This paper examines the systems and processes that may be required to achieve effective use of tradable GHG units by first considering what international framework would be required to provide a reliable, functional platform for use of tradable GHG units. One effective system would be for national emissions to be reported using common inventory accounting rules, with subsequent additions and deductions according to net flows of tradable units. The paper then analyses more detailed options for two core aspects of GHG unit accounting: governance of international crediting mechanisms and systems for tracking international unit transactions.
For crediting mechanisms, three options are presented for deciding which units may be eligible to count towards national emissions targets: i) only units issued from a centralised mechanism regulated by the UNFCCC would be eligible, ii) units issued from country-led systems would be eligible provided that they are verified to meet internationally-agreed eligibility criteria and iii) a transparency approach whereby all units would be accepted provided that countries meet minimum disclosure requirements. For unit tracking systems, three further options are presented: i) a continuation of the existing International Transaction Log (ITL) that performs both technical and policy-related checks, ii) a ITL or similar tool that performs only technical compatibility checks, and iii) a decentralised system with no central hub. Accounting issues related to domestic emissions trading system units are also explored, notably in cases where such units are traded internationally. The paper concludes that only certain combinations of the various options presented would lead to a viable system that is both practical and provides sufficient assurance of the environmental integrity of units.
