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The Paris Agreement’s Market Mechanisms: A Global Climate Change Solution?

The Paris Agreement’s Market Mechanisms: A Global Climate Change Solution?

Jennifer Leech

The magnitude of the climate change problem requires a paradigm shift through comprehensive, effective global action. With efforts under the United Nations Framework Convention on Climate Change (UNFCCC), global leaders have worked to address this problem with a series of international agreements.[1] The 2016 UNFCCC Paris Agreement (Paris Agreement) presents the newest hope for international cooperation to combat climate change.[2]

Paris Agreement signatories agree to reduce greenhouse gas emissions through Nationally Determined Contributions (NDCs) with the goal of keeping the global temperature rise to below 2º C.[3] To meet these goals, the NDCs include each country’s self-determined implementation strategy.[4] The Paris Agreement’s Article 6 specifically references an available implementation strategy of “internationally transferred mitigation outcomes” (ITMOs), laying the groundwork for a model global carbon trading market.[5] This global cap-and-trade framework provides a vehicle to achieve the greenhouse gas reductions that the Paris parties pledged and the world needs to keep the temperature change below 2° C. The question is:  Can this global cap-and-trade model work?  The answer to the Paris Agreement’s future success may lie in legal analysis of past climate agreements.

In his book, “Environment and Statecraft,” Scott Barrett lists five factors required for the success of multilateral environmental agreements.[6]  Barrett argues that without these five factors, a global treaty may fail.[7] The five Barrett factors require that an agreement: (1) define and create an aggregate good, (2) create a way to distribute the benefits, (3) deter non-participation, (4) deter non-compliance, and (5) deter free riders.[8]  Successful international treaties, such as the 1989 Montreal Protocol, survive the Barrett test because they contain these five Barrett factors.[9]  In contrast, less successful international treaties, such as the 1992 Kyoto Protocol, do not have these factors.[10]

By applying the Barrett test, this Note compares the Paris Agreement’s Article 6 implementation with similar structures in the Montreal and Kyoto protocols. The Note starts by providing background on the Paris Agreement as a whole, the Paris Agreement’s Article 6 implementation strategy of market mechanisms, and the Barrett test. Next, the Note applies the Barrett test to highlight implementation mechanisms in two international treaties: the Montreal Protocol, exemplifying success, and the Kyoto Protocol, exemplifying failure.[11]  The Note then uses the Barrett test to examine the Paris Agreement’s market mechanisms.  By comparing the Paris Agreement with the Montreal and Kyoto Protocols, this Note reveals a weakness in the Agreement’s use of a “soft” cap, which allows too much flexibility in the global carbon market’s limit. This Note suggests a potential alternative in the form of a hard, enforceable cap for the Paris Agreement’s carbon market.  If accepted, this modification could allow the market mechanisms, and ultimately the Paris Agreement, to succeed.

Questions and inquiries regarding this Note may be forwarded to the author at LawReview@vermontlaw.edu.


[1] United Nations Framework Convention on Climate Change, http://unfccc.int/2860.php (last visited Nov. 4, 2016); Montreal Protocol on Substances that Deplete Ozone Layer, Sept. 16, 1987, 1522 U.N.T.S. 3 [hereinafter Montreal Protocol]; Kyoto Protocol to the United Nations Framework Convention on Climate Change art. 6, Dec. 11, 1997, 2303 U.N.T.S. 162. [hereinafter Kyoto Protocol]; Paris Agreement to the United Nations Framework Convention on Climate Change, art. 6, (opened for signature April 22, 2016) https://treaties.un.org/doc/Treaties/2016/02/20160215%2006-03%20PM/Ch_XXVII-7-d.pdf   [hereinafter Paris Agreement].

[2] United Nations Framework Convention on Climate Change, http://unfccc.int/2860.php (last visited Nov. 4, 2016).

[3] United Nations Framework Convention on Climate Change, http://unfccc.int/paris_agreement/items/9485.php (last visited Nov. 4, 2016).

[4] Id.

[5] Paris Agreement, supra note 1, at art. 6.

[6] Scott Barrett, Environment and Statecraft 33 (2003).

[7] Id.

[8] Id.

[9] Id. at 2–3.

[10] Id. at 2.

[11] Id. at 2–3.

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