Applying Rules under Article 6 of the Paris Agreement to Linked Emissions Trading Systems

Article 6 of the Paris Agreement establishes a broad framework for governing cooperation between countries working jointly to meet their nationally determined contribution (NDC) targets. Linking emissions trading systems (ETS) internationally is one possible form of cooperation. Linking two ETSs can impact the emissions of the participating jurisdictions, as more emissions are reduced in the system with lower abatement costs. Countries may want to reflect these changes in emissions when accounting for their NDC targets.

This report builds on the previous ICAP publication on ETS linking and Article 6. The new paper explores how the Article 6.2 rules agreed at COP26 could be applied to an international link of two ETSs, including how to account for the changes in emissions, addressing the challenges in determining when changes in emissions occur within an ETS, and options to generate finance for adaptation and “net” mitigation from the link.