Ilaria Espa & Zakar Ahmad, “Market-Based Climate Mitigation, Article 6 of the Paris Agreement and International Trade Law: New Rules, Existing Practices, and Continued Concerns” (2022) 14:2 Trade, Law & Development 1.
Article 6 guidelines on market-based mitigation completed the Paris Agreement Rulebook and provided details on how to establish international compliance carbon markets based on the transaction of carbon credits between countries. In this article, the authors take stock of the new regulatory developments and assess their implications for international trade law. The authors examine the rules agreed at the latest Conferences of the Parties (COPs) to the United Nations Framework Convention on Climate Change (UNFCCC) against the reality of the fast growing voluntary carbon market (VCM). In addition, the authors assess how far the new carbon markets space, created by the Article 6 guidelines, may pose problems of coordination and/or conflict with the rules of the World Trade Organization (WTO). Key challenges that will potentially be faced by developing countries, followed by a focus on more work to be done in this area, have also been identified by the authors. In short, the authors find that while the new rules agreed at the latest COPs in Glasgow and in Sharm el-Sheikh aim at ensuring robust accounting and high quality of carbon credits, there is the risk that they do not succeed in bringing the necessary level of convergence between Article 6 transactions and the VCM market. To the extent that the VCM is by far the fastest-growing segment of the carbon markets space, further steps are needed to ensure greater alignment with Article 6 of the Paris Agreement. The authors also find that any assessment of Article 6 transactions under WTO law is conditional upon finding that carbon credits can be characterised either as a good/product or a service. If included within the scope of multilateral trade rules, claims of discrimination and subsidisation are foreseeable, affecting not only upcoming mitigation projects but also the credits transitioning from the Kyoto Protocol (KP) regime. Obviously, the challenges highlighted in this article disproportionately affect developing countries, due to the latter hosting the mitigation activities. Further research is needed to ensure a positive-sum integration between trade and climate rules regarding market-based mitigation.
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