Carbon Market Watch

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The international carbon market frenzy (Watch This #6)

25 Jul 2013

 WatchThis 6 - The international carbon market frenzyPhoto: cc Ron,Ron,Ron  By Eva Filzmoser, Carbon Market Watch

By Eva Filzmoser, Director, Carbon Market Watch

 

COP-19 in Warsaw is expected to secure important deliverables in relation to market-based mechanisms. These could take the form of pilot schemes on the NMM and the FVA. Given the considerable disagreement between countries on many of the specifics – not to speak of the astronomic over-supply by offset credits already on the market – this seems a rather careless plan.

Given the oversupply of offset credits from the CDM and the JI combined with the lack of demand, there is little appetite for a new market mechanism. However, despite the absence of international climate commitments, new regional compliance schemes which usually include an offsetting component are being developed in several countries, including Japan, California and China. A crucial question is to what extent new bilateral or regional market mechanisms must follow a common framework of rules under the UNFCCC and whether different types of offsets can be used in different schemes.

In Bonn, Parties identified a number of unanswered questions related to the establishment of the New Market Mechanism (NMM), the Framework for Various Approaches (FVA) and the non-market based approaches (NMBA) and invited Parties and admitted observer organizations to provide input by 2 September 2013. These questions will then be further discussed during specific workshops on all three topics and finally, at COP-19 in Warsaw in November this year.

Framework for Various Approaches (FVA)
Although more and more countries, including the US, are engaging in the discussions on the FVA, there is hardly common understanding of what the scope of the FVA should be. Parties agreed to focus on this in their preparations for the upcoming climate negotiations in Warsaw. Identified preparatory questions will focus on the purpose and scope of the FVA, including its role in ensuring environmental integrity. To see all questions click here.

The New Market Mechanism (NMM)
Discussions on the NMM are slightly more advanced than those for the FVA. Key questions to be discussed relate to how the NMM is different from existing market-based mechanisms and the how the authority under the COP will be designed. To see all questions click here.

Non-market based approaches (NMBA)
Since the FVA should operate both for markets as well as non-markets, some countries insisted on putting more emphasis on the non-market discussions. However, it is still very unclear what Parties mean by non-market based approaches. The perception of what they can be reach from tradable credits coming through non-market mechanisms such as NAMAs (which would clearly be a market element of the non-market approach!) to ideas on how to finance non-market action in developing countries, similar to what is being discussed in adaptation rather than mitigation. Identified questions therefore relate to what the non-market-based approach is, which scope of activities it covers and what the benefits compared to market based approaches are. For all questions, see here.

Read more from Watch This! NGO Voices on Carbon Markets # 6