Averaging or multi-year accounting? Environmental integrity implications for using international carbon markets in the context of single-year targets

Under the Paris Agreement, most countries have communicated Nationally Determined Contributions (NDCs) with mitigation targets for a single year. Single-year targets present considerable challenges when countries use international carbon markets to achieve their NDCs. This paper assesses the environmental integrity implications of the two options that countries with single-year targets can use to account for internationally transferred mitigation outcomes (ITMOs) under Article 6 of the Paris Agreement: averaging and multi-year approaches. To assess the implications of these options, the paper considers a variety of scenarios for how two countries might engage with Article 6 and assesses how the choice of the accounting approach may affect aggregated emissions from the two countries. The paper finds that aggregated emissions could increase, decrease or remain unaffected, depending on: which of the two accounting approaches is chosen by the transferring and the acquiring country; whether the generation or use of ITMOs decreases, increases, or keeps constant over time; whether the countries’ emissions in the target year are representative for the countries’ emissions trend; and what course of action countries take in the case of a possible over- or under-achievement of their NDC targets. Key policy insightsWhile averaging is simple to implement and does not require countries to establish multi-year trajectories or budgets, it can lead to higher or lower aggregated emissions from the cooperating countries, compared to the situation in which the countries achieved their targets without using Article 6.By contrast, under multi-year approaches, aggregated emissions do not change, as long as multi-year targets or trajectories are credibly defined.As countries have a free choice between averaging and multi-year approaches, they can strategically pick for each NDC implementation period the accounting approach which requires less effort to achieve a given NDC target. In aggregate, this can undermine environmental integrity.Accounting for ITMOs is most robust if all countries moved over time towards robustly defined multi-year targets or trajectories. The risk that countries may inflate multi-year trajectories could be addressed through international guidance and review on the establishment of such trajectories.