From Kyoto to Paris: How CDM Methodologies Can Shape Article 6.2 of the Paris Agreement

The World Bank’s report, "Considerations for CDM Methodology Concepts to Article 6.2 Mechanism," highlights the need for transitioning Clean Development Mechanism (CDM) methodologies from the Kyoto Protocol to Article 6.2 of the Paris Agreement. The report calls for more forward-looking baseline-setting practices that align with countries' Nationally Determined Contributions (NDCs), focusing on preventing over-crediting and over-selling emissions reductions. It emphasizes the integration of future targets, national policies, and sectoral considerations in baseline methodologies to meet the evolving demands of the Paris Agreement.

As climate change continues to challenge nations worldwide, the need for robust mechanisms to measure and reduce greenhouse gas (GHG) emissions has never been more critical. A recent report by the World Bank, titled "Considerations for CDM Methodology Concepts to Article 6.2 Mechanism," highlights the importance of transitioning Clean Development Mechanism (CDM) methodologies from the Kyoto Protocol into a more forward-thinking framework under the Paris Agreement. Article 6.2 of the Paris Agreement serves as the primary mechanism for international cooperation on climate action, and the lessons from CDM provide invaluable insights for ensuring environmental integrity and heightened ambition in global mitigation efforts.

The Legacy of CDM Methodologies

The Clean Development Mechanism (CDM) was developed under the Kyoto Protocol, allowing industrialized countries to finance emission reduction projects in developing countries and earn certified emission reduction credits. Over the years, the CDM developed more than 250 methodologies for establishing baseline emissions, measuring project performance, and ensuring transparency in GHG reductions. However, while the CDM successfully created a framework for global collaboration, its methodologies are inherently backward-looking, relying on historical practices and baseline measurements.

The World Bank's paper acknowledges the success of CDM methodologies but also underscores the need for significant modifications to align with the Paris Agreement’s forward-thinking and future-oriented objectives. Under Article 6.2 of the Paris Agreement, nations are required to align their mitigation actions with Nationally Determined Contributions (NDCs), which are ambitious national climate targets set by each participating country. CDM methodologies must evolve to support these goals by considering future trajectories instead of focusing solely on historical practices.

Adapting Baselines for Article 6.2

The cornerstone of Article 6.2’s implementation lies in setting accurate and fair baselines for emissions reduction projects. Baselines, in this context, refer to the reference point against which future GHG emissions reductions are measured. If baselines are set too leniently, countries risk over-crediting and over-selling their emission reductions, undermining their ability to meet their own NDC targets. Conversely, if baselines are too stringent, they could discourage international collaboration by making projects economically unviable.

The report highlights that while CDM methodologies can provide a starting point for baseline setting, they must go beyond historical practices and focus on forward-looking targets. These new baselines must be linked to NDCs and adjusted to ensure they are consistent with the global push for increased ambition. For example, methodologies used for renewable energy projects, such as on-grid electricity generation, must now consider future grid emission factors rather than solely relying on past data.

The World Bank's approach also stresses the importance of mitigating risks associated with the trading of mitigation outcomes between countries. The concern is that countries may oversell their emissions credits without retaining enough reductions to meet their NDCs. To address this, the report recommends progressive baseline-setting practices that ensure both environmental integrity and economic feasibility.

Policy Considerations and Risks

One of the key challenges in developing methodologies for Article 6.2 is integrating national policies, sector targets, and regulations into the baseline-setting process. For many developing nations, energy policies and sectoral targets are still evolving, making it difficult to establish reliable and consistent baselines. Additionally, the paper discusses the risk of “perverse incentives,” where countries might delay implementing climate-friendly policies to benefit from lower baseline levels.

To avoid such pitfalls, the report emphasizes the need for a robust system that encourages long-term decarbonization while rewarding early movers. CDM methodologies often set baselines based on “business-as-usual” scenarios, but Article 6.2 calls for methodologies that reflect more progressive actions and sectoral improvements. By doing so, countries can achieve their NDC targets more effectively while ensuring that mitigation outcomes contribute meaningfully to global climate goals.

The report also notes the importance of differentiating between unconditional and conditional NDC targets. Many countries, especially developing ones, have conditional targets that depend on international financial and technological support. The challenge lies in setting baselines that reflect both the unconditional efforts of the host country and the additionality brought about by international cooperation.

The Path Forward

In its conclusion, the World Bank’s report highlights that while CDM methodologies provide a solid foundation for baseline-setting under Article 6.2, the transition must involve more stringent and future-focused approaches. The CDM’s reliance on historical data is no longer sufficient in a world where the Paris Agreement requires nations to look ahead, anticipate future challenges, and continually raise their ambition.

As countries refine their NDCs and the world moves toward a low-carbon future, methodologies will need to reflect not only past practices but also future goals, technological advancements, and evolving policies. The report encourages the development of a flexible toolkit that can adapt to different country and sector contexts, allowing for a more dynamic and scalable approach to mitigation under Article 6.2.

Ultimately, the lessons learned from the CDM will help shape a new generation of climate action tools, ensuring that Article 6.2 becomes an effective mechanism for global cooperation and a crucial component of the international effort to combat climate change.