The private sector has no emission reductions commitments under the Paris Agreement but must comply with national climate change legislation in the countries where it operates. It may also be interested in purchasing mitigation units to meet corporate responsibility commitments. The private sector cannot directly be a party to a CAT agreement but can participate in two key ways:
- Helping to reduce emissions in the host country, which will eventually deliver mitigation units to be transferred to partner countries. The private sector could do this through their investments in low carbon or carbon storage projects. In addition to the traditional revenue stream of those low carbon projects, the private sector could agree with partner countries to get a share of the emission credits achieved.
- Purchasing mitigation units from partner countries. These units could be used for compliance with national ETS of the partner countries (if applicable), or for voluntary offset purposes.
We would find a vertical integration of emissions reduction generation and consumption when the private sector is involved in both activities. This would be ideal, as it would create strong incentives for a company to invest in mitigation in the host countries where they operate. It is also more effective, as it allows the private company involved to get a better deal when they buy mitigation units, and hence encourages more low carbon investment.