto Protocol. While the final report includes further analysis of the extent to which existing methodologies for determining additionality and baseline as well as monitoring can be adjusted to transition to the Article 6.4 mechanism.
A comprehensive fact sheet is resulted from another research project "Analysis of the role of Article 6 in Parties’ NDCs". It examines the role of Article 6 of the Paris Agreement in the Nationally Determined Contributions (NDCs) that Parties have submitted to the United Nations Framework Convention on Climate Change (UNFCCC). The findings indicate that there is in general considerable openness towards Article 6, with the intention to buy units being much more limited than to sell such units.
The Kyoto Protocol was adopted in 1997 during the third Conference of the Parties (CMP 3) of the United Nations Framework Convention on Climate Change (UNFCCC). It came into force in 2005 and is the world's first legally binding international treaty on climate change mitigation. It obligates the participating countries to reduce emissions of climate-damaging gases.
It is made up of two commitment periods: the first one from 2008 to 2012 and the second one from 2013 to 2020, during which the industrialised countries listed in Annex B of the Protocol undertook to reduce their greenhouse gas emissions.
The Kyoto Protocol offered two project-based mechanisms: Clean Development Mechanism (CDM) and Joint Implementation (JI). CDM and JI, as elements of the Kyoto Protocol, are bound in terms of their applicability to the Kyoto Protocol commitment periods.
Clean Development Mechanism (CDM)
Climate protection projects under the Clean Development Mechanism (CDM) were part of the flexible Kyoto mechanisms operating in accordance with Article 12 of the Kyoto Protocol. Industrialised countries were able to meet their reduction or stabilisation commitments by financially supporting or implementing CDM climate protection projects in less developed countries.
Joint Implementation (JI)
Similar to the Clean Development Mechanism (CDM), Joint Implementation (JI) climate protection projects were among the project-based flexible Kyoto mechanisms. They operated under Article 6 of the Kyoto Protocol and offered industrialised countries an option to reduce greenhouse gases in the host industrialised country in accordance with their commitment under the Kyoto Protocol. Companies were also able to participate in JI projects and use the certificates they received as a result. In principle, only the countries listed in Annex B of the Kyoto Protocol or companies in these countries were allowed to participate in JI climate protection projects.
Since the generation of Emission Reduction Units (ERUs) requires the allocation of Assigned Amount Units (AAUs) to the contracting states for the second Kyoto commitment period, the approvals for JI projects were limited until the end of the first commitment period.
No approvals for JI projects were granted by Germany in the period between 2013 and 2020. This was due to the fact that the entry into force of the second commitment period was delayed until 31/12/2020, which coincided with its expiration date.
End of the Kyoto Protocol Project Mechanisms
The second commitment period (2013 to 2020) of the Kyoto Protocol, which was adopted at the eighth Conference of the Parties (CMP 8) of the Kyoto Protocol in Doha in 2012, ended on 31/12/2020. As a result, the CDM and JI project mechanisms also expired and will be replaced in future by the cooperation mechanisms under Article 6 of the Paris Agreement.
The existing regulations are therefore applicable solely to projects registered by the end of 2020 and emission reductions achieved by then. Consequently, the German ‘Designated National Authority (DNA)’ at the German Environment Agency, as the competent body, terminated implementation in accordance with ProMechG at the end of the true-up period of the second commitment period.
Vulnerability of CDM Projects for Discontinuation of Mitigation Activities - Assessment of Project Vulnerability and Options to Support Continued Mitigation
Project Mechanisms at the World Climate Conferences
The World climate conferences are annual gatherings known as the Conference of the Parties (COP) to the UN Framework Convention on Climate Change. They are also often referred to as UN Climate Conferences or World Climate Summits. Since 2005, the conference has been supplemented by the meeting of the Kyoto Protocol members (Conference of the Parties serving as the meeting of the Parties to the Protocol, COP/MOP, CMP for short), and since 2018 by including members of the Paris Agreement (Conference of the Parties serving as the meeting of the Parties to the Paris Agreement, CMA for short).
We are presenting here the subsequent climate conferences in connection with the project mechanisms following the important Paris Agreement COP 21 in 2015.
COP 26 was originally planned to be in Glasgow, Scotland for November 2020 but postponed because of the COVID 19 pandemic to November 2021.
Unfortunately, there has been no real progress concerning Article 6 of the Paris Agreement as there was no consensus on Articles 6.2 and 6.4. Nevertheless, the technical infrastructure for the mechanism of Article 6.4 should be implemented by 2025. However, many important procedural issues will remain unresolved until then. For example, the EU has spoken out in favour of setting up a specific appeal and complaint procedure. Articles 6.2 and 6.4 will therefore once again be on the agenda at COP 29 in Baku, Azerbaijan. Details on the implementation according to Article 6.8 were agreed.
The market-based cooperative mechanisms under Article 6 of the Paris Agreement realised a major milestone at COP 26 in 2021 and achieved an important step towards implementation by adopting the Glasgow Rules. COP 27, hosted in Sharm El-Sheikh under Egypt’s Presidency, was dominated by implementation. The Article 6.4 Supervisory Body (SB) that takes over the role of the CDM Executive Board in the new mechanism under 6.4, was constituted in July 2022 and held several meetings. Draft texts on developing methodologies and the inclusion of carbon sequestration in the mechanism were discussed but not adopted as yet. Issues on the transfer of existing CDM projects and existing credits under the umbrella of the Paris Agreement were clarified. More detailed rules on the distinction between "authorised" and "non-authorised" emission reduction units, also called "mitigation contribution A6.4ER", were agreed, but answers to fundamental questions on the authorisation of mitigation results by the host country in line with his NDC are still pending.
Other important points on the road to implementation are open, including the development of information technology infrastructure and reporting, so work will continue with the participation of the Contracting States in the form of written submissions and workshops in 2023.
At the climate conference in Glasgow (COP 26) the outstanding chapter in the rulebook on the Paris Agreement of market-based cooperation mechanisms defined under Article 6 was adopted. The conference was postponed from 2020 to November 2021 due to the COVID 19 pandemic. Information on the outcome of this conference can be found on the UNFCCC website.
The design of the new market mechanisms in accordance with Article 6 of the Paris Agreement was once again on the agenda of the Conference of the Parties to the UN Framework Convention on Climate Change. This conference was to take place in Chile in December, but was moved from Chile to Madrid in Spain because of the domestic political situation.
During the last Conference of the Parties in Katowice in December 2018, a detailed draft text was already drafted, but in the end it did not meet with the approval of all the Parties. The aim now is to adopt this part of the Paris rulebook as well.
On behalf of the German Environment Agency, several discussion papers have been prepared in which important aspects of the credit mechanism under Article 6.4 are examined in more detail. This mechanism is to succeed the CDM under the Kyoto Protocol from 2021, but will contain decisive improvements, especially with regard to robust accounting of emission reductions and better integration into the host country's national climate policy.
These discussion papers are aimed for the international community of experts, in particular the delegates to the Climate Conference and observers, and are therefore written in English. A German summary is included. The papers are to be understood as contributions of the German Environment Agency to an open discussion and deal with the following topics:
Incentives for Private Sector Participation in the Article 6.4 Mechanism
Options for fostering a net-zero GHG emission world under the Paris Article 6.4 Mechanism
Another four discussion papers from the project "Development of options and design options for the new international market mechanism pursuant to Article 6 of the Paris Agreement" (FKZ 3717 41 5040)" were published earlier this year and deal with the following topics:
Achieving Overall Mitigation of Global Emissions under the Paris Article 6.4 Mechanism
Benchmarks to determine baselines for mitigation action under the Article 6.4 mechanism
Options for fostering increasing ambition levels under the Paris Article 6.4 Mechanism
The Voluntary Carbon Market: What May Be Its Future Role and Potential Contributions to Ambition Raising?
In October 2018, these topics have been discussed in an expert workshop hold in Berlin. The documentation with the title “Maximising the Mitigation Impact of the Article 6.4 Mechanism“ sums up the ideas and proposals resulting from this workshop.
Robust Accounting of International Transfers under Article 6 of the Paris Agreement
An important aspect in the design of the new market mechanisms under Article 6 of the Paris Agreement is to ensure a robust accounting of international emission reductions. The preliminary discussion paper "Robust Accounting of International Transfers under Article 6 of the Paris Agreement – Preliminary Findings" drafted in preparation for the international climate conferences in Marrakech (07 to 18/11/2016) and commissioned by the German Environment Agency in context of the Bonn Climate Conferences (06 to 17/11/1017), has been supplemented and finalised.
This paper discusses important aspects and approaches to ensure robust accounting for the international transfer of emission reductions from market mechanisms under Article 6 of the Paris Climate Agreement. It initially provides an overview of what aspects need to be regulated and gives possible regulatory approaches. The publication has now been expanded to include the topic of how the vintage of mitigation outcomes and the timing frames of mitigation targets can be accounted for.
In addition, issues of tracking and documenting international transfers are analysed.
With the aim to continue providing new insights on the new market mechanisms defined under the Paris Agreement and spread out the results of current research projects on the configuration of those mechanisms, the German Environment Agency publishes a new discussion paper which explores key issues and options to achieve environmental integrity, one of key overarching issues of Article 6 of the Paris Agreement that will be discussed during the upcoming Climate Change Conference in Bonn.
The paper proposes that environmental integrity in context of Article 6 means that using international transfers does not result in higher global GHG emissions than if mitigation targets of NDCs had been achieved only through domestic mitigation action. It identifies four issues that can affect the global GHG emissions outcome from international transfers:
Environmental Integrity under Article 6 of the Paris Agreement
With the aim to continue providing new insights on the new market mechanisms defined under the Paris Agreement and spread out the results of current research projects on the configuration of those mechanisms, the German Environment Agency publishes a new discussion paper which explores key issues and options to achieve environmental integrity, one of key overarching issues of Article 6 of the Paris Agreement that will be discussed during the upcoming Climate Change Conference in Bonn.
The paper proposes that environmental integrity in context of Article 6 means that using international transfers does not result in higher global GHG emissions than if mitigation targets of NDCs had been achieved only through domestic mitigation action. It identifies four issues that can affect the global GHG emissions outcome from international transfers:
robust accounting for international transfers
the quality of units from mechanisms
the ambition of the NDC target of the transferring country and
presence of incentives and disincentives for further mitigation action.
The paper also explores for crediting mechanisms how additionality could be demonstrated and how emission baselines could be set under the new framework of the Paris Agreement where nearly all Parties have communicated a mitigation target in their NDC.
The contents of this publication do not necessarily reflect the German Environment Agency’s official opinion.
In preparation for the next international climate change conference in Marrakesh three discussion papers were developed on behalf of the German Environment Agency. These deal with the key issues for discussion and drafting of international rules for Article 6 of the Paris Agreement. Article 6 enables the use of international market mechanisms to fulfill the contribution to climate protection by the countries.
The contents of the publications do not necessarily reflect the German Environment Agency’s official opinion.
