Paris Agreement

Overview

The Paris Agreement was adopted on 12 December 2015 at COP21 in Paris and entered into force in November 2016. It replaced the Kyoto Protocol as the central framework for global climate action, and fixed Kyoto’s biggest flaw by requiring participation from all countries, not just wealthy ones. As of 2024, 195 parties have ratified it.

The Agreement has three headline goals: limit average global warming to well below 2°C above pre-industrial levels while pursuing efforts to cap it at 1.5°C; strengthen countries’ ability to adapt to climate impacts; and align financial flows with low-carbon, climate-resilient development. That last goal is what makes it a Climate Finance document as much as a climate one.

The Agreement calls for “a balance between anthropogenic emissions by sources and removals by sinks” in the second half of the century, the legal formulation of what we now call net zero. It does not prescribe how countries get there. Instead, it creates a system of nationally owned commitments and regular review.

How It Works: NDCs and the Ratchet Mechanism

The core operating mechanism is the Nationally Determined Contribution (NDC). Each country sets its own climate target, covering emissions reductions, adaptation plans, and sometimes finance commitments, and submits it to the UNFCCC and COP. There is no penalty for missing an NDC, but there is a legally binding obligation to have one and to update it.

The “ratchet mechanism” requires countries to submit progressively more ambitious NDCs every five years. The logic is that technology costs fall, political will builds, and each round of targets should go further than the last. In practice, the gap between current NDCs and what science says is needed remains significant, something the IPCC documents in its assessment reports.

A Global Stocktake every five years assesses collective progress. The first, completed at COP28 in 2023, concluded that the world was off track and needed to transition away from fossil fuels. The Enhanced Transparency Framework requires countries to report emissions data and progress, using standardised methodologies, creating accountability even without enforcement.

Finance and the $100 Billion Goal

Article 2.1(c) of the Agreement explicitly calls for “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.” This language is why institutions like GFANZ frame their work as Paris-alignment.

Developed countries had pledged to mobilise $100 billion per year in climate finance for developing nations by 2020. That goal was technically met, though disputed, and a new collective quantified goal (NCQG) is being negotiated, with a figure in the trillions under discussion. The Just Transition dimension of finance, who pays, who benefits, and on what terms, remains one of the most contested debates in international climate politics.

Carbon Markets Under the Agreement

Article 6 of the Paris Agreement creates the framework for international carbon markets, allowing countries to trade emissions reductions to meet their NDCs. The rules governing this, including what are called Internationally Transferred Mitigation Outcomes (ITMOs), were only finalised at COP29 in 2024. See Article 6 for a full breakdown.