Editing IPCC:AR6/WGIII/Chapter-14 (section)

=== 14.4.4 Cooperative Mechanisms and Markets ===

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In theory, trading carbon assets can reduce the costs of global climate mitigation, by helping facilitate abatement of greenhouse gases at least-cost locations. This could help countries ratchet up their ambitions more than in a situation without such mechanisms ( [[#Mehling--2018|Mehling et al. 2018]] ), particularly if mechanisms are scaled up from projects and programmes ( [[#Michaelowa--2019b|Michaelowa et al. 2019b]] ). Progress as to developing such mechanisms has however so far been moderate and uneven.

Of the three international market-based mechanisms under the 1997 Kyoto Protocol discussed in [[#14.3.2.7|Section 14.3.2.7]] , and in previous IPCC reports, only the CDM or a similar mechanism may have a role to play under the Paris Agreement, although the precise terms are yet to be decided.

Article 6, also discussed in [[#14.3.2.7|Section 14.3.2.7]] , is the main framework to foster enhanced cooperation within the Paris Agreement. Although there is an emerging global landscape of activities based on Article 6 ( [[#Greiner--2020|Greiner et al. 2020]] ), such as the bilateral treaty signed under the framework of Article 6 in October 2020 by Switzerland and Peru, the possibilities of bilateral cooperation are yet to be fully exploited. As discussed above, adequate accounting rules are key to the success of Article 6. Sectoral agreements are also a promising cooperative mechanism, as discussed in [[#14.5.2|Section 14.5.2]] . In fact, both bilateral and sectoral agreements have the potential to enhance the ambition of the Parties involved and can eventually serve as building blocks towards more comprehensive agreements ( [[#14.2.2|Section 14.2.2]] ).

A relevant and promising new development is the international linkage of existing regional or national emissions trading systems (ETS). Several ETS are now operational in different jurisdictions, including the EU, Switzerland, China, South Korea, New Zealand, Kazakhstan and several US states and Canadian provinces ( [[#Wettestad--2018|Wettestad and Gulbrandsen 2018]] ). More systems are in the pipeline, including Mexico and Thailand ( [[#ICAP--2019|ICAP 2019]] ). The link between the EU and Switzerland entered into force in January 2020 and other linkages are being negotiated. Scholars analyse the potential benefits of these multilateral linkages and demonstrate that these can be significant ( [[#Doda--2019|Doda et al. 2019]] ; [[#Doda--2017|Doda and Taschini 2017]] ). Over time, the linkages of national emissions trading systems can be seen as building blocks to a strategic enlargement of international cooperation ( [[#Caparrós--2017|Caparrós and Péreau 2017]] ; [[#Mehling--2019|Mehling 2019]] ). The World Bank has emerged as an important lynchpin and facilitator of knowledge-building and sharing of lessons about the design and linking of carbon markets, through initiatives such as the Partnership for Market Readiness, Networked Carbon Markets and the Carbon Pricing Leadership Coalition ( [[#Wettestad--2021|Wettestad et al. 2021]] ).

However, it is important to distinguish between theory and practice. The practice of ETS linking so far demonstrates a few attempts that did not result in linkages due to shifts of governments and political preferences (for instance the process between the EU and Australia, and Ontario withdrawing from the Western Climate Initiative) ( [[#Bailey--2018|Bailey and Inderberg 2018]] ). It is worth noting that the linking of carbon markets raises problems of distribution of costs and loss of political control and hence does not offer a politically easy alternative route to a truly international carbon market. Careful, piecemeal and incremental linking may be the most feasible approach forward ( [[#Green--2014|Green et al. 2014]] ; [[#Gulbrandsen--2019|Gulbrandsen et al. 2019]] ). It is premature for any serious assessment of the practice of ETS linking to be conducted. Environmental effectiveness, transformative potential, economic performance, institutional strength and even distributional outcomes can potentially be significant and positive if linking is done carefully ( [[#Doda--2017|Doda and Taschini 2017]] ; [[#Mehling--2018|Mehling et al. 2018]] ; [[#Doda--2019|Doda et al. 2019]] ), but are all marginal if one focuses on existing experiences ( [[#Spalding-Fecher--2012|Spalding-Fecher et al. 2012]] ; [[#Haites--2016|Haites 2016]] ; [[#Schneider--2017|Schneider et al. 2017]] ; [[#La%20Hoz%20Theuer--2019|La Hoz Theuer et al. 2019]] ; [[#Schneider--2019|Schneider et al. 2019]] ).

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