Inside the black box: market mechanisms and the Paris Agreement on climate change

Abstract

This research explores the dynamic of the relationship between the formulation of Paris Agreement (PA), the next major multilateral solution to climate change under the United Nations Framework Convention on Climate Change (UNFCCC), and an increasingly prevalent policy instrument for reducing GHG emissions from anthropogenic sources, market mechanisms. Previous experiences have informed commentary on the value of market mechanisms including the rationale for their use a policy instrument, governance and political challenges faced in practice, and what can be learnt previous experience. This research explores the international interface of these issues illuminating elements inside the ‘black box’ of the largely unexplored dynamic of market mechanisms and UNFCCC negotiations. To do so, the research question was posed: What can be learnt from how market mechanisms are represented in the PA on climate change and what does this mean for their future? The research was largely conducted at the 21st Conference of the Parties (COP21) where negotiations culminated in the finalisation of the PA. To answer the research question, at COP21 qualitative data collection techniques were used to engage with NGOs, academics and negotiators. Six major findings emerged from this research. Complexity and a contested role for the UNFCCC characterised the representation of market mechanisms during the negotiation process (Findings 1 and 3). Political interests drove how market mechanisms were represented in the negotiation process (Finding 2) and a flexible PA architecture was necessary to facilitate accommodation of these interests (Finding 5). Despite pervasive complexity the international community demonstrated that it could learn lessons from previous experience (Finding 6). This was confirmed by international agreement on some desirable characteristics of market mechanisms, enshrined in the outcome of the PA (Finding 4). This research demonstrates that to maximise the potential of the PA outcome on market mechanisms beyond agreed principles and allowance for a variety of market-based approaches, further cooperation is required. High level principles enshrined in the PA outcome will need to be elucidated and refined before they are implemented, as will relationships between existing market mechanism instruments and Parties’ emissions reductions contributions under the PA. The PA outcome does not, and could not resolve all the challenges faced at the nexus of market mechanisms and the UNFCCC, and future negotiations are therefore likely to continue to be vexed by political, procedural and governance challenges.