The New Market Mechanism

Emissions Trading – Developments in China & Europe Workshop

25th April 2012

Dr Luke RedmondLuke.Redmond@ucd.ie

“THE DURBAN PLATFORM”

“Durban Platform for Enhanced Action” (Dec 2011)

• EU and other nations to sign up to new targets under the Kyoto Protocol – “Commitment Period 2”

• - CP2: 2013 – 2017/2020

• Development of a new climate framework & architecture involving all countries by 2015 with implementation of signatories’ emissions targets no later than 2020.

DURBAN & THE NEW MARKET MECHANISM

New Market Mechanism Progress

• At Durban a New Market Mechanism was “defined”

• “Defining” NMM implies “de facto establishment”

• 2012 work programme to elaborate on the Modalities & Procedures for NMM

• March 5th Party submissions on Modalities & Procedures

THE NEW MARKET MECHANISMNew Market Mechanism Aims

• To enhance cost effectiveness of & to promote mitigation for both developed & developing countries

• Scaled-up market mechanism deployed in developing countries generating carbon credits for compliance use within UNFCCC framework

• NMM to move away from pure offsetting by recognising own reduction contributions of developing countries, i.e. facilitating NET REDUCTIONS

• Leverage more private capital & provide incentives for cost-effective mitigation policies in developing countries

• Improve governance & efficiency of market-based mitigation

NEW MARKET MECHANISM OPERATIONAL OVERVIEW

EU Overview

Top-down(UNFCCC)

Bottom-up(Host developing country &

project developers)

NEW MARKET MECHANISM TRADING FORM

NMM Market Approach

Baseline & Credit Cap & Trade

Initial report is reviewed by Independent Review Team

Issuance of credits or units

Host country proceeds with implementation of NMM

A developing country prepares an Initial Report: - Chooses coverage (i.e. sectors and gases) based on common definitions where possible - Estimates baseline emissions pathway for these sectors and gases based on methods and criteria agreed in M&P - Chooses a trading and/or crediting route - Determines crediting threshold or target for broad segment of economy based on criteria or methodology agreed in M&P - Chooses the domestic actions it will undertake to reach this threshold or target - Assesses the risk of carbon leakage to sectors not covered by the threshold/target and presents any measures necessary to address it - Demonstrates it meets participation requirements 

Host country produces an annual report

Annual report is reviewed by Independent Review Team

Assessment by IRT if requirements in M&P and relevant guidance are met;any question of implementation

Implementation Committee

Assessment, incl. any question of implementation

Implementation Committee

Resolve any outstanding question of implementation

Resolve any outstanding question of implementation

MRV of em

issions in broad segment of econom

y covered

NMM OPERATIONAL CYCLE

INITIAL REPORT DEVELOPMENT

Trading &/or Crediting Choice

- Choose trading and/or crediting route

Baseline Emissions Pathway Estimates - Baselines estimated in accordance with internationally agreed methodology- Baselines not pure extrapolations of historical developments- Baseline established in absolute or relative terms

NMM Coverage Choice- Choose coverage (i.e. sectors & gases) based on agreed international definitions, e.g. IPCC inventory guidelines

INITIAL REPORT DEVELOPMENT (CONTINUED)

Satisfaction of UNFCCC NMM Participation Requirements

- Established MRV system in accordance with international standards - Host country has in place a functioning registry or arrangements for use of an international registry administered by the UNFCCC secretariat. - Appointment of competent authority for NMM implementation

Domestic Action & Carbon Leakage - Describe domestic measures & actions to reach thresholds/targets- Assess carbon leakage risk to sectors not covered by thresholds/targets and present measures to address leakage

Crediting Threshold or Emissions Targets- Determine crediting threshold/targets according to international methodology/criteria- EU: “thresholds/targets need to ensure net decrease of emissions”- Thresholds/targets should reflect respective capabilities in the sector and the country to undertake appropriate own action

Initial report is reviewed by Independent Review Team

Issuance of credits or units

Host country proceeds with implementation of NMM

Initial Report 

Host country produces an annual report

Annual report is reviewed by Independent Review Team

Assessment by IRT if requirements in M&P and relevant guidance are met;any question of implementation

Implementation Committee

Assessment, incl. any question of implementation

Implementation Committee

Resolve any outstanding question of implementation

Resolve any outstanding question of implementation

MRV of em

issions in broad segment of econom

y covered

NMM OPERATIONAL CYCLE

NMM GOVERNANCE

International Governance

NMM Coverage Definitions

Crediting Threshold/

Target Criteria

Approval of Thresholds

/Targets

Registry Standards & Facilitated

Participation

Initial & Annual Report Review

MRV Protocols

Emissions Baseline Estimate

Methodologies

NMM GOVERNANCE (CONTINUED)

Host Country Governance

Choosing NMM Coverage

Choosing trading or

crediting route

Issuing credits

Defining Domestic Actions

Determining crediting

thresholds/ targets

Appointing Competent Authority

Estimating Emissions Baselines

NMM ISSUES

Many Issues Remain:• Long-term interaction with CDM?

• Who can use NMM credits?

• How will NMM interact with NAMAs?

• How will NMM provide appropriate incentives to undertake mitigation action under the Convention?

• What is the role of the private sector in developing & implementing NMM?

• How will NMM create incentives to leverage private sector capital?

NEXT STEPS

Bonn• Inter-Party discussion on Modalities & Procedures

submissions

• Common & acceptable NMM design template??

Bangkok● Drafting of acceptable Modalities & Procedures decision

Doha – COP 18• Adoption of decision on Modalities &

Procedures??

Thank you for your attention

Contact: Luke.Redmond@ucd.ie