Carbon Markets

COP 26 outcomes and implications for the Australian carbon market

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Six years after the initial adoption of the Paris Agreement, the 26th Conference of the Parties (COP26) finally agreed to rules for the implementation of Article 6, including cross-border co-operation via international carbon markets. Key aspects of the negotiations included the carryover of carbon credits issued under the Kyoto Protocol, including Certified Emissions Reductions (CERs), and rules for double counting, including requirements for “corresponding adjustments” between countries.

The voluntary carbon market co-exists with the globally regulated compliance market. Agreement on Article 6 will therefore help to shape the operation of the voluntary market, but does not directly regulate it. Instead, the new rules will help to inform the boundaries of government-led action and the implications for corporate voluntary action.

For the Australian market, the direct implications of COP26 are limited, however, outcomes will have a bearing on a number of operational aspects, including the use of carbon offsets by the Commonwealth, the use of CERs by the private sector, how companies may contribute to national targets under the Paris Agreement, and the role of Australia’s newly announced Indo-Pacific Carbon Offset Scheme (IPCOS).

Below we summarise the key aspects of Article 6 agreed at COP26 and discuss the implications for the Australian carbon offset market.

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