New Publication: Transformative Potential of the New Market Mechanism

by Lukas Hermwille, myself and Christof Arens

There is general agreement that preventing dangerous climate change requires a fundamental transformation of the global economy. Regarding carbon markets, the EU, for example, has called for the new market-based mechanism (NMM) to be established under the UNFCCC to “facilitate transition towards low carbon economy and attract further international investment” (EU 2012). Our paper discusses the transformative potential of the NMM and how it should be structured to maximize transformative impact.



New Publication: Developing a sectoral new market mechanism: insights from theoretical analysis and country showcases

by myself, Hans Bolscher, Jeroen van der Laan, Jelmer Hoogzaad & Jos Sijm

Update: The article can be downloaded for free for a limited time here.

Parties to the United Nations Framework Convention on Climate Change (UNFCCC) have decided to establish a ‘new market- based mechanism’ (NMM) to promote mitigation across ‘broad segments’ of developing countries’ economies but have so far defined only some broad outlines of how it is to function. This article in Climate Policy identifies key design options of the NMM based on a survey of the literature and reviews them against a range of assessment criteria. Furthermore, potential application of the NMM is analysed for five country-sector combinations. The analysis finds that lack of data and of institutions that could manage the NMM are key bottlenecks. In addition, the analysis reveals the existence of substantial no-regret reduction potential, suggesting that sectors may not be sensitive to the market incentives from an NMM. Governmental capacity building and Nationally Appropriate Mitigation Actions (NAMAs) might be more appropriate in the short term, preparing the ground for the adoption of market-based approaches at a later stage. NMM pilots could be based on supported NAMAs but should ideally generate tradable and compliance-grade emission credits in order to fully simulate the real-life conditions of an NMM.

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.


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.

Sands Are Running Out for Climate Protection – Wuppertal Assessment of the Doha Climate Conference

As usual, the Wuppertal Institute has produced a comprehensive report on the Doha climate conference, below is the introduction.

Once again the UN climate process was saved at the eighteenth Conference of the Parties (COP 18) to the United Nations Framework Convention on Climate Change (UNFCCC) and the ninth Conference of Parties serving as the Meeting of the Parties to the Kyoto Protocol (CMP 8). In an unprecedented manoeuvre on Saturday evening, with the conference already a full day in overtime, COP President Al-Attiyah rush-gavelled through the key decisions in 2 minutes and overruled Russia’s procedural objection. In the last days of the conference, many had already seen the talks close to collapse and were wondering whether a COP 18bis would need to be reconvened in 2013, as had been the case after the collapse of COP 6 in The Hague in 2000.


New Publication on UNFCCC Framework for Market-Based Approaches (Wonkish)

Theres a new paper out by Joëlle de Sépibus, Andreas Tuerk and myself. It’s a preliminary version, so comments are most welcome. Here’s the abstract:

Top-down, Bottom-up or In-between: How Can a UNFCCC Framework for Market-Based Approaches Ensure Environmental Integrity and Market Coherence?

The Durban Climate Conference agreed on the creation of a new market-based mechanism under the United Nations Framework Convention on Climate Change (UNFCCC) and to consider the establishment of an overall framework for various mitigation approaches, including opportunities for using markets (“Framework”). This development is taking place against the background of increasing numbers of parties developing market mechanisms outside the UNFCCC. The creation of such a Framework is therefore of high political significance, as it should ensure on the one hand that new market-based mechanisms contribute to global climate change mitigation and to achievement of targets and on the other hand that different market-based approaches can be integrated in a global carbon market. As there is yet little clarity as to the roles and design of such a framework, this paper contributes to the debate by discussing and evaluating inter alia several design options, ranging from decentralised to centralised. The paper concludes that a strong central oversight at the level of the UNFCCC is probably the only option that could comfortably assure the vast majority of UNFCCC Parties that the environmental integrity of new market-based mechanisms is in fact ensured.

On the Usefulness and Prospects of New Market Mechanisms (Wonkish)

Below are the abstracts and links to two new publications by me on new market mechanisms (NMMs) under the UNFCCC that got published recently. In a nutshell, there is quite a long way to go.

In addition, I attended a workshop on NMMs last week where somebody asked the impertinent question what exactly we need NMMs for. Two answers were given by the other participants: increasing the supply of offsets and moving developing countries towards common emissions accounting.


Bonn Side Event Presentations Online

For those interested in the arcana of new market mechanisms and NAMAs, I was involved in three side events at the latest Bonn climate talks and the presentations are now all online on the UNFCCC side event list and linked to below. With particular thanks to Joelle de Sépibus and Harald Winkler for speaking at the side event organised by the Wuppertal Institute.


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.


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.