New Publication: Role of Market Mechanisms in Intended Nationally Determined Contributions

Market mechanisms – the Clean Development Mechanism (CDM), Joint Implementation (JI) and Art. 17 emission trading – have been a central feature of the Kyoto Protocol. The shape of the new climate change agreement to adopted at this year’s climate change conference in Paris is emerging only slowly, including the role market mechanisms will play. In order to assess the potential scope of market mechanisms in the Paris agreement, this new JIKO Policy Brief surveys the intended nationally determined contributions (INDCs) to the new agreement which countries have so far submitted. The paper is now available for download.

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New Publication: Human Rights and the Clean Development Mechanism

The 2010 UN climate conference in Cancún emphasized that ‘Parties should, in all climate change related actions, fully respect human rights’. However, so far there is no further guidance. This article in the Cambridge Review of International Affairs discusses the relevant legal human rights norms and two case studies from the Kyoto Protocol’s Clean Development Mechanism (CDM). The first case (Bajo Aguán, Honduras) shows that the current absence of any international safeguards can lead to registration of highly problematic projects. The second case (Olkaria, Kenya) suggests that safeguards, introduced here as a side effect of World Bank involvement, can have a positive impact, but that it is necessary to have them based on human rights. It therefore seems recommendable that the UN climate regime develop mandatory human rights safeguards. In addition or alternatively, individual buyer countries or groups of countries, such as the European Union, could introduce their own additional requirements for CDM projects.

The article is available for free download for a limited time here.

Climate News of the Week Roundup: Germany Projected to Miss Emission Targets Due to New Government’s Energy Policy

This week’s roundup covers a sobering analysis of what impacts the new German government’s energy policy can be expected to have, an analysis of whether the major economies will meet their 2020 pledges, the US tabling its vision for the 2015 climate agreement, an analysis of the Boxer-Sanders climate bill, a proposal for breaking the deadlock on a 2030 EU renewables target, Denmark’s cross-party consensus to be a climate frontrunner, India switching water pumps from diesel to solar, a vision of the Western Balkans as new Desertec, the results of the first year of free public transport in Talinn, and another major sign of the collapse of the Clean Development Mechanism.

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Climate News of the Week Roundup: Chinese Coal Peak and US Solar Take-Off Ahead?

This week’s roundup covers projections on China and the US that sound rather too good to be true, news on renewables advancing in Australia and Brazil, the Australian election, a study saying that China’s PV manufacturing cost advantage mostly comes from the scale of production rather than labour costs, double standards for fracking and wind turbines in local permitting, an Indian passage to Germany to take a look at the energy transition, the G20 agreeing to address hydrofluorocarbons under the Montreal Protocol, the EU caving on aviation emissions, a Wuppertal Institute submission to the UNFCCC on the 2015 climate agreement, an adelphi-Wuppertal discussion paper on new offset systems and the CDM, and more.

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New publication: The Clean Development Mechanism as Glue for the International Carbon Market?

Cross-post from the Wuppertal Institute website.

Discussion paper analyses new systems and evaluates problems of the CDM

During the first Kyoto commitment period, the Clean Development Mechanisms (CDM) emerged to be the global currency for emissions trading. However, the CDM has not been without its critics, who have raised questions with regard to the additionality of projects, the mechanism’s bureaucracy and transaction costs, and the unequal regional distribution of projects. Efforts to reform the CDM are underway, but at the same time the global carbon market faces a prospect of fragmentation as other domestic and international offset systems are developed by various jurisdictions. Prominent examples include Japan’s development of a Joint Crediting Mechanism / Bilateral Offset Credit Mechanism (JCM/BOCM) and the development of offset protocols in the framework of the emission trading systems (ETS) that are being established by California and Québec. Australia is also developing its own domestic offset mechanism in addition to allowing the use of Kyoto units in its domestic ETS starting in 2014.

The design of new systems can, among other aspects, be considered as a reaction to the perceived failings of the CDM and an evaluation of their characteristics may therefore contribute to discussions on how to reform the CDM to help continue its “glue” role in international carbon markets. A new paper by Wolfgang Sterk (Wuppertal Institute), Aki Kachi and Dennis Tänzler (adelphi) therefore explores perceived issues with the CDM as reflected in statements on CDM reform from these jurisdictions and the decisions they have made in establishing their own systems.

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Climate News of the Week Roundup: Scientific Consensus Confirmed for Umpteenth Time, But Will It Make a Difference?

This week’s roundup features another confirmation of the scientific consensus on climate change but also the question of its relevance, the quality of BBC climate reporting apparently having stalled (thanks to Tomas Wyns for this line), the future of emission trading in Australia, the EU and South Korea, the future of the Clean Development Mechanism, questions on the longevity of the US “shale gas revolution”, a speech by former top UK climate diplomat John Ashton on the politics of climate change, and more.

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Austrian Climate Change Workshop Discusses Future of Carbon Market in EU and Globally (Wonkish)

I was at the Austrian Kommunalkredit’s annual climate change workshop last week, presenting on a new study we did with others on design options for the UNFCCC’s new market mechanism on behalf of the European Commission. All presentations can be viewed and downloaded here, the following summarises some of my personal highlights from the discussions, which covered in particular the results from Doha, the EU ETS, the future of the CDM and new market mechanisms.

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New Publications on the CDM as a Global Standard (Or Not), City-Wide PoAs and the New Market Mechanism

Me and colleagues got out a couple of new publications at the end of last year. Below are the abstracts and links to the papers.

Design options for sectoral carbon market mechanisms

The European Commission has published a study on the design options for the new market mechanism (NMM) that last year’s UN climate conference in Durban agreed to develop. The study was carried out by a consortium of consultants consisting of Ecorys, ClimateFocus, the Energy Reseach Centre of the Netherlands and the Wuppertal Institute.

The NMM is broadly understood as a mechanism that will scale-up greenhouse gas emission reductions in broad segments of economies, such as sectors, in developing countries. In contrast to the existing carbon market mechanisms under the Kyoto Protocol, for instance the clean development mechanism (CDM), the NMM would go beyond pure offsetting and produce a net atmospheric benefit.

The study provides recommendations to the Commission on the design of NMMs and the abatement options they could incentivize. It presents three alternative design proposals for NMMs and tested one of these proposals by applying it in theoretical case studies in five sectors in five developing countries: the steel sector in Brazil, the power sector in Chile and South Africa, refineries in Indonesia and the cement sector in Vietnam.

Prospects for CDM in Post 2012 Carbon Markets

What happens after the Kyoto Protocol: Will the project-related carbon market disintegrate and lead to separate national systems? Throughout the world new emissions trading systems are being established but without consistent international structures trading certificates from project-based mechanisms such as CDM (i.e. climate projects in developing or newly industrialising countries) is hampered.

DEHSt’s new discussion paper analyses how the CDM must be developed in order to keep it fit for the future.

City-Wide Programmes of Activities – An Option for Significant Emission Reductions in Cities?

This paper analyses whether city-wide approaches to carbon finance under the Clean Development Mechanism (CDM) are a viable option for significant emission reductions in cities. For this purpose, the paper provides an overview of emission sources and possible mitigation activities in cities, discusses the current role of developing country cities in the CDM and identifies the main barriers that hinder the engagement of cities in the carbon market. The authors then anaylse the CDM methodologies suitable for urban projects and review a proposal on a city-wide CDM PoA. The paper concludes with a discussion of alternative approaches to tap mitigation options in cities.

Some Figures on Carbon Market Supply Glut (Wonkish)

Sandbag has produced another interesting report on the EU ETS. They compare the demand that was expected when the post-2012 rules were agreed in 2008 to what is projected today. And find that thanks to the recession cumulative demand is now 2.2 gigatonnes less than was expected in 2008. Further, they argue that even the original caps for industry were overallocated by 900 million tonnes. And that 78% of the surplus allowances accrued to date can be attributed to only ten steel and cement companies, who have confirmed revenues of at least €1.8 billion from the sale of allowances. They suggest that 3.1 Gt should be withdrawn from the EU ETS, more than twice as much as the 1.4 Gt that are so far the upper limit in the political discussion.

In addition, I just noted these figures on global supply and demand in the World Bank’s latest State and Trends of the Carbon Market: It estimates that based on current pledges demand for offsets over the period 2013-2020 may lie in the range of 2,156 to 2,706 Gt CO2-eq. while supply from CDM and JI may lie in the range of 2.3 to 4.8 billion credits. “One can conclude that the supply of existing current Kyoto mechanisms, i.e. CDM and JI, may be sufficient alone to serve global demand for international offsets over 2013-2020.”

Unsurprisingly, cdc climat recently predicted that prices for Kyoto credits might drop to zero within the next two years.

Oh, and in addition to rendering the carbon market non-functional, current emission reduction pledges are also rather inadequate in terms of actually achieving the 2°C target. Of the at least 12 gigatonnes of emission reductions we need in 2020 to get on a trajectory to stabilise temperature increase below 2°C, so far less than 3 Gt have been secured

New Publication: Sectoral Approaches as a Way Forward for the Carbon Market?

UNEP Risø’s annual “Perspectives” publication has an article by me on possible new sectoral carbon market mechanisms on pages 113-126.

Abstract

For almost ten years now, there has been a discussion to scale up the project-based Clean Development Mechanism (CDM) or complement it with new carbon market mechanisms. This article aims to analyse in how far the proposed new mechanisms do actually hold promise for improving and going beyond the current CDM. The paper first looks at how the new mechanisms would be defined and would operate based on the current status of discussions. Second, the paper analyses possible advantages and disadvantages of the new mechanisms. Key questions in this respect are how robustly emission reductions could be quantified under the new mechanisms, what incentives the new mechanisms would provide for reducing emissions, and which sectors and countries would in practice be able and appropriate for employing new mechanisms.

Many of the other articles are quite interesting as well.