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Sectoral Market Mechanisms: Issues for Negotiation and Domestic Implementation

Author

Listed:
  • André Aasrud

    (International Energy Agency)

  • Richard Baron

    (International Energy Agency)

  • Barbara Buchner

    (International Energy Agency)

  • Kevin McCall

    (International Energy Agency)

Abstract

This paper reviews proposals for the design of sectoral and related market mechanisms that are being debated both in the UNFCCC negotiations and in different domestic legislative contexts. Decisions on the design and scope of the mechanisms in the UNFCCC negotiations would affect the future supply of credits, while developed countries’ legislations could influence demand. National actions to establish carbon markets may also constrain or enable international developments and options, as domestic policies may establish conditions or restrictions on the import of “international” offset credits or linkages with other national or regional carbon markets. The paper also addresses the possible principles and technical requirements that Parties may wish to consider, as the foundations for further elaboration of the mechanisms. Beyond principles, a number of elements of a more technical nature need to be sorted out to set up new market mechanisms, such as: eligibility for participation by developed countries, as buyers; technical definition of baselines, including guidance on a process to agree to baseline levels, and possible revisions; length of the crediting period and frequency of issuance of credits; new trading units and registries; and national authorities for the new mechanisms. In the case of trading, a compliance reserve and liability rules may be topics for discussion as well. The third issue explored by this paper is domestic implementation of sectoral market mechanisms by host countries, and how the transition between current and future mechanisms could be managed. Transition issues including the situation of existing CDM projects vis-à-vis broader crediting mechanisms and also sectoral trading must be clarified. Domestic policy implementation in developing countries is of paramount importance to ensure the effectiveness of possible new international market mechanisms. Several illustrations are offered to show how a mix of policies could be used to outperform a baseline to generate credits, and how credit revenues could be used to further support domestic policy implementation. Among the options discussed are subsidies to low-carbon technologies (e.g. feed-in tariffs), mandated performance standards, and an entity level baseline-and-crediting system. 4 RÉSUMÉ Ce document passe en revue les propositions concernant la conception de mécanismes de marché sectoriels et apparentés dont il est actuellement débattu aussi bien dans les négociations de la CCNUCC que dans différentes instances législatives nationales. Les décisions qui seront prises lors des négociations de la CCNUCC à propos de l'agencement et du champ d'application de ces mécanismes devraient influer sur les quantités de crédits disponibles à l'avenir, tandis que les législations des pays développés pourraient influencer la demande. Les actions engagées au niveau national pour mettre en place des marchés du carbone peuvent elles aussi limiter ou faciliter les évolutions et les possibilités au niveau international, dans la mesure où les politiques nationales peuvent imposer des conditions ou des restrictions à l'importation de crédits de compensation "internationaux", ou établir des liaisons avec d'autres marchés du carbone nationaux ou régionaux. Ce document traite également des principes et des exigences techniques que les Parties pourraient juger souhaitable d'examiner, et qui serviront de bases pour affiner encore les mécanismes. Pour mettre en place de nouveaux mécanismes de marché, il faudra clarifier non seulement les principes, mais aussi un certain nombre d'éléments de nature plus technique, notamment : l'admissibilité des pays développés en tant qu'acheteurs ; la définition technique des niveaux de référence, y compris les directives à suivre pour les approuver et les révisions possibles ; la durée de la période de comptabilisation des crédits et la fréquence de la délivrance de crédits ; les nouvelles unités et les nouveaux registres utilisés pour les échanges ; ainsi que les autorités nationales compétentes à l'égard des nouveaux mécanismes. En ce qui concerne les échanges, la notion de réserve de quantités attribuées pour la période d’engagement et les règles en matière de responsabilité mériteraient également discussion. Le troisième aspect étudié dans ce document concerne la mise en oeuvre par les pays hôtes sur leur territoire de mécanismes de marché sectoriels, et les solutions possibles pour gérer la transition entre les mécanismes actuels et ceux de demain. Cette transition soulève des questions qu'il faut éclaircir, notamment la situation des projets existants qui relèvent du MDP au regard des mécanismes d'attribution de crédits de plus vaste portée, ainsi que les échanges sectoriels. La mise en oeuvre des politiques à l'échelon national dans les pays en développement revêt une importance primordiale pour assurer l'efficacité des nouveaux mécanismes de marché internationaux qui pourraient voir le jour. Ce document propose plusieurs exemples qui mettent en lumière comment une panoplie de mesures pourrait être utile pour dépasser les niveaux de référence afin de générer des crédits, et comment les revenus associés aux crédits pourraient servir à étayer encore plus la mise en oeuvre des politiques nationales. Parmi les mesures envisageables analysées figurent les subventions aux technologies à faible émission de carbone (par exemple les tarifs de rachat), les normes obligatoires de résultats et un système applicable au niveau des entités d'attribution de crédits par rapport à un niveau de référence.

Suggested Citation

  • André Aasrud & Richard Baron & Barbara Buchner & Kevin McCall, 2009. "Sectoral Market Mechanisms: Issues for Negotiation and Domestic Implementation," OECD/IEA Climate Change Expert Group Papers 2009/5, OECD Publishing.
  • Handle: RePEc:oec:envaab:2009/5-en
    DOI: 10.1787/5k454d2srld2-en
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    Citations

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    Cited by:

    1. He, Gang & Morse, Richard, 2013. "Addressing carbon Offsetters’ Paradox: Lessons from Chinese wind CDM," Energy Policy, Elsevier, vol. 63(C), pages 1051-1055.
    2. Gao, Shuai & Cai, Wenjia & Liu, Wenling & Wang, Can & Zhang, ZhongXiang, 2014. "Corporate Preferences for Domestic Policy Instruments under a Sectoral Market Mechanism: A Case Study of Shanxi Province in China," Working Papers 249496, Australian National University, Centre for Climate Economics & Policy.
    3. Sebastian Voigt & Victoria Alexeeva-Talebi & Andreas Löschel, 2012. "Macroeconomic Impacts of Sectoral Approaches: The Role of the Cement Sector in China, Mexico and Brazil," EcoMod2012 4213, EcoMod.
    4. Nair, Sujith & Paulose, Hanna, 2014. "Emergence of green business models: The case of algae biofuel for aviation," Energy Policy, Elsevier, vol. 65(C), pages 175-184.
    5. Cai, Wenjia & Wang, Can & Chen, Jining & Wang, Siqiang, 2012. "Sectoral crediting mechanism: How far China has to go," Energy Policy, Elsevier, vol. 48(C), pages 770-778.
    6. FUJIWARA Noriko & GEORGIEV Anton & ALESSI Monica, 2010. "The merit of sectoral approaches in transitioning towards a global carbon market," ESRI Discussion paper series 235, Economic and Social Research Institute (ESRI).
    7. Itkonen, Juha, 2017. "Efficiency and dependency in a network of linked permit markets," Bank of Finland Research Discussion Papers 20/2017, Bank of Finland.

    More about this item

    Keywords

    approche sectorielle; atténuation; carbon market; changement climatique; climate change; gaz à effet de serre; greenhouse gas; marchés du carbone; mitigation; sectoral approach;
    All these keywords.

    JEL classification:

    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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