Unleashing Ambition: the Role of Carbon Markets in the Paris Agreement Implications and Opportunities for Qatar

Introduction

The Paris Agreement encourages voluntary cooperation among Parties to implement their Nationally Determined Contributions (NDCs) “to allow for higher ambition in their mitigation and adaptation actions and to promote sustainable development and environmental integrity.”¹ This commitment led to the creation of new carbon markets under Article 6 of the Paris Agreement.

Carbon Markets are not new to international climate frameworks. The Kyoto Protocol introduced Joint Implementation and the Clean Development Mechanism to facilitate carbon trading. Carbon markets were initially created to provide flexibility for developed countries to meet their climate targets, with no obligations for developing countries, typically a source of carbon credits.  Historically, the primary motivation for participating in these markets was cost reduction, enabling countries to meet their targets more economically. Recent research² indicates that utilizing carbon markets globally could reduce the total cost of implementing NDCs by more than 50% (approximately $250 billion per year in 2030) or alternatively facilitate the removal of 50% more emissions (approximately 5 gigatons of CO2 per year in 2030) at no additional cost.

The Paris Agreement introduced a shift toward harmonization: all countries now have nationally defined targets and equal flexibility to cooperate with others in achieving their NDCs. This international cooperation aims to promote higher ambition and deliver the benefits of climate actions. Developing countries supported this harmonization in 2015, contingent upon developed nations’ commitment to providing $100 billion annually to assist them in meeting their NDCs. Under the Agreement’s framework, countries must apply corresponding adjustments to their NDCs to ensure transparent accounting of emissions reductions. This approach marks a substantial departure from the Kyoto Protocol, where the focus of carbon markets was primarily on providing developed countries with the flexibility to meet their targets at a lower cost.

For Qatar, this evolving framework presents opportunities and challenges.³ As a hydrocarbon-based economy, Qatar stands to benefit from integrating Article 6 mechanisms to finance its transition toward diversified, low-carbon growth, as envisioned in Qatar’s National Vision 2030 (QNV2030). Qatar’s National Vision emphasizes the achievement of “a diversified economy that gradually reduces its dependence on hydrocarbon industries” as a key outcome.⁴ The financing mechanisms offered by Article 6 could potentially make Qatar’s low-carbon transition more cost-effective. However, new measures will also be required to build the regulatory frameworks and institutional arrangements to operationalize Article 6 domestically.

Carbon markets under the Paris Agreement

The Paris Agreement’s Article 6 establishes two distinct carbon market mechanisms—Article 6.2⁵ and Article 6.4⁶ — designed to facilitate international cooperation in achieving NDCs. These mechanisms enable the transfer of carbon credits between countries or entities through two modalities: internationally transferred mitigation outcomes (ITMOs) under Article 6.2, and emission reductions under Article 6.4. Both represent quantifiable climate action, with one unit typically equivalent to one metric ton of CO2 equivalent reduced or removed from the atmosphere.

While these mechanisms provide flexibility for achieving NDCs, their fundamental purpose extends beyond mere compliance — they are designed to drive greater ambition in global climate action.⁷ Article 6.2 creates a framework for bilateral or multilateral cooperation, allowing countries to design their own approaches for NDC implementation, provided they adhere to the guidance established in COP26 Decision 2/CMA.3.⁸ This decentralized system offers participating nations significant autonomy in structuring cooperative arrangements. In contrast, Article 6.4 operates under centralized UNFCCC oversight, with standardized rules and procedures similar to its predecessor, the Clean Development Mechanism of the Kyoto Protocol. The framework allows eligible CDM projects to transition into the Article 6.4 mechanism. Qatar already has two projects seeking transition: the Al-Shaheen Oil Field Gas Recovery and Utilization Project and the Medium Pressure Steam Condensate water recovery project in Ras Laffan Industrial City.⁹

Strategic opportunities for Qatar under Article 6

For Qatar, Article 6 mechanisms present strategic pathways to harmonize economic growth with climate commitments. The country’s resource-based economy and significant energy export sector create unique opportunities under both mechanisms:

• Article 6.2 offers Qatar flexibility to forge bilateral agreements that align with its economic priorities while maintaining climate integrity. These agreements could channel investment into energy efficiency and economic diversification projects, potentially exceeding Qatar’s NDC target of 25% GHG emissions reduction by 2030 compared to business-as-usual scenarios.¹⁰

• Article 6.4, provides a standardized framework for project development and credit generation, building on Qatar’s experience with CDM projects while offering new opportunities under UNFCCC oversight.

The nature of carbon markets

Carbon markets aim to promote the efficient allocation of resources to meet carbon limitation targets. The market-driven approach is designed to prioritize mitigation actions with the lowest marginal abatement costs,¹¹ ensuring cost-effective utilization of resources.

However, the intended purpose of cooperation under Article 6 was to facilitate technology transfer and mobilize investment in strategic sectors, enabling countries to adopt advanced technologies that might otherwise be out of reach. Ideally, countries would focus on using their resources to address “low-hanging fruits” (low-cost technologies) while leveraging Article 6 to finance more complex solutions, or “high-hanging fruits,” that contribute to long-term decarbonization.  While this goal is still being realized, progress is evident in bilaterally authorized projects under Article 6.2,¹² such as the deployment of electric buses in Thailand, the composting of municipal solid waste in Ghana, and solar power initiatives in Vanuatu—each considered high-hanging fruit in their respective contexts. As the framework matures, this list is expected to grow.

This approach can be applied strategically for Qatar’s economic context. The country’s low-hanging fruits include flaring, efficiency improvements in energy-intensive industries, and enhanced building and infrastructure efficiency. These are cost-effective and achievable with existing resources because the implementation costs are lower than the resulting earnings or resource savings, often leading to negative carbon abatement costs.¹³ The fact that some of these measures are already underway without needing carbon finance demonstrates their cost-effectiveness. For example, QatarEnergy has committed to achieving zero routine flaring by 2030 and is already improving energy efficiency in the oil and gas sector—such as optimizing gas turbine generators and heat recovery systems—as highlighted in Qatar’s NDC.¹⁴

The high-hanging fruits for Qatar would involve more transformative initiatives, such as scaling up carbon capture and storage (CCS), expanding renewable energy capacity—particularly solar power—and green hydrogen¹⁵ in the long term.¹⁶,¹⁷  These advanced solutions require substantial capital and technology investment, making them ideal candidates for Article 6 support, potentially through international partnerships facilitating access to advanced decarbonization technologies. Moreover, while renewable energy projects worldwide face criticisms around integrity and financial additionality,¹⁸,¹⁹ Qatar could be well positioned to argue the financial additionality of solar power plants, given the low cost of domestic natural gas. In regions where natural gas is more expensive, solar power often becomes a cost-effective option and is considered a low-hanging fruit. However, in Qatar, abundant natural gas makes solar power economically uncompetitive in most cases without added incentives or subsidies. That said, solar projects have already been deployed in Qatar—such as the 800 MW Al Kharsaah solar power plant²⁰  —suggesting that solar power can still be cost-effective under specific conditions or scale. Ultimately, marginal abatement cost curves²¹ for the Qatari economy would inform whether certain mitigation activities would be classified as low- or high-hanging fruits.²²

Many NDCs were designed using this approach, including low-cost measures as part of their unconditional commitments while listing more advanced technologies as eligible for support under Article 6. Unfortunately, the market for advanced technologies has not yet fully developed, limiting the potential for substantial sectoral transformation. For example, the lifespan of a quick ‘cookstove project’ is often shorter than the five-year NDC cycle, which restricts its long-term impact on decarbonization.

Policy implications of ITMO transfers and corresponding adjustments

Participation in cooperative approaches under Article 6 involves the transfer of mitigation outcomes from one participating country to another country or entity, such as an airline under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) or a corporation. This means that the originating country cannot use these transferred mitigation outcomes to meet its NDCs. The concept of corresponding adjustments, established through the Paris Agreement work program (Decision 1/CP.21, para 36),²³ ensures that emissions inventories reflect the transfer or receipt of mitigation outcomes.

Environmental integrity, reporting standards and reporting requirements

To uphold environmental integrity, cooperative approaches must comply with the Enhanced Reporting Requirements of the Paris Agreement. This includes national inventory reporting, biennial transparency reports, and detailed information on target levels, baselines, and mitigation outcomes. Countries must also demonstrate that their cooperative approaches do not lead to a net increase in global emissions during NDC implementation periods. For policymakers, adhering to these standards is crucial to ensure that climate commitments are met transparently and effectively, therefore enhancing the credibility of carbon markets.

The UNFCCC requires countries participating in Article 6 projects to submit initial reports detailing their cooperative approaches. These reports are subject to a technical expert review to ensure the cooperation does not hinder the party’s ability to meet its NDC targets. Countries must demonstrate how their participation aligns with their NDCs, long-term low-emission development strategies (where submitted) and the goals of the Paris Agreement, as outlined in Decision 2/CMA.3.

The Article 6 framework emphasizes robust governance and high-quality mitigation outcomes, requiring conservative baselines that fall below “business as usual” projections. It mandates the minimization of non-permanence risks across multiple NDC periods and addresses potential reversals in emission reductions. Particular attention is given to avoiding negative environmental, economic, and social impacts while upholding human rights, gender equality, and other core principles outlined in the Paris Agreement. Furthermore, these requirements stress the alignment of cooperative approaches with the Sustainable Development Goals and mandate contributions to adaptation resources and overall global emission reductions. This comprehensive approach ensures that climate action supports broader sustainable development objectives.

Challenges in achieving NDC targets through carbon markets

Countries participating in ITMO transfers face significant challenges balancing their ambition with environmental integrity. While developing nations anticipated climate finance of at least $100 billion annually from developed countries to support their NDCs, this funding has fallen short. Consequently, many countries have sought to use ITMO transfers to bridge their financing gaps, offering credits in exchange for investments in climate action projects with co-benefits like job creation and reduced environmental hazards. However, this is not the intended use of Article 6 mechanisms. The framework was designed to enable countries to trade genuine surplus emission reductions, allowing purchasing nations to enhance their climate ambitions beyond their initial NDC commitments. ITMOs were not conceived as a substitute for climate finance, as the framework assumed adequate funding would be available to support climate goals in developing nations.

The relationship between ITMO transfers and NDC targets has sparked considerable debate among stakeholders. Developing nations and climate finance institutions argue for flexibility in using ITMOs to address financing gaps, while environmental organizations and some developed countries emphasize the need to maintain environmental integrity. A key point of contention is whether ITMO transfers should be limited to actions listed in conditional NDC targets. While some argue this approach helps ensure transferring countries can still achieve their NDC targets, Article 6 rules make no distinction between conditional and unconditional NDC targets, requiring corresponding adjustments for all mitigation outcomes.

The growing reliance on ITMO transfers as a financing mechanism raises significant concerns about the overall effectiveness of the Article 6 framework. This situation potentially compromises the integrity of international carbon markets and could impede global progress toward meeting the climate goals established under the Paris Agreement.

Building a scaled and just carbon market

For carbon markets to effectively support climate action while maintaining environmental integrity, developing countries must carefully balance their participation. A key consideration is the opportunity cost of transferring ITMOs – the value of mitigation outcomes that countries forgo when selling carbon credits. These costs should reflect potential future needs for more expensive emission reduction actions to meet NDC targets. While marginal abatement cost curves can help guide pricing decisions, current market prices fall significantly below these opportunity costs, making high-integrity projects less attractive to buyers.

The aviation sector’s CORSIA program is expected to drive much of the demand for correspondingly adjusted credits. This presents a strategic opportunity for major airlines, particularly in the Gulf region, to develop expertise in sourcing high-quality carbon credits. Building this capacity before CORSIA’s mandatory phase begins in 2027 is crucial.²⁴ Airlines can also help establish local carbon markets by initiating or partnering on regional carbon crediting projects that align with development goals.

A fundamental challenge remains: carbon finance was designed to supplement, not replace, climate finance. The shortfall in promised climate finance to developing countries has created a gap between market expectations and reality. To address this, rules need recalibration to better recognize private sector contributions to NDC targets. Recent climate negotiations, including discussions at COP29 in Azerbaijan, have emphasized expanding financial mechanisms to merge public and private investments.

Blended finance instruments offer a promising path forward. Public funds could cover initial project risks—such as feasibility studies and emission reduction estimations—creating a more favorable environment for private investment. This approach effectively leverages public resources and encourages greater private sector participation, which is essential for scaling climate action. Given the context of unfulfilled climate finance commitments from developed nations, the application of corresponding adjustments for developing countries needs urgent reconsideration. A more nuanced approach, accounting for historical contributions to climate change, could enable expanded climate action while maintaining competitive carbon prices and market liquidity.

A well-functioning global carbon market has the potential to unlock trillions²⁵,²⁶ in private sector finance, accelerate clean technology innovation, and enable large-scale emissions reductions. Qatar and other GCC countries²⁷ are strategically positioned to play a leading role in this transformation, leveraging their networks and relationships to shape market dynamics and set high standards for transparency and environmental integrity. This leadership role aligns with their vision of economic diversification and positions them as key players in global climate action.

Conclusion and future pathways

Integrating carbon markets under the Paris Agreement presents significant opportunities and challenges for developing countries striving to meet their NDCs. For Qatar, as a prominent oil and gas exporter seeking economic diversification, these markets offer a pathway to a more sustainable economic model while advancing national development goals. The primary barrier remains the gap in climate finance commitments from developed countries. Since carbon finance was designed to supplement rather than replace climate finance, this shortfall hampers the effectiveness of carbon markets in meeting both developed and developing nations’ expectations.

To bolster Qatar’s engagement and effectiveness in carbon markets, the following recommendations are proposed—which are applicable to other countries facing a similar policy context:

• Adjust opportunity costs: Implement higher opportunity costs for ITMO transfers to ensure developing countries don’t compromise their climate goals for short-term gains. While current market prices fall below optimal levels, using marginal abatement cost curves can guide economically viable decisions.

• Strengthen Climate Finance: Developed countries must fulfill their climate finance commitments. For Qatar, the upcoming second NDC update offers an opportunity to clearly define conditional and unconditional mitigation measures, including recent commitments like developing 4 GW of renewable energy capacity by 2030.²⁸

• Engage the private sector: Develop a national framework for Article 6 engagement during the first implementation phase (2024-2025) of Qatar’s Third National Development Strategy. This could promote private sector involvement in key technologies like CCUS and green hydrogen. The first implementation phase (2024-2025) of the Third Qatar National Development Strategy 2024–2030 is a key opportunity window to develop this Article 6 national framework, as this first phase anticipates the introduction of major policy reforms and capacity building for the implementation of the National Development Strategy.²⁹ Moreover, Article 6 presents opportunities for technology transfer to other countries. For instance, Qatar, a pioneer in district cooling,³⁰ could benefit from promoting district cooling carbon crediting projects abroad using local technology providers.

• Establish bilateral agreements: Following Kuwait and UAE’s examples with Rwanda and Paraguay, respectively³¹, Qatar could pursue bilateral cooperation agreements under Article 6.2 once its national framework is in place.³²
• Leverage CORSIA demand: Prepare for the aviation sector’s mandatory emissions offsetting program starting in 2027. Regional airlines like Qatar Airways could benefit from developing local carbon crediting projects.
• Reform corresponding adjustments: Adopt a more conservative approach based on historical climate contributions to enable scaled-up climate action while maintaining market competitiveness.
• Strengthen regional cooperation: Establish a united GCC bloc regarding Article 6 implementation. This regional alignment could: create a cohesive regulatory framework aligned with international standards; foster partnerships with both developed and developing nations; enable the GCC to play a more significant role than during the Kyoto Protocol era; facilitate knowledge exchange and investment opportunities; support deployment of advanced monitoring technologies; promote capacity-building initiatives; and create awareness campaigns to engage local businesses and communities.
• Innovate financing solutions: Develop carbon credit purchase and equity funds to enhance GCC’s influence in global carbon markets.

A well-functioning global carbon market has the potential to mobilize trillions in private sector finance, accelerate clean technology innovation, and enable large-scale emissions reductions. Qatar and its GCC partners are uniquely positioned to catalyze this transformation, driving sustainable development and economic diversification while cementing their role in global climate action.

Endnote

¹ United Nations Framework Convention on Climate Change (UNFCCC), “Paris Agreement,” Article 6, Paragraph 1, December 12, 2015, UN Doc. FCCC/CP/2015/L.9/Rev.1, 21 COP.

² Jae Edmonds et al., The economic potential of article 6 of the Paris Agreement and implementation challenges, Technical Paper, (Washington, DC: International Emissions Trading Association, University of Maryland, and Carbon Pricing Leadership Coalition, September 2019), 1, https://hdl.handle.net/10986/33523.

³ World Bank, GDP growth (annual %) – Qatar, (2024), https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2022&locations=QA&start=1971&view=chart.

⁴ State of Qatar General Secretariat for Development Planning (GSDP), Qatar National Vision 2030, (Doha, Qatar: Government Communications Office, July 2008), 29, https://www.gco.gov.qa/wp-content/uploads/2016/09/GCO-QNV-English.pdf.

⁵ United Nations Framework Convention on Climate Change (UNFCCC), Report of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement on its third session, held in Glasgow from 31 October to 13 November 2021, Addendum. Part two: Action taken by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement at its third session, (Glasgow, Scotland: UNFCCC, March 8, 2022), 11, https://unfccc.int/sites/default/files/resource/cma2021_10_add1_adv.pdf.

⁶ ] Ibid, 25.

⁷ Ibid. 11.

⁸ UNFCCC, Decision 2/CMA.3: Guidance on Cooperative Approaches Referred to in Article 6, Paragraph 2, of the Paris Agreement. Report of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement on its third session, (Glasgow, Scotland: UNFCCC, March 8, 2022), 12-14 https://unfccc.int/sites/default/files/resource/cma2021_10_add1_adv.pdf.

⁹ “Article 6 Pipeline,” United Nations Environmental Programme (UNEP), October 2024, https://unepccc.org/article-6-pipeline/

¹⁰ State of Qatar Ministry of Municipality and Environment (MME), Nationally Determined Contribution (NDC), (Doha, Qatar: MME, August, 2021), 1, https://unfccc.int/sites/default/files/NDC/2022-06/Qatar NDC.pdf.

¹¹ “Marginal abatement cost” is a measure the how much it costs to reduce one more unit of pollution, which helps policymakers and industry in determining the optimal level of emission reduction in a specified context.

¹² “Visualising Article 6 Implementation,” International Emissions Trading Association (IETA), accessed November 24, 2024, https://www.ieta.org/resources/visualising-article-6-implementation/

¹³ Mohammed, S., Desha, C., & Goonetilleke, A., “Investigating the potential of low-carbon pathways for hydrocarbon-dependent rentier states: Sociotechnical transition in Qatar,” Technological Forecasting and Social Change 189, (April 2023), https://doi.org/10.1016/j.techfore.2023.122337.

¹⁴ MME, Nationally Determined Contribution (NDC), 4.

¹⁵ “Green hydrogen” is hydrogen produced by using renewable energy sources, such as wind or solar power, to split water molecules through electrolysis, resulting in a zero-emissions fuel.

¹⁶ World Economic Forum, Navigating Article 6: Opportunities for the Middle East and North Africa, (Cologny/Geneva, Switzerland: World Economic Forum, November 2023), 21-25, https://www3.weforum.org/docs/WEF_Navigating_Article_6_Opportunities_for_the_Middle_East_and_North_Africa_2023.pdf.

¹⁷ Babonneau, F., Benlahrech, M., & Haurie, A., “Transition to zero-net emissions for Qatar: A policy based on Hydrogen and CO2 capture & storage development,” Energy Policy 170, (November 2022), https://doi.org/10.1016/j.enpol.2022.113256.

¹⁸ In carbon finance, “financial additionality” refers to the concept that a carbon-reduction project should only qualify for carbon credits if it would not have been financially viable or implemented without the additional revenue from those credits.

¹⁹ “IC-VCM rejects renewables methodologies – what does this mean for carbon credit buyers?,” Abatable, August 15, 2024, accessed November 24, 2024, https://abatable.com/blog/icvcm-rejects-renewables/.

²⁰ “Al Kharsaah, A Pioneering Solar Power Plant in Qatar,” TotalEnergies,  accessed November 24, 2024, https://totalenergies.com/projects/solar/al-kharsaah-pioneering-solar-power-plant-qatar

²¹ “Marginal abatement cost curves” represent the cost of reducing each additional unit of emissions through various technologies or methods, organized from the most to least cost-effective options. These curves illustrate the expenses and potential effectiveness of different emissions-reduction strategies within a given sector or region.

²² Al‐Noaimi, F., Al‐Ansari, T., & Bicer, Y., Toward a Long‐Term Low Emission Development Strategy: The Case of Energy Transition in Qatar. Global Challenges 7, no. 6 (June 2023), https://doi.org/10.1002/gch2.202200229.

²³ UNFCCC, Report of the Conference of the Parties on its twenty-first session, held in Paris from 30 November to 13 December 2015. Addendum. Part two: Action taken by the Conference of the Parties at its twenty-first session, (Paris, France: UNFCCC, January 29, 2016), 6, https://unfccc.int/resource/docs/2015/cop21/eng/10a01.pdf

²⁴ International Civil Aviation Organization (ICAO), Carbon Offsetting and Reduction Scheme  for International Aviation (CORSIA),  Frequently Asked Questions (FAQs), (Montreal, Canada: ICAO, December 2022), https://www.icao.int/environmental-protection/CORSIA/Documents/CORSIA_FAQs_Dec2022.pdf

²⁵ “Carbon removals: How to scale a new gigaton industry,” McKinsey & Company,

December 4, 2023, accessed November 24, 2024,  https://www.mckinsey.com/capabilities/sustainability/our-insights/carbon-removals-how-to-scale-a-new-gigaton-industry

²⁶ Sha Yu et. al, The Potential Role of Article 6 Compatible Carbon Markets in Reaching Net-Zero, (Washington, DC: International Emissions Trading Association and the University of Maryland, October 18, 2021), https://ieta.b-cdn.net/wp-content/uploads/2023/09/IETAA6_NetZeroWorkingPaper_2021.pdf

²⁷ The Gulf Cooperation Council is a regional, intergovernmental, political, and economic union comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

²⁸ Qatar Planning and Statistics Authority (PSA), Third Qatar National Development Strategy 2024–2030, (Doha, Qatar: PSA. 2024), 27, https://www.psa.gov.qa/en/nds1/nds3/Documents/QNDS3_EN.pdf

²⁹ Ibid, 34.

³⁰ MME, Nationally Determined Contribution (NDC), 6.

³¹ “Paraguay and the United Arab Emirates agreed on an instrument for carbon credits,” Agencia Informacion Paraguaya [Paraguay Information Agency], December 9, 2023, accessed November 24, 2024, https://www.ip.gov.py/ip/2023/12/09/paraguay-and-the-united-arab-emirates-agreed-on-an-instrument-for-carbon-credits/.

³² “Rwanda Launches Carbon Market Framework to Advance Climate Action for a Sustainable Future,” Ministry of Environment of Rwanda, December 2023, accessed November 24, 2024, https://www.environment.gov.rw/news-detail/rwanda-launches-carbon-market-framework-to-advance-climate-action-for-a-sustainable-future