Carsten Warnecke of NewClimate Institute presents at COP 21 on "The status quo, prospects and outlook of market mechanisms". Wednesday, 2 December, 12.00, German Pavilion.

1. An overview of the status quo,
prospects and outlook of market
mechanisms
Side Event: Carbon market mechanisms – status, future and prospects
02 December, 2015 – COP21 Paris – German Pavilion
Carsten Warnecke - c.warnecke@newclimate.org

2. Content
Status quo of the CDM
RBF as alternative
Options for markets post Paris
Conclusions
02 December 2015 www.newclimate.org 2

3. Carbon Markets in Negotiations
3www.newclimate.org02 December 2015
COP 13 │ Bali Action Plan outlines ‘Various Approaches’ including opportunities of using
markets for enhanced mitigation
COP 16 │ Decides to consider establishment of one or more market mechanisms in COP 17
COP 17 │ Defines a New Market Mechanism (NMM)
AWG-LCA was requested to conduct a work programme on elaborating the modalities
and procedures of the NMM and to consider a ‘Framework for Various Approaches’
No substantive progress on elaborating the mechanisms thereafter
ADP 2-11 │ Draft agreement text Article 3 discusses cooperative approaches and a
‘mechanism to support sustainable development‘
COP 18 │ Work Programme on NMM and FVA transferred to SBSTA after the closure
of AWG-LCA; focus on outlining the key elements of the NMM and
elaborate FVA
2007
CDM opens for business2006
2010
2011
2012
2015

4. Status Quo of CDM projects
Registered CDM projects face substantial challenges due to record low
CER prices
Implemented projects may no longer be able to cover their operational costs
and/or transaction costs
Projects might not be implemented, shut down or modified for continuation
outside the CDM
Empirical analysis of the situation of CDM project activities on different
levels: globally, project types (26) and host countries (22)
Creation of a database with detailed information from 1075 projects;
sample approach representing ~ 80% of the CDM
>30 questions related to project status, CER marketing, barriers, costs,
and support
02 December 2015 www.newclimate.org 4

5. Projects implemented
Up to 85% of registered CDM projects with registration date in or before 2012 have full technical
implementation
Excl. China and India just up to 68% of projects are fully implemented
02 December 2015 www.newclimate.org 5
85%
6%
1%
1%2%
5%
<1%
Project
implementation
status
Fully implemented
Implementation / construction started
Investment decision made
Planning phase
No implementation planned
Dismantling of implemented activity
I do not know.
What is the technical
implementation status of
the CDM GHG mitigation
activity?
Source: Warnecke, Day, Klein 2015. Analysing the status quo of CDM projects: Status and prospects
http://newclimate.org/2015/05/16/analysing-the-status-quo-of-cdm-projects/

6. Projects operational
Up to 79% of registered CDM projects are in regular operation
Excl. China and India just up to 53% of projects are operational
The rate of operational projects globally could decline by 5% within the next 12 months
02 December 2015 www.newclimate.org 6
79%
3%
1%
1% 15%
CDM
component
operational
status
In regular operation
Regular operation temporarily stopped
Regular operation permanently stopped
Regular operation not started, no GHG
mitigation
No CDM-conformant operation, alternative
GHG mitigation equipment operating
I do not know
What is the operational
status of the CDM
component of the GHG
mitigation activity?
Source: Warnecke, Day, Klein 2015. Analysing the status quo of CDM projects: Status and prospects
http://newclimate.org/2015/05/16/analysing-the-status-quo-of-cdm-projects/

7. 0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
CER revenues still sufficient
CDM still required to overcome non-financial barriers
A stop of the GHG mitigation equipment does not result in cost savings
The investment (decision) is irreversible.
Continuation is required due to binding legal contracts.
Continuation is required by national laws or regulations.
Project activity / emission source will be covered under an ETS
Expectations exist to receive alt. support or convert to alt. project scheme
Other reason.
Responses: 543 Error margin: 10%
Project continuation
CER revenues sufficient for
<3% of implemented projects
High rate of irreversible
investments (N2O lowest)
Expectations for altern. support
63% of N2O discontinue before the end of the CP, 10% continue outside the CDM
02 December 2015 www.newclimate.org 7
Despite the recent drop in CER prices, what
are the reasons to continue with the CDM
GHG mitigation activity?
Source: Warnecke, Day, Klein 2015. Analysing the status quo of CDM projects: Status and prospects
http://newclimate.org/2015/05/16/analysing-the-status-quo-of-cdm-projects/

8. Price requirements
For 53% CER prices below €5 are sufficient to continue V&I activities
Low price requirements might include acceptance of sunk costs
Asian countries show trend for being able to continue with lower prices
N2O, HFC and wind with lowest price requirements
02 December 2015 www.newclimate.org 8
What CER price level is required by the
project to continue verification &
issuance activities?
Source: Warnecke, Day, Klein 2015. Analysing the status quo of CDM projects: Status and prospects
http://newclimate.org/2015/05/16/analysing-the-status-quo-of-cdm-projects/

9. RBF in a nutshell
RBF is a financing modality not a new mechanism
Finance is dispersed upon achievement of predefined
result (ex-post)
Inherent in existing climate finance mechanisms, CDM,
REDD and discussed in the context of NAMAs and the
GCF
Benefits for carbon markets: Short term support
through CER purchase and cancelation
Benefits for climate finance: Quantification of short-
term interventions with proven approaches
02 December 2015 www.newclimate.org 9

10. Range of RBF variety
RBF variety in climate policy
02 December 2015 www.newclimate.org 10
Upfront payment
Payment on
results –
quantitative/
qualitative
Payment on
results - tCO2e
based
Grant/
concessional
finance
(e.g. ODA)
Payment for
mitigation (e.g.
CER purchase &
retirement)
Advanced market
commitments
(e.g. FIT)
Payment for eco
systems services
(e.g. REDD)
Methodological stringency
High certainty of outputs
Strong verification need
Long term (indirect) impacts
Development benefits
Address multiple barriers
Payment for
mitigation (e.g.
NAMA)
Carbon Market
Mechanisms
(e.g. CDM)
Tradable units/
offsets (tCO2e)
Source: Warnecke, et al. 2015. Connecting the dots - Results-based financing in climate policy,
http://newclimate.org/2015/08/27/connecting-the-dots-results-based-financing-in-climate-policy/

11. Options for market mechanisms
in international cooperation
11
Outcome based
targets (e.g. absolute
emissions target)
Individual actions (e.g.
domestic carbon
market mechanisms)
Sector based targets Potentialelementsand
supportingpolicies/programmes
forimplementation
International market
mechanism
Part of the
international
contribution that
is to be achieved
through domestic
emission
reductions
Additional
international
contribution that
is to be reached
through the
purchase of
international
offset credits
Additional reductions
achieved for selling as
international offset
credits
Country without additional
offset target or selling
opportunities
Outcome based targets
Individual actions
Sector based targets
ContributioncountryB
Option 3: Carbon market instruments to implement the domestic part of
the international contribution, possibly linked
InternationalactionDomesticaction
ContributioncountryA
Option 1
Climate financing
Purchase and retirement of credits
Option 2
Links
Outcome based targets
Individual actions
Sector based targets
ContributioncountryC
02 December 2015 www.newclimate.org
Source: Höhne, Warnecke, Day, Röser 2015. Carbon market mechanisms in future international cooperation on climate change
http://newclimate.org/2015/06/09/market-mechanisms-in-future-international-cooperation-on-climate-change/

12. Conclusions
Use of markets is an important policy instrument in many countries
Sizeable number of Parties express use of markets in achieving
their mitigation objectives
International market mechanism cooperation remains important
and vital
Country ambition still not high enough to close the emission gap
Range of policies and mechanisms needed to reduce this gap
International markets might serve as ambition raising mechanism
02 December 2015 www.newclimate.org 12

13. Thank you for your attention!
Carsten Warnecke, NewClimate Institute
c.warnecke@newclimate.org
Further reading:
www.newclimate.org/publications
Connecting the dots - Results-based financing in climate policy
- July 2015
Carbon market mechanisms in future international cooperation on climate change -
June 2015
Analysing the status quo of CDM projects: Status and prospects
- May 2015
02 December 2015 www.newclimate.org 13

14. Agenda Item Presenter
Introductory remarks Niklas Höhne (NewClimate Institute)
An overview of the status quo, prospects and outlook of
market mechanisms
Carsten Warnecke (NewClimate Institute)
Potential offset demand from international transport
and availability of supply
Martin Cames (Öko-Institut)
Quantifying the current mitigation impact of the Clean
Development Mechanism
Thomas Day (NewClimate Institute)
Results-based climate funding through crediting
mechanisms – Assessment of key design options
Lambert Schneider (Associate to SEI)
Respondent Silke Karcher (BMUB)
Q & A
Side Event
Carbon market mechanisms
– status, future and prospects
www.newlimate.org