The Sustainable Development Mechanism is a new mitigation mechanism established in Art. 3 ter of the draft Paris Agreement. The purpose of this mechanism is to “promote the mitigation of greenhouse gas emissions [in developing country Parties] while fostering sustainable development….” In order to achieve its goals, the mechanism provides incentives for successfully mitigating GHG emissions. Under this mechanism, Parties that contribute to the reduction of GHG emissions in a host country Party can benefit from their mitigation activities by using the resulting emission reductions to fulfill their own mitigation ambition requirements.
Overall, the structure of the Sustainable Development Mechanism closely resembles the Clean Development Mechanism, which is the carbon market mechanism in the Kyoto Protocol. Carbon markets and offsets were created under Art. 6 of the Kyoto Protocol, which states that “…any Party included in Annex I may transfer to, or acquire from, any other such Party emission reduction units resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases in any sector of the economy….” Additionally, the Clean Development Mechanism was established under Art. 12 of the Kyoto Protocol, which provides a process for handling all of the carbon credits created under Art. 6.
Ultimately, the major difference between the new Sustainable Development Mechanism from the Clean Development Mechanism is that carbon markets will no longer be limited to developed country Parties. Instead, all Parties will be able to participate in this mechanism. Expanding the scope of a carbon market mechanism to allow all types of Parties to participate in transferring mitigation GHG reductions is unprecedented. We don’t know how all Parties will use this mechanism or how successfully it will address sustainable development issues. Therefore, a s a successful Paris Outcome appears to be on the horizon, this new carbon market mechanism is one more aspect of the Agreement that will be worth watching develop.