International transfers under Article 6 in the context of diverse ambition of NDCs

This study assesses the environmental integrity risks of international carbon markets under Article 6 of the Paris Agreement and discusses possible international rules to address them. A considerable risk is that several countries have mitigation targets that correspond to higher levels of emissions than business-as-usual (BAU) projections. The amount of “hot air” contained in current NDC targets is estimated to be similar in magnitude as the total mitigation pledged by countries with NDC targets that are more stringent than BAU. If such hot air can be transferred to other countries, it could increase aggregated GHG emissions and create a perverse incentive for countries to set future NDC targets at less ambitious levels. In order to address these risks, international transfers could be subject to quantitative limits. Propose a typology for such limits, explore key design options, and roadtest them in the context of 17 countries. Analysis indicates that limits on international transfers, if designed appropriately, could prevent most of the hot air contained in current NDC targets from being transferred. The study also briefly explores approaches that aim to ensure unit quality to address the hot air risk, including international reporting and review, international guidance on mechanism design and implementation, and eligibility criteria.