Carbon Market Watch

For fair and effective climate protection.

New Market Mechanisms

30 May 2012

In Durban at the COP-17 in December 2011, Parties decided that a new international market mechanism (NMM) should be established under the UNFCCC that will complement the CDM and JI. The details of how a NMM will work will be developed and negotiated in the coming months and years.

Common Framework of Rules

In addition to an international new market mechanism, new regional compliance schemes are being developed in several countries, including Japan, California and China. These cap-and-trade systems usually include an offsetting component. If such offsets can be used in different systems (if they are ‘fungible’) then it is vital to avoid offsets being double counted. Quality requirements should also be stringent because otherwise the cheapest, least stringent offsets will have a market advantage over higher quality offsets. For an overview of programs, visit the CORE website (external link).

A crucial question is to what extent new bilateral or regional market mechanisms must follow a common framework of rules under the UNFCCC. An international framework is important because it increases the likelihood of preserving a minimum level of environmental integrity because it reduces the risks of double counting and over-crediting due to lenient baseline and additionality requirements. It remains to be seen if regional market mechanisms such as the ones planned for California and Japan, will have to follow minimum standards that ensure with reasonable certainty that emission reductions are achieved.

Useful external links:

CAN-I Submission on a New Market-based Mechanism
CAN-I Submission on Framework for Various Approaches