July 2015 - Despite a general interest in market mechanisms, the political negotiations on new market mechanisms under the UNFCCC are currently characterized by a high degree of uncertainty. Despite ongoing debates, no real regulatory progress has been achieved since COP18 in December 2012. Among the reasons for the slow pace of the negotiations on market mechanisms are the politicized nature of the changing roles of mitigation commitments and contributions by developing countries, the lack of demand for emission credits from industrialized countries, but also the lack of practical experience with new concepts, which undermines the willingness of states and regions to agree to commit to new mechanisms.
Practical experience from pilot activities therefore has a central role in improving the understanding of new market mechanisms in order to accelerate both the conceptual discussion and the UNFCCC negotiations through a 'learning by doing' approach. Progress in this area can so far be observed in particular in the context of the Partnership for Market Readiness (PMR) – so far the only forum in which specific pilot tests are planned at an advanced stage. However, the PMR is primarily focused on emerging markets with more advanced economies.
Both NMM as well as measures under the Framework for Various Approaches must, however, cover also smaller and poorer countries if they are to become truly multilateral mechanisms and harness a significant share of the global emission reduction potential. Yet the level of preparation and the respective potentials of new mechanism-related activities in countries outside of the PMR is unclear, as these are scattered activities – e.g. the Japanese Joint Crediting Mechanism (JCM), or activities linked to the Climate Investment Funds (CIF) and CDM Programmes of Activities (PoA), can already be implemented by public actors. Thus, there is a need to gain an analytically informed overview whether such activities could serve as practical pilot activities for new multilateral market mechanisms.
The report "Analysis of Possible New Market Mechanisms Pilot Activities beyond the PMR" therefore analyses activities developed outside of the Partnership for Market Readiness (PMR) that could develop into NMM pilot activities. The assessment is based on a set of criteria covering the mitigation contribution, MRV ability and practicality.