How international carbon markets work under the Paris Agreement. The importance of environmental integrity. New Zealand and international carbon markets.
How international carbon markets work under the Paris Agreement
The Paris Agreement recognises that countries will cooperate for higher ambition on climate change and to promote sustainable development and environmental integrity.
Article 6 of the Paris Agreement is about the many ways countries can cooperate to reduce emissions and increase climate change action. For more information see The Paris Agreement [United Nations Climate Change website].
- bilateral or regional cooperation, including emissions trading schemes which link to each other or project based mechanisms which could provide crediting to other countries
- a specific mechanism established by the Paris Agreement (but which is not yet operational)
The Paris Agreement changes the context within which international carbon markets operate. Any trade of emissions reductions that may be used towards countries’ targets must have environmental integrity, be accounted for, and authorised by the countries involved. Markets under the Paris Agreement operate differently to how markets operated under the Kyoto Protocol.
For more on New Zealand and the Paris Agreement see the Ministry of Foreign Affairs and Trade website.
Importance of the environmental integrity of international carbon markets
Effective international carbon markets can help to scale up climate change mitigation action.
To be effective, international carbon markets must have environmental integrity. New Zealand champions environmental integrity in regional and global initiatives.
At the Paris climate change negotiations (COP 21, 2015), New Zealand led a Ministerial Declaration on Carbon Markets that has now been endorsed by 21 countries. The declaration sends a clear signal that cooperation through international carbon markets, has an important role in allowing for higher ambition by Parties to the Paris Agreement.
At the Madrid climate change negotiations (COP25, 2019) New Zealand was part of a group of 31 countries which endorsed the San Jose Principles for High Ambition and Integrity in International Carbon Markets [DCC website]. These principles constitute the basis upon which a fair and robust carbon market should be built.
New Zealand supports the development of effective regional and global carbon markets. This includes participating in forums like the G7-led Carbon Market Platform and the EU-led Florence Process (of ETS jurisdictions). We are also a technical partner in the World Bank Partnership for Market Readiness. First held in 2011, we regularly convene the Asia Pacific Carbon Market Roundtable.
New Zealand and international carbon markets
The NZ ETS is closed to international carbon markets. New Zealand would need to work directly with partners overseas on ways to cooperate and to access international carbon markets, in line with Article 6 of the Paris Agreement
The Government is currently working to identify options for accessing international carbon markets if this makes sense in the future. The Framework for International Carbon Market Cooperation [PDF 473 KB] outlines how the Government would approach cooperating with potential overseas partners.
If a decision was made to open the NZ ETS to international markets, only international units from sources approved by the Government could be eligible for use under the NZ ETS. Any international units used in New Zealand would be required to meet certain standards that demonstrate their environmental integrity, and would be subject to a volume limit.
See the consultation document: Reforming the New Zealand Emissions Trading Scheme: Proposed Settings for more information.
The International Carbon Markets Project
The International Carbon Markets Project was set up in 2016. Its purpose is to:
- build environmental integrity in international carbon markets under the Paris Agreement, so that the use of these markets does not undermine global efforts to reduce emissions
- assess and develop options for New Zealand to access international carbon markets with environmental integrity in the future, if the Government decides to access them.
The International Carbon Markets Project is jointly governed by MfE and the Ministry of Foreign Affairs and Trade.
This page will be kept updated with key developments in the work of the Project. For further information, please contact ICM@mfe.govt.nz.