Defining Results-Based Climate Finance, Voluntary Carbon Markets and Compliance Carbon Markets
Under the Kyoto Protocol, compliance carbon markets (CCM) were primarily in the form of the Clean Development Mechanism (CDM) and Joint Implementation (JI). In 2015, the Paris Agreement introduced a new bottom-up approach to address climate change. Under the Paris Agreement, Parties set non-binding climate targets through their nationally determined contributions (NDCs). Article 6 of the Paris Agreement recognizes cooperation among countries for achieving their NDCs and raising climate ambition. This provides the basis for international CCM, where countries can trade emission reduction (“carbon”) credits with each other. Article 9 of the Paris Agreement stipulates that developed countries shall provide resources to developing countries for climate mitigation and adaptation. Developed countries would also take the lead in mobilizing climate finance from a variety of sources that represents a progression beyond previous efforts. The objective of this information paper is to outline three avenues for monetizing climate results – results-based climate finance (RBCF), voluntary carbon markets (VCM), and CCM. The paper is intended to describe activities by non-state or private sector actors in these mechanisms, and how their participation can facilitate the achievement of climate benefits in a cost-effective manner.