(2025). Towards a Net Zero Aligned Paris Agreement Crediting Mechanism, Smith School for Enterprise & the Environment Policy Briefing 2025.
• The Paris Agreement Crediting Mechanism (PACM) is a new global carbon trading system that is designed to help both countries and corporates raise their climate ambition by financing projects in return for carbon credits, which they can claim towards their own targets or as a contribution to climate mitigation. • The PACM’s rules were designed to avoid flaws from earlier international carbon trading mechanisms which were alleged to have financed ‘hot air’ as opposed to real climate mitigation. However, in some important ways, the PACM could set a weaker climate standard than its predecessor under the Kyoto Protocol. • As a result, there is a risk that the mechanism could undermine the work needed to achieve global net zero, which requires us to remove all emissions we put into the atmosphere. Evidence from the first tranche of projects seeking to transition or be developed under the PACM confirms this risk. • For the PACM to help rather than hinder the delivery of net zero we recommend that separate targets to reduce and remove greenhouse gases from the atmosphere be initially adopted before transitioning the mechanism to one that finances only greenhouse gas removals, and ultimately to one that finances only permanent removals. In tandem, we recommend the Paris Agreement’s other financing levers be fully utilised to finance emission avoidance and reduction projects, as well as more temporary forms of carbon removal. • Considering the voluntary nature of the mechanism, PACM actors could choose to undertake such a transition themselves. Beyond this, the official review of the mechanism in 2028 will present a further opportunity for more structural reform. • Transitioning the PACM in the above way can encourage more effective use of all financing mechanisms under the Paris Agreement to deliver a net zero future. Placing constraints on the nature of credits traded via the PACM can also ramp up domestic mitigation efforts and help promote a rising tide of ambition across other carbon markets.
