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Delivering emission reductions consistent with a 1.5°C trajectory will require innovative public financial instruments designed to mobilize trillions of dollars of low-carbon private investment. Traditional public subsidy instruments such as grants and concessional loans, while critical to supporting nascent technologies or high-capital-cost projects, do not provide the price signals required to shift private investments towards low-carbon alternatives at a scale. Programmes that underwrite the value of emission reductions using auctioned price floors provide price certainty over long time horizons, thus improving the cost-effectiveness of limited public funds while also catalysing private investment.Taking lessons from the World Bank's Pilot Auction Facility, which supports methane and nitrous oxide mitigation projects, and the United Kingdom's Contracts for Difference programme, which supports renewable energy deployment, we show that auctioned price floors can be applied to a variety of sectors with greater efficiency and scalability than traditional subsidy instruments. We explore how this new class of instrument can enhance the cost-effectiveness of carbon pricing and complementary policies needed to achieve a 1.5°C outcome, including through large-scale adoption by the Green Climate Fund and other international and domestic climate finance vehicles.

Over the past two decades, the emergence of multiple carbon market segments has led to fragmentation of governance of international carbon markets. International baseline-and-credit systems for greenhouse gas mitigation have been repeatedly expected to wither away, but show significant resilience. Still, Parties to the Paris Agreement have struggled to finalize rules for market-based cooperation under Article 6, which are still being negotiated. Generally, there is tension between international top-down and bottom-up governance. The former was pioneered through the Clean Development Mechanism under the Kyoto Protocol and is likely to be utilized for the Article 6.4 mechanism, while the latter was used for the first track of Joint Implementation and will be applied for Article 6.2. Voluntary carbon markets governed bottom-up and outside the Kyoto Protocol by private institutions have recently gained importance by offering complementary project types and methodological approaches. The clear intention of some Parties to use market-based cooperation in order to reach their nationally determined contributions to the Paris Agreement have led to an ongoing process of navigating the alignment of these fragmented carbon market instruments with the implementation of nationally determined contributions and Paris Agreement’s governance architecture. We discuss emerging features of international carbon market governance in the public and private domain, including political and technical issues. Fragmented governance is characterized by different degrees of transparency, centralization, and scales. We assess the crunch issues in the Article 6 negotiations through the lens of these governance features and their effectiveness, focusing on governance principles and their operationalization to ensure environmental integrity and avoid double counting.

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