Outside in? Using international carbon markets for mitigation not covered by nationally determined contributions (NDCs) under the Paris Agreement

The Paris Agreement establishes provisions for using international carbon market mechanisms to achieve nationally determined contribution (NDCs). In international negotiations on the rules governing the Agreement, an important question is whether and under which conditions mitigation outcomes that are not covered by the scope of NDCs should be eligible for international transfer and use by another country to achieve its NDC. Allowing the transfer and use of outside-scope mitigation could facilitate the identification of mitigation potential and reduce the costs of achieving NDCs. It could, however, also provide disincentives for countries to enhance the scope of their NDCs, be perceived as unfair towards countries with similar circumstances and economy-wide targets, reduce countries’ incentives to ensure the quality of carbon market units generated, and lead to double counting. To address these concerns, international rules could: require transferring countries to account for such transfers by applying ‘corresponding adjustments’ even though the emission reductions occur outside the scope of NDCs, or to bring relevant sectors and greenhouse gases into the scope of their next NDCs; adopt safeguards for unit quality, e.g. through international oversight or strict additionality tests; impose other restrictions; and/or require countries to quantify and specify the scope of their NDC in terms of sectors and greenhouses gases covered.Key policy insights: Not allowing the transfer of outside-scope mitigation outcomes, or allowing such transfers without a corresponding adjustment by the transferring country, would both require determining whether a mitigation outcome occurs within or outside the scope of NDCs, which can be difficult in some instances.Requiring corresponding adjustments for outside-scope mitigation is more easily implemented than other options seeking to address possible disincentives for broadening the scope of NDCs but could discourage countries from engaging in outside-scope transfers.Providing temporary exemptions, accompanied by other safeguards such as international oversight and strict additionality tests, may therefore be an appropriate means of giving countries time to build capacity and gather data and to expand their NDCs in the future. Which exemptions apply, and for how long, are important policy choices when balancing different goals, perspectives and practical implementation challenges.