June 2015 - Current developments show that market based mechanisms will play a more and more important role in future climate policy, especially on the domestic level but also possibly internationally. New mechanisms do not need to be invented “from scratch”, but can build on existing elements and know-how of established mechanisms, such as the CDM. The ongoing evolution of the CDM’s regulatory framework and methodological toolkit shows that the CDM is becoming a laboratory for scaling up market mechanisms.
Existing market mechanisms from the Kyoto era suffer from a massive loss of demand due to the world economic crisis, limitations imposed on parties who declined to join a second Kyoto commitment period, restrictions on the use of credits in the EU ETS, and a general lack of mitigation ambition after 2012. The resulting crash in prices for emission credits has led to a tapering off of market and project activity for these instruments. This is likely to last at least until 2015, at which point (it is hoped that) increased international ambition from all major emitters and a clarified framework to achieve their individual pledges/contributions maybe more clearly defined. The current crisis can however serve as a “window of opportunity” to design more effective future mechanisms.
The study "Practicability of Transitioning from CDM to Future Climate Policy Instruments" illustrates and discusses possibilities for the transition of mitigation action in developing countries, starting with the CDM and moving towards various forms of NMM, domestic Emissions Trading Schemes (ETS) or domestic Non-ETS solutions developed as NAMAs. The conceptual approach of transition pathways has been applied to 10 countries: Chile, China, Colombia, Indonesia, Kazakhstan, Mexico, Peru, Thailand, Turkey and Vietnam.