Wild West Carbon Markets

30 November 2012

The LCA is discussing the establishment of a new market mechanism (NMM) and a Framework for Various Approaches (FVA), including the use of markets. But well into the 1st week, it is still unclear what these two work programmes could be about. 

There is a common view that the FVA is supposed to give recognition to national emission reduction systems and, if Parties want to, make the emission reductions units that are achieved by these systems internationally tradable and eligible for meeting national emission reduction targets (QELROs). Under the NMM on the other hand, countries could put forward national emission reduction systems to the UNFCCC to be approved for the issuance of credits. Both work streams could end up hosting the same types of emission reduction systems, ranging from market-based instruments to renewable feed-in tariffs. ECO is therefore wondering why bother with two different work streams?! 
The answer is clear if one looks at the politics. Although the same types of emission reduction systems could be hosted, the NMM requires international common standards and UNFCCC approval before credits could be issued and used for compliance. The FVA on the other hand could allow countries to develop whatever systems they want and offer the resulting emission credits for compliance without the UNFCCC taking a close look at them, something strongly wished for by Japan, New Zealand and the US. 
If the FVA became part of a new agreement mandated by the Durban Platform, this would potentially enable Parties to meet part of their commitments using units of other domestic market mechanisms.
This means that future carbon markets could resemble the wild west, where units from multiple market and non-market mechanisms are traded wildly and internationally. In a world without a clear set of international standards, this wild trading would certainly lead to double, potentially triple counting and would leave us with no certainty on how much 1 tonne of CO2 really is. 
Before any firm decision on either the NMM or the FVA can be taken, delegates need to get their heads around what they actually want and whether we really need more carbon credits. ECO calls for caution: any decision must depend on a set of international standards that guarantee real, permanent, additional and verified emission reductions, including a registry for transparent accounting and tracking of all emissions units, economy and sector emission caps, and transactions. These standards must also ensure that mitigation actions secure global net atmospheric benefits, avoid double-counting and deliver sustainable development benefits.
Dear delegate, take a good look at the lessons learnt with the JI: centralised governance for international consistency of standards hasn’t worked. Step down from your horse and start working on common core standards!

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