an overview of the status quo, prospects and outlook of market mechanisms

An overview of the status quo, prospects and outlook of market mechanisms Side Event: Carbon market mechanisms – status, future and prospects02 December, 2015 – COP21 Paris – German Pavilion

Carsten Warnecke - [email protected]

mailto:[email protected]

www.newclimate.org 2

Content

Status quo of the CDMRBF as alternativeOptions for markets post Paris Conclusions

02 December 2015

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 costsProjects 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


Projects implemented

Up to 85% of registered CDM projects with registration date in or before 2012 have full technical implementationExcl. China and India just up to 68% of projects are fully implemented

02 December 2015

85%

6%

1%1%2%

5%

<1%

Projectimplementation

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/

http://newclimate.org/2015/05/16/analysing-the-status-quo-of-cdm-projects/




Projects operational

Up to 79% of registered CDM projects are in regular operationExcl. China and India just up to 53% of projects are operationalThe rate of operational projects globally could decline by 5% within the next 12 months

02 December 2015

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 GHGmitigationNo CDM-conformant operation, alternativeGHG mitigation equipment operatingI do not know

What is the operational status of the CDM component of the GHG mitigation activity?






0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

CER revenues still sufficientCDM still required to overcome non-financial barriersA stop of the GHG mitigation equipment does not result in cost savingsThe 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 ETSExpectations exist to receive alt. support or convert to alt. project schemeOther reason.

Responses: 543 Error margin: 10%

Project continuation

CER revenues sufficient for <3% of implemented projectsHigh rate of irreversible investments (N2O lowest)Expectations for altern. support63% of N2O discontinue before the end of the CP, 10% continue outside the CDM

02 December 2015

Despite the recent drop in CER prices, what are the reasons to continue with the CDM GHG mitigation activity?






Price requirements

For 53% CER prices below €5 are sufficient to continue V&I activitiesLow price requirements might include acceptance of sunk costsAsian countries show trend for being able to continue with lower prices N2O, HFC and wind with lowest price requirements

02 December 2015

What CER price level is required by the project to continue verification & issuance activities?






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 GCFBenefits for carbon markets: Short term support through CER purchase and cancelationBenefits for climate finance: Quantification of short-term interventions with proven approaches02 December 2015


Range of RBF variety

RBF variety in climate policy

02 December 2015

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 stringencyHigh certainty of outputsStrong verification need

Long term (indirect) impactsDevelopment benefitsAddress 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/

http://newclimate.org/2015/08/27/connecting-the-dots-results-based-financing-in-climate-policy/

http://newclimate.org/2015/08/27/connecting-the-dots-results-based-financing-in-climate-policy/


Options for market mechanisms in international cooperation

Outcome based targets (e.g. absolute

emissions target)

Individual actions (e.g. domestic carbon

market mechanisms)

Sector based targetsPo

tenti

al e

lem

ents

and

su

ppor

ting

polic

ies/

prog

ram

mes

fo

r im

plem

enta

tion

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

Cont

ributi

on c

ount

ry B

Option 3: Carbon market instruments to implement the domestic part of the international contribution, possibly linked

Inte

rnati

onal

acti

onDo

mes

tic a

ction

Cont

ributi

on c

ount

ry A

Option 1

Climate financingPurchase and retirement of credits

Option 2

Links

Outcome based targets

Individual actions

Sector based targets

Cont

ributi

on c

ount

ry C

02 December 2015

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/

http://newclimate.org/2015/06/09/market-mechanisms-in-future-international-cooperation-on-climate-change/

http://newclimate.org/2015/06/09/market-mechanisms-in-future-international-cooperation-on-climate-change/


Conclusions

Use of markets is an important policy instrument in many countries

Sizeable number of Parties express use of markets in achieving their mitigation objectivesInternational 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 gapInternational markets might serve as ambition raising mechanism

02 December 2015


Thank you for your attention!

Carsten Warnecke, NewClimate Institute [email protected]

Further reading: www.newclimate.org/publications

Connecting the dots - Results-based financing in climate policy - July 2015Carbon market mechanisms in future international cooperation on climate change - June 2015Analysing the status quo of CDM projects: Status and prospects - May 2015

02 December 2015

mailto:[email protected]

http://www.newclimate.org/publications

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 EventCarbon market mechanisms– status, future and prospects

www.newlimate.org

an overview of the status quo, prospects and outlook of market mechanisms

Environment