Under the Kyoto Protocol, one tool for countries with commitments to achieve their target reductions in greenhouse gas (GHG) emissions at low-cost was to participate in carbon markets. These markets implemented through the so-called “flexible mechanisms” facilitated voluntary transfer of low-cost emission allowances or carbon credits.
Through its long-standing carbon finance support, the World Bank Group (WBG) has been one of the first movers in creating the carbon markets for climate change mitigation, developing innovations and pioneering models for low-cost emission reduction, building capacity and exercising thought leadership and convening power.
The international carbon markets collapsed in 2012, as supply exceeded demand, and the world community was unable to agree on the post-2012 climate policy framework. However, the signing of the Paris Agreement has re-ignited the global interest on carbon markets.
Based on the Kyoto experience, the Paris Agreement establishes a market-based mechanism (under Article 6) to support countries achieve their targets at low cost and help raise their ambition. Although the new “rules, modalities and procedures” for implementing the new market mechanism are still being negotiated, the opportunities for rebuilding the global carbon markets as an additional tool for low-cost climate mitigation are significant.
The panel discussed the future of carbon markets and carbon pricing solutions for GHG emission reduction, their potential for fostering sustainable development, opportunities in underutilized sectors and underserved regions, and the role that the WBG can play to develop the next generation of carbon markets.