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Build on experience, shape the transition: From the CDM to new market mechanisms

A dragline sccops coal in a mine
(Photo: picture alliance/africamediaonline)

Background

Given the need to achieve a turning point in global greenhouse gas emissions before the end of the decade, at the Climate Change Conference in Durban in December 2011 it was decided to introduce a New Market Mechanism (NMM) and develop a Framework for Various Approaches (FVA). These are designed to scale up emission reductions to a greater extent than has been the case under the CDM and ensure that sectors and their reduction potential are captured as a whole. As opposed to the CDM, the new instruments are also to be used to achieve net reduction effects. As the exact design of the NMM and the FVA – which have in the meantime become components of the Paris Agreement’s Article 6 – has still to be decided, the question arises as to how the transition to implementing the new Climate Change Agreement can be used to the benefit of the market mechanisms, how synergies can be generated between the various designs and how target-related conflicts can be avoided. Thus, on behalf of the German Federal Environment Ministry (BMU) and the Federal Environment Agency (UBA), Perspective GmbH in collaboration with Adelphi GmbH conducted three separate research projects which address these and other issues.           

Approach and Results

The first research project looked at how existing components of the CDM might be used to take climate action under new market mechanisms. The project team first produced an overview of existing and future market mechanisms, and then worked out their differences and similarities. Components of the CDM such as demonstrating additionality and determining a baseline were tested for their usability in hypothetical pilot projects conducted under a future market mechanism. Here, specific sectors in given countries were selected where conducting pilot projects promised huge potential with regard to using components of the CDM. Using sample countries, the project team showed how existing CDM methodologies could be used both to calculate baseline emissions and monitor CDM projects under new market mechanisms, and then identified where expansion efforts are needed. The results of the three case studies showed the conditions under which components of existing CDM methodologies might be used efficiently and effectively under a new market mechanism, and where these standardised parameters would need to be enhanced.      

In a second project, Perspective GmbH developed scenarios for the transition from the CDM to new market mechanisms and national emissions trading schemes. They then tested these for their usability. On the basis of differing requirements concerning implementation of the various mechanisms, five categories containing different development paths were produced which are designed to enable the transition from the CDM to future market mechanisms and, ultimately, pave the way for the introduction of national instruments such as emissions trading schemes (ETSs) and unilateral NAMAs. Using these development paths, country-specific strategies were developed for the transition from the CDM to new market mechanisms in 10 countries and could be designed in different ways to take account of local conditions and meet local needs.

The third research project performed the groundwork to enable expansion of the CDM to take in entire sectors. This kind of sectoral CDM could serve as a bridge to new market mechanisms which have still to emerge. The project team thus analysed the debate and developments on sectoral approaches under existing and future UNFCCC mechanisms. Using the data gained in this process, the team were able to trace the development of sectoral approaches under the CDM and identify potential for sectoral components in future market mechanisms. The diverse approaches and mechanisms pointed to a hybrid architecture in which centrally-managed mechanisms such as the CDM and possibly also a new market mechanism with decentralised activities would coexist. To take account of the diverse sectoral approaches and of recent trends, the project team proposed revising the terminology used for sectoral approaches. The revised terminology would simplify classification of existing and new mechanisms and concepts. In addition, the closer look at the similarities and specific differences could also enhance the debates on new market mechanisms and shaping the transition from the CDM.      

Official project title

Using CDM Components under Future Market Mechanisms

Implementation

Perspectives GmbH

Other project participants

adelphi

Project lifecycle

2012 – 2013

Contact

Björn Dransfeld
Email: dransfeld@perspectives.cc