Session 1 presentation from the 3rd Strategic Dialogue of the Carbon Market, 21-22 September 2018

1. Advancing Linked Carbon
Pricing Instruments
Governance of Carbon Pricing Clubs
Frédéric Gagnon-Lebrun
Carbon Market Platform
Halifax - September 2018

2. Advancing linked carbon pricing instruments September 2018
Preview
1. Why Carbon Pricing Clubs?
2. Lessons on governance from non-climate institutions
3. Take-Aways for Carbon Pricing Clubs

3. Advancing linked carbon pricing instruments September 2018
Why Carbon Pricing Clubs?
• To drive greater mitigation ambition by encouraging use of robust, high-integrity
carbon pricing instruments
• A “Club” could offer multiple exclusive benefits:
• Benefits of linkage (liquidity, price stability, market access, reduced risk of leakage)
• Reduced barriers to policy adoption/common infrastructure
• Reputational benefits
• Enhanced access to low carbon investment capital
• Info sharing/capacity building
• “Clubs” could:
• Help create standards and guidelines for environmental integrity that are
complementary to Paris Agreement
• Inform the development of Paris Agreement’s multilateral guidance

4. Advancing linked carbon pricing instruments September 2018
Clubs could combine homogeneous or heterogenous instruments
Phased approach to club creation
Cooperation on
standards and
guidelines
Linking
between
heterogeneous
instruments
Gradual
harmonization
of instruments

5. Advancing linked carbon pricing instruments September 2018
What governance models could
support a deepening of cooperation?
Challenges:
1. Ensuring environmental integrity and effectiveness
2. Adapting to changing circumstances
3. Addressing administrative costs and burdens
4. Engaging existing and new members

6. Advancing linked carbon pricing instruments September 2018
4 non-climate institutions
Membership
Decision-making
Review and enforcement
Dimensions of cooperation

7. Advancing linked carbon pricing instruments September 2018
Membership
1. Membership of different types of jurisdictions
2. Exclusive benefits are a strong source of motivation to comply with
the rules, but it is no guarantee of success
• Reputational benefits, attracting investment (OECD)
• Risk of loosing tax revenues (IFTA)
• Access to new technology and participation in programs (MTCR)
3. Members act as gatekeepers to ensure policy coherence and
integrity of the group

8. Advancing linked carbon pricing instruments September 2018
Membership – Accession and exiting
1. Strict criteria to assess both the suitability of a candidate and
implications of a new member for the organization
2. Accession rules can be used as self-assessment tools
3. Membership conditions need to evolve
4. No provisions for leaving an organisation

9. Advancing linked carbon pricing instruments September 2018
Decision-making
1. Evident need for a support function for:
• Research and technical advice
• Administration of programs
• Reviewing performance of members
2. Secretariat has limitations
• Policy-making and enforcement remain the prerogative of members
3. Consensus at first, other decision-making models as organization grows
• Consensus needed for standard-setting
• 2/3 majority vote for decisions / 3/4 majority vote for amending the
Agreement (IFTA)
-

10. Advancing linked carbon pricing instruments September 2018
Promoting compliance
1. Review can be voluntary or mandatory
2. Facilitative approaches based on reviews can be effective and easier
to negotiate
• Peer reviews can help reduce costs and may become increasingly
important as organizations mature
• Possibility to request an ad hoc peer-review can promote compliance.
3. Enforcement mechanisms through individual members holding each
other to account:
• Mandatory audit programs run by members, possibility to vote for expulsion or
trigger the dispute resolution mechanism (IFTA)

11. Advancing linked carbon pricing instruments September 2018
Key Take-Aways for Clubs
1. Paris Agreement recognizes the role of linked carbon pricing instruments,
but leaves it up to governments to create the “market”
2. Clubs can encourage climate action anchored in domestic policies and
foster greater ambition
3. Dilemma between small, highly exclusive group and broadening
participation
4. Phased approach calls for gradually developing institutions, capitalizing on
the benefits of early cooperation