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New Market Mechanisms under the UNFCC Edoardo Croci

New Market Mechanisms under the UNFCC Edoardo Croci IEFE (Research Center of Economics and Policy of Energy and the Environment) – Università Bocconi Promitheas - 6 th Annual International Scientific Conference On Energy and Climate Change 9 – 11 October 2013, University of Athens, Athens.

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New Market Mechanisms under the UNFCC Edoardo Croci

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  1. New Market Mechanisms under the UNFCC Edoardo Croci IEFE (Research Center of Economics and Policy of Energy and the Environment) – Università Bocconi Promitheas - 6th Annual International Scientific Conference On Energy and Climate Change 9 – 11 October 2013, University of Athens, Athens

  2. Doha «Climate Gateway» (2012) • Rules for KP secondcommittmentperiod (2013-2020) • Parties committed to reduce GHG emissions by at least 18 per cent below 1990 • 80 Countries made emissionreductionpledges • Reductions correspond to about 15% of global emissions • Defection of the USA, Japan, Canada, New Zealand and the Russian Federation by the KP because of low global commitment • Some restrictions in using “hot air” (carry over) in second period (max 2%) + political declaration of potential buyers not to use residual credits + no new hot air • Work programme for new negotiationtrack to be concluded by 2015 • New legalframework in place in 2020 2

  3. Doha agenda • Annex 1 Parties that have agreed to the second commitment period obligations will review their quantified emission limitation or reduction objective (QELRO) during 2014 • Only parties with a QELRO under the second commitment period of the Kyoto Protocol are eligible to transfer and acquire second commitment period Kyoto units (CERs, ERUs, AAUs, RMUs) 3

  4. Emission reductions 2013-2020 under phase II (million tonnes CO2 eq.) Climate Connect, 2012

  5. CDM under the Kyoto Protocol .

  6. CER demand and supply 6 Bloomberg, 2012

  7. Volume of carbon markets: institutional markets (billion of euros) 7

  8. FVA - NMM • At the Durban Conference (decision 2/CP.17) it was decided to conduct two work programmes to: • a) Consider a framework for various approaches (FVA) • b) Elaborate modalities and procedures for the new market based mechanism (NMM) operating under the guidance of the COP. • The first one is a framework that would leave it up to countries to define their own approaches and methodologies in a decentralized manner, where the UNFCCC will play a role only in providing a platform for exchange of information and a general set of common principles. • The second one refers to an international market mechanism that is set up and governed centrally under UNFCCC.

  9. FVA The FVA is a set of components and rules that will ensure that all approaches used for mitigation will meet certain standards, especially from an environmental integrity point of view. The FVA will ensure that all mitigation approaches are integrated, and receive recognition, for UNFCCC compliance. Through the FVA, units created by a DMM (Domestic Market Mechanism) in a jurisdiction will qualify, under certain conditions, to be used for compliance with UNFCCC obligations, by a jurisdiction other than the one under which they were created. The FVA is not concerned with activities that are purely of a domestic nature and do not result in international transfers of units in one way or another. A fundamental principle should be that all activities that can be effectively regulated at a level other than the international one, should be regulated at that level. Only those activities, which, if not regulated internationally, would affect the integrity of the international climate change regime, should be regulated internationally. CEPS, 2013

  10. New Market Mechanism (NMM) • A new market-based mechanism, operating under the guidance and authority of the COP, is definied to enhance the cost-effectiveness of, and to promote, mitigation actions, bearing in mind different circumstances of developed and developing countries, which is guided by decision 1/CP.16, paragraph 80, and which, subject to conditions to be elaborated, may assist developed countries to meet part of their mitigation targets or commitments under the Convention.

  11. Design of NMM • Ensurevoluntaryparticipation • Complementing other means of support for NAMAs • Safeguardenvironmentalintegrity • Careful definition of boundaries to avoid emissions leakage • Ensuring net decrease / avoidance of GHG emissions • Assisting country parties to meet their mitigation targets • Ensure good governance and robust market functioning • Twopossibleapproaches: • Project based: compare to BAU scenario • Performance based: compare to relevant lower emitting practices

  12. New Market Mechanism 12 Source: IGES, 2012

  13. Concerns about FVA -NMM • hot air • the potential double counting of credits • the establishment of crediting standards baselines and commonalities of measurement • reporting and verification (MRV) • modalities for linking

  14. NAMAs A NAMA specifies voluntary activities of GHG emissions mitigation in developing countries that are not subject to mitigation commitments and can be supported by industrialized country financing technology or capacity building. 2 kinds of NAMAs: developed with domestic resources (“unilateral NAMAs”) and requesting international support (“supported NAMAs”). Financing is thought to be channeled through bilateral or multilateral donors or through facilities officially approved by the COP. Supported NAMAs could be co-funded through carbon offset credits generated for the amount of emission reductions achieved and traded on the carbon market (“credited NAMAs”). This concept is rather likely to evolve under a new market mechanism scheme. 14

  15. Scale of mitigation financing

  16. NAMAs NAMAs Ecofys, 2013

  17. Emission reduction potential by 2020 under NAMAs announced by developing countries (million tonnes CO2 eq.) Climate Connect, 2012

  18. REDD REDD is a mechanism to create an incentive for developing countries to protect, better manage and wisely use their forest resources, contributing to the global fight against climate change. REDD strategies aim to make forests more valuable standing than they would be cut down, by creating a financial value for the carbon stored in trees. The final phase of REDD involves developed countries paying developing countries carbon offsets for their standing forests. REDD aims at preserving forests so that their formidable economic, environmental and social goods and services benefit countries, communities, biodiversity and forest users while also contributing to important reductions in greenhouse gas emissions. REDD+ strategies go beyond deforestation and forest degradation, and include the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in reducing emissions. Tropical deforestation accounts for 12 to 15 percent of annual anthropogenic CO2 emissions (FEEM)

  19. REDD+ • Funding Countries: 17 • REDD+ Countries: 33 • REDD+ arrangements to date: 1294 • REDD+ projects in 2012 make up approximately 10% of the voluntary carbon market

  20. Framework of approaches 20 Source: IGES, 2012

  21. EDOARDO CROCI edoardo.croci@unibocconi.it 21

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