Presentation by Perspectives' Axel Michaelowa and Matthias Honegger at Carbon Expo 2015 in Barcelona: What is the status of mitigation contributions by Parties to the United Nations Framework on Climate Change and what could be the implications for carbon markets if more countries decided to utilize international trading mechanisms for achieving ambitious and cost-effective mitigation targets?

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Market mechanisms in INDCs
27 May 2015
Carbon Expo, Barcelona
Axel Michaelowa, Matthias Honegger
Perspectives GmbH

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Topics
2
§ General status of INDCs
§ Possible roles of market mechanisms in INDCs
§ Buyer countries
§ Seller countries
§ Current status of mechanisms in published INDCs
§ Challenges and opportunities in the run-up to Paris
§ Challenges and opportunities for the post-Paris process

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General status of INDCs
3
§ Lima COP defined bare minimum elements
to be published in INDCs
- Quantified reference point (base year)
- Time frames and/or periods for implementation
- Scope and coverage
- Planning processes, assumptions, methodologies
No guidance regarding international
transfer of “mitigation outcomes”
§ Only 10 countries published INDCs so far
- March deadline passed without any stir
- September deadline seems to be slipping

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Possible roles of market mechanisms in INDCs
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§ "Buyer": Mechanisms can be used to
acquire emission credits/"units" from
other countries
- “Top-up“: increase of target through market
mechanism
§ "Seller": Mechanisms can be used to
sell emission credits/"units" to other
countries
§ Unavailable: explicit exclusion of
mechanisms
Emissions
budget

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Buyer countries
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§ Interest to reduce their mitigation cost
through acquisition of units
§ Can specify type of mechanism(s) they
would like to use
- Kyoto Mechanisms, new market mechanisms
- Bilateral mechanisms
§ Can define the principles that underpin
their use of mechanisms
- Real, additional, verifiable, supplemental, interaction with
climate finance, …

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Seller countries
6
§ Interest to generate “means of
implementation” through sale of units
- “Conditional goals” that depend on revenues from
mechanisms
§ Can specify type of mechanism(s)
they would like to use
§ Can define the principles that
underpin their use of mechanisms
- Share of credits for own use, quality criteria (?)
- Interaction with climate finance

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Current status of market mechanisms in published INDCs
7
Country Buyer Seller Type of mechanisms
Switzerland X
CDM, international mechanisms delivering real, permanent, additional and
verified mitigation outcomes meeting high environmental integrity standards
EU Unavailable, maybe top-up?
Norway (x)
Join the EU “bubble” (without access to international units), but support
mechanisms and continued CDM and JI
Mexico X
Global market mechanism, conditional goal (15% more stringent) to
rely on bilateral, regional or international market mech.
United States Unavailable “at this time“, maybe top-up?
Russian Federation Unavailable
Gabon X National sustainable development fund to sell domestic carbon credits
Liechtenstein X Conditional on use of “emissions reductions abroad“
Andorra Unavailable
Canada X International mechanism

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Challenges and opportunities in the run-up to Paris
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§ Market mechanisms are a negotiation chip that
governments want to keep for the Paris endgame
- Some countries push to apply lessons learned from CDM
- Net mitigation contribution remains unresolved controversial issue
§ Many countries are in a rush to define their INDC with
limited resources, where market mechanisms distract
§ Opportunities for consultants, researchers and NGOs
- Make a clear case why market mechanisms can increase ambition and should be
integral part of Paris agreement
- Provide conceptual clarifications e.g. regarding double counting of credits and
(non-?)accounting of revenues from market mechanisms as climate finance

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Opportunities and challenges for the post-Paris process
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§ Agreeing on and providing sufficient resources for a work
programme for defining rules of various types of mechanisms to
increase trust in the integrity of mechanisms on the buyer side
- Pilot activities on various scales
- Linkages of market mechanisms and climate finance
§ Bringing in market mechanisms into NDCs of buyer countries that
have not unambiguously excluded the mechanisms
§ Bringing in the private sector through manageable rules and long-
term, trustworthy incentives
- Prevent second “boom and bust“ cycle (“once bitten, twice shy”)

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Thank you!
Axel Michaelowa, michaelowa@perspectives.cc
Matthias Honegger, honegger@perspectives.cc