The Role of Market Mechanisms in Bridging the Gap

This document explains how market mechanisms, including carbon taxes, emissions trading, and voluntary transactions, can help close the gap between current Nationally Determined Contributions and the emissions cuts needed for 1.5°C, as identified by the Emissions Gap Report 2021. It notes that the number of countries indicating possible use of cooperative approaches in new or updated NDCs has almost doubled, and that transparent, well-designed markets could lower costs, shift investment toward selling regions, and support higher ambition. It describes a diverse landscape of voluntary and compliance systems, estimates that 4–5 GtCO2e could be traded annually by 2030 if targets were economy-wide, and argues that redeploying cost savings could roughly double reductions at no extra cost. The document stresses inclusive sector and gas coverage and clear Article 6 rules to ensure real abatement and robust tracking.