Overview of the role of Market Mechanisms Climate Change and Sustainable Development Delhi April 2006 Edwin Aalders Manager IETA
The Objectives of Market Mechanism To provide an effective mechanism that results in emission reductions at a least cost option.
The alternatives to Market Mechanism Taxation – Receivables spend on procurement programmes to obtain Kyoto Units Able to direct resource to Sustainable Development Subsidies – Stimulating technologies with lower emission (green energy – NL) Subsidies can direct itself to technologies that focus on Sustainable Development Both option normally result in relative higher costs to the overall programme / society
The advantages to Market Mechanism Bring together potential users and sellers in an environment that both can gain from the interaction Allows & Drives innovation and cost reductions Creates competition
The disadvantages of the Market Mechanism Allocation always results in winners & losers Can be complex Auction Burden sharing Sustainable development not always clearly addressed in the line with expectations (HFC 23 versus renewable energy) Economic of Scale disadvantaged against small scale projects
Example of Market Mechanism US NOx & SOx programme European Union Emission Trading System UK Emission Trading System New South Wales California Climate Action Registry Chicago Climate Exchange Japanese Emission Trading System
For more Information International Emissions Trading Association Edwin Aalders