Carbon markets facilitate the most efficient possible implementation of climate action. Market-based climate instruments create incentives so that greenhouse gas emissions are reduced first in sectors where reduction is most cost-effective. This is why the German government supports the gradual development of a global carbon market.
The Paris Agreement is a milestone in the development of international market-based climate mechanisms. In the past few years, a number of countries have independently introduced price-based climate instruments such as emissions trading systems or carbon taxes. The list of countries considering the introduction of instruments like these is also long.
The new international climate agreement, adopted at the end of 2015 in Paris, created a basis for the international trade and transfer of mitigation outcomes. Article 6 of the Paris Agreement envisions the establishment of a new international market mechanism and options for leveraging national mechanisms, to be in place starting in 2020. These forthcoming mechanisms build on experience gained from the joint implementation (JI) and clean development mechanisms established in the Kyoto Protocol. These Kyoto mechanisms will continue to be important until the Paris Agreement enters into full force. At this point it remains unclear what their role will be after 2020.