The Paris Agreement has defined two kinds of market mechanisms for mitigation of climate change. The Sustainable Development Mechanism (SDM) is modelled on the Clean Development Mechanism (CDM) under the Kyoto Protocol – with a body of centralized rules overseen by a body on the UN Framework Convention on Climate Change. The Cooperative Approaches (CAs) might allow countries to define their proper set of rules, as long as environmental integrity and transparency are respected. The key question is now which of these mechanisms will be more attractive to governments and whether competition between the mechanisms leads to a vicious or virtuous circle – markets fragmenting or being integrated with climate finance.
The history of the market mechanisms under the Kyoto Protocol has shown that lack of international rules can undermine environmental integrity, as under „Track 1“ of Joint Implementation. Safeguards need to prevent this in the case of the CAs. Given that the Paris Agreement is based on a bottom-up set of highly diverse national mitigation contributions, the Paris Mechanisms need to ensure that loose contributions are not leading to the generation of „hot air“ reducing overall mitigation ambition. Moreover, double claiming of emissions units has to be prevented.