The New Market Mechanism Emissions Trading – Developments in China & Europe Workshop 25 th April 2012 Dr Luke Redmond

“THE DURBAN PLATFORM” “Durban Platform for Enhanced Action” (Dec 2011) EU and other nations to sign up to new targets under the Kyoto Protocol – “Commitment Period 2” - CP2: 2013 – 2017/2020 Development of a new climate framework & architecture involving all countries by 2015 with implementation of signatories’ emissions targets no later than 2020.

DURBAN & THE NEW MARKET MECHANISM New Market Mechanism Progress At Durban a New Market Mechanism was “defined” “Defining” NMM implies “de facto establishment” 2012 work programme to elaborate on the Modalities & Procedures for NMM March 5 th Party submissions on Modalities & Procedures

THE NEW MARKET MECHANISM New Market Mechanism Aims To enhance cost effectiveness of & to promote mitigation for both developed & developing countries Scaled-up market mechanism deployed in developing countries generating carbon credits for compliance use within UNFCCC framework NMM to move away from pure offsetting by recognising own reduction contributions of developing countries, i.e. facilitating NET REDUCTIONS Leverage more private capital & provide incentives for cost-effective mitigation policies in developing countries Improve governance & efficiency of market-based mitigation

NEW MARKET MECHANISM OPERATIONAL OVERVIEW EU Overview Top-down (UNFCCC) Bottom-up (Host developing country & project developers)

NEW MARKET MECHANISM TRADING FORM NMM Market Approach Baseline & CreditCap & Trade

Initial report is reviewed by Independent Review Team Issuance of credits or units Host country proceeds with implementation of NMM A developing country prepares an Initial Report: - Chooses coverage (i.e. sectors and gases) based on common definitions where possible - Estimates baseline emissions pathway for these sectors and gases based on methods and criteria agreed in M&P - Chooses a trading and/or crediting route - Determines crediting threshold or target for broad segment of economy based on criteria or methodology agreed in M&P - Chooses the domestic actions it will undertake to reach this threshold or target - Assesses the risk of carbon leakage to sectors not covered by the threshold/target and presents any measures necessary to address it - Demonstrates it meets participation requirements Host country produces an annual report Annual report is reviewed by Independent Review Team Assessment by IRT if requirements in M&P and relevant guidance are met; any question of implementation Implementation Committee Assessment, incl. any question of implementation Implementation Committee Resolve any outstanding question of implementation MRV of emissions in broad segment of economycovered NMM OPERATIONAL CYCLE

I NITIAL R EPORT D EVELOPMENT Trading &/or Crediting Choice - Choose trading and/or crediting route Baseline Emissions Pathway Estimates - Baselines estimated in accordance with internationally agreed methodology - Baselines not pure extrapolations of historical developments - Baseline established in absolute or relative terms NMM Coverage Choice - Choose coverage (i.e. sectors & gases) based on agreed international definitions, e.g. IPCC inventory guidelines

I NITIAL R EPORT D EVELOPMENT ( CONTINUED ) Satisfaction of UNFCCC NMM Participation Requirements - Established MRV system in accordance with international standards - Host country has in place a functioning registry or arrangements for use of an international registry administered by the UNFCCC secretariat. - Appointment of competent authority for NMM implementation Domestic Action & Carbon Leakage - Describe domestic measures & actions to reach thresholds/targets - Assess carbon leakage risk to sectors not covered by thresholds/targets and present measures to address leakage Crediting Threshold or Emissions Targets - Determine crediting threshold/targets according to international methodology/criteria - EU: “thresholds/targets need to ensure net decrease of emissions” - Thresholds/targets should reflect respective capabilities in the sector and the country to undertake appropriate own action

Initial report is reviewed by Independent Review Team Issuance of credits or units Host country proceeds with implementation of NMM Initial Report Host country produces an annual report Annual report is reviewed by Independent Review Team Assessment by IRT if requirements in M&P and relevant guidance are met; any question of implementation Implementation Committee Assessment, incl. any question of implementation Implementation Committee Resolve any outstanding question of implementation MRV of emissions in broad segment of economycovered NMM O PERATIONAL C YCLE

NMM GOVERNANCE International Governance NMM Coverage Definitions Crediting Threshold/ Target Criteria Approval of Thresholds /Targets Registry Standards & Facilitated Participation Initial & Annual Report Review MRV Protocols Emissions Baseline Estimate Methodologies

NMM GOVERNANCE (CONTINUED) Host Country Governance Choosing NMM Coverage Choosing trading or crediting route Issuing credits Defining Domestic Actions Determining crediting thresholds/ targets Appointing Competent Authority Estimating Emissions Baselines

NMM I SSUES Many Issues Remain: Long-term interaction with CDM? Who can use NMM credits? How will NMM interact with NAMAs? How will NMM provide appropriate incentives to undertake mitigation action under the Convention? What is the role of the private sector in developing & implementing NMM? How will NMM create incentives to leverage private sector capital?

N EXT S TEPS Bonn Inter-Party discussion on Modalities & Procedures submissions Common & acceptable NMM design template?? Bangkok ● Drafting of acceptable Modalities & Procedures decision Doha – COP 18 Adoption of decision on Modalities & Procedures??

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