What is Paris Agreement?
The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 195 Parties at the UN Climate Change Conference (COP21) in Paris, France, on 12 December 2015. It entered into force on 4 November 2016.
Its overarching goal is to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.”
The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations together to combat climate change and adapt to its effects.
The Paris Agreement works on a five-year cycle of increasingly ambitious climate action – or, ratcheting up – carried out by countries. Since 2020, countries have been submitting their national climate action plans, known as nationally determined contributions (NDCs). Each successive NDC is meant to reflect an increasingly higher degree of ambition compared to the previous version.
What is Article 6 of the Paris Agreement?
Article 6 of the Paris Agreement allows countries to voluntarily cooperate with each other to achieve emission reduction targets set out in their NDCs. It enables international cooperation to tackle climate change and to unlock financial support for developing countries.
This means that, under Article 6, a country (or countries) will be able to transfer carbon credits earned from the reduction of GHG emissions to help one or more countries meet climate targets.
There are three components to Article 6:
Article 6.2: Provides accounting and reporting guidance for Parties to use internationally transferred mitigation outcomes towards their nationally determined contributions (NDCs). Article 6.2 creates the basis for trading in GHG emission reductions (or “mitigation outcomes”) across countries.
Article 6.4: Establishes a new UNFCCC mechanism which can be used to trade high-quality carbon credits. Article 6.4 is expected to be similar to the Clean Development Mechanism of the Kyoto Protocol. It establishes a mechanism for trading GHG emission reductions between countries under the supervision of the Conference of Parties – the decision-making body of the UN Framework Convention on Climate Change.
Article 6.8: Provides opportunities for non-market-based cooperation for enhancing climate action. Article 6.8 recognizes non-market approaches to promote mitigation and adaptation. It introduces cooperation through finance, technology transfer, and capacity building, where no trading of emission reductions is involved.
What are Carbon Markets?
Carbon markets are trading systems in which carbon credits are sold and bought. Companies or individuals can use carbon markets to compensate for their greenhouse gas emissions by purchasing carbon credits from entities that remove or reduce greenhouse gas emissions.
One tradable carbon credit equals one tonne of carbon dioxide or the equivalent amount of a different greenhouse gas reduced, sequestered or avoided. When a credit is used to reduce, sequester, or avoid emissions, it becomes an offset and is no longer tradable.
How can Carbon Markets curb global greenhouse gas (GHG) emissions and fight climate change?
Carbon markets are a very important tool to reach global climate goals, particularly in the short and medium term. They mobilize resources and reduce costs to give countries and companies the space to smooth the low-carbon transition and be able to achieve the goal of net zero emissions in the most effective way possible.
Carbon markets incentivize climate action by enabling parties to trade carbon credits generated by the reduction or removal of GHGs from the atmosphere, such as by switching from fossil fuels to renewable energy or enhancing or conserving carbon stocks in ecosystems such as a forest.
It is estimated that trading in carbon credits could reduce the cost of implementing countries’ Nationally Determined Contributions (NDCs) by more than half – by as much as $250 billion in 2030. In other words, carbon trading could facilitate the removal of 50% more emissions (about 5 gigatons of carbon dioxide per year by 2030) at no additional cost.
Over time, markets are expected to become redundant as every country gets to net zero emissions and the need to trade emissions diminishes.
What is “corresponding adjustment” in the accounting mechanism under Article 6 of the Paris Agreement?
Under Article 6, emission reductions that have been authorized for transfer by the selling country’s government may be sold to another country, but only one country may count the emission reduction toward its NDC.
It is critical to avoid double counting so that global emission reductions are not overestimated. The agreement on Article 6 established an accounting mechanism known as “corresponding adjustment,” to ensure that double counting does not occur.
PRACTICE QUESTIONS
QUES . Consider the following statements: UPSC PRELIMS 2025
Statement I: Article 6 of the Paris Agreement on climate change is frequently discussed in global discussions on sustainable development and climate change.
Statement II: Article 6 of the Paris Agreement on climate change sets out the principles of carbon markets.
Statement III: Article 6 of the Paris Agreement on climate change intends to promote inter-country non-market strategies to reach their climate targets.
Which one of the following is correct in respect of the above statements?
(a) Both Statement II and Statement III are correct and both of them explain Statement I.
(b) Both Statement II and Statement III are correct but only one of them explains Statement I.
(c) Only one of the Statements II and III is correct and that explains Statement I.
(d) Neither Statement II nor Statement III is correct.
Answer – (a)
