Climate change

Scaling-up Market Mechanisms


There is growing interest in “scaling-up” GHG mitigation actions and the market mechanisms that support these actions. One way of doing this would be to encourage action at the sectoral level, including possible crediting mechanisms under the UNFCCC.  This work stream also examines the essential elements of “readiness” for possible new market mechanisms, and the potential to build on expertise in the voluntary market in moving towards compliance market mechanisms.


 Related event: CCXG Global Forum on the New UNFCCC Market Mechanism and Tracking Climate Finance (19-20 March 2012)


Summary: Scaled-up Market Mechanisms – What is Needed to Move Forward? 
This summary of OECD and IEA analysis on scaled-up market mechanisms highlights key elements for expanding international carbon markets by granting broader access to developing countries.


Crossing the Threshold: Ambitious Baselines for the UNFCCC New Market-Based Mechanism (May 2012)
Andrew Prag and Gregory Briner (OECD)


Market Readiness: Building blocks for market approaches (November 2010)
André Aasrud, Richard Baron (IEA) and Katia Karousakis (OECD)
Market-based mechanisms offer a number of advantages to other regulatory approaches for GHG mitigation such as technology or performance standards and feed-in tariffs. This paper examines essential elements of “market readiness” for possible new mechanisms and highlights some of the past and new market readiness activities, of use as UNFCCC Parties are to consider decisions on future market approaches.


Voluntary Carbon Markets: How can they serve climate policies? (August 2010)
By Pierre Guigon (BlueNext)
This paper aims to examine how voluntary carbon markets can provide a valuable contribution to strengthening domestic and international climate policies. The research shows that the several carbon project certification schemes that have emerged in the voluntary carbon market have developed potential innovative solutions to deal with some of the issues faced by compliance markets.


Buying and Cancelling Allowances as an Alternative to Offsets for the Voluntary Market: A Preliminary Review of Issues and Options (August 2010)
By Anja Kollmuss and Michael Lazarus (Stockholm Environment Institute)
In recent years, businesses, local governments and individuals have set goals for reducing their emissions of greenhouse gases. In addition to directly reducing their own emissions, many of these entities have purchased carbon offsets to help achieve their mitigation goals. Yet establishing offset quality can be difficult, due to issues such as additionality, measurement, leakage, permanence, and verification. This paper explores scenarios under which, as an alternative to offsets, voluntary buyers could instead buy and cancel allowances from compliance markets.


Sectoral Market Mechanisms - Issues for Negotiation and Domestic Implementation (October 2009)
By André Aasrud, Richard Baron, Barbara Buchner and Kevin McCall (IEA)
This paper first reviews proposals for the design of sectoral and related market mechanisms currently debated, both in the UNFCCC negotiations, and in different domestic legislative contexts. Secondly, it addresses the possible principles and technical requirements that Parties may wish to consider as the foundations for further elaboration of the mechanisms. The third issue explored herein is domestic implementation of sectoral market mechanisms by host countries, incentives to move to new market mechanisms, as well as how the transition between current and future mechanisms could be managed.


Sectoral Approaches and the Carbon Market (June 2009)
By Richard Baron (IEA), Barbara Buchner (IEA), Jane Ellis (OECD)
This paper considers the carbon market aspects of sectoral approaches to reduce greenhouse gas (GHG) emissions. With the market at the core of the effectiveness of crediting mechanisms, proposals for such approaches must be put in the context of overall supply and demand outlooks. The paper thus presents orders of magnitude relevant to this question, with an aim to ensure the policy realism of attempts at broadening crediting to sectors, as opposed to projects, as currently done with the Clean Development Mechanism (CDM).

Options for Integrating Sectoral Approaches into the UNFCCC (Nov 2008)
Richard Baron (IEA), Ingrid Barnsley (IEA) and Jane Ellis (OECD)
The Bali Action Plan refers to “co-operative sectoral approaches and sector-specific actions” in relation with enhanced post-2012 GHG mitigation, and is one of several contexts in which sectoral approaches are now being considered. This paper explores possible options to advance the integration of sectoral approaches into the UNFCCC regime, as a new means to further mitigation action.

Sectoral Approaches to GHG Mitigation: Scenarios for Integration (Oct 2006) 
by Richard Baron (IEA)
This paper offers a preliminary analysis of several scenarios for integration of sectoral approaches in international and national climate policy. It considers four broad types of sectoral approaches and how each of these options would integrate in the existing climate regime: 1) A global action, i.e. a unilateral move by industry to foster GHG improvements; 2) A global agreement between industry and Parties to the UNFCCC; 3) A series of national policies targeting a sector, with some intergovernmental coordination; 4) A sectoral crediting mechanism whereby reductions recorded at a sector level may be eligible for emission credits. The paper explores the possible interactions between these options and the existing climate policy regime.

Sectoral Crediting Mechanisms for Greenhouse Gas Mitigation: Institutional and Operational Issues (May 2006)
by Richard Baron and Jane Ellis
This paper builds on those efforts and focuses on sector-wide baselines, design and institutional issues, and questions relating to governance. It then analyses and compares various designs in terms of environmental effectiveness, economic efficiency, administrative cost/feasibility, and competitiveness concerns. The paper concludes that while it is possible to design a sectoral crediting mechanism to complement the flexible mechanisms contained in the Kyoto Protocol, a number of challenges would need to be addressed in a system seeking to move crediting to a sector-wide basis.

Sectoral Crediting Mechanisms: An Initial Assessment of Electricity and Aluminium (Nov 2005)
by Jane Ellis and Richard Baron
There is much interest in addressing broad sectors and extending the scope of the project-based mechanisms established under the Kyoto Protocol, both pre and post-2012. As a contribution to this debate, we explore how a sectoral crediting mechanism (SCM) could work in the electricity and aluminium sectors and present preliminary insights on the pros and cons of such designs. An effective SCM could mitigate the sector’s pressure on the economies of developing countries and a number of related environmental problems.

Exploring Options for "Sectoral Crediting Mechanisms" (May 2005)
by Martina Bosi and Jane Ellis
Market-based greenhouse gas (GHG) abatement mechanisms are likely to remain attractive in a future climate regime, as they offer flexibility to reduce emissions where most cost-effective. There are different ways market-based mechanisms may be designed and implemented in different countries and/or sectors. The aim of this paper is to explore different ways of designing “sectoral crediting mechanisms” that could encourage greater GHG-friendly investments in given sectors by generating emission credits.  This paper is part of ongoing analytical work on market-based approaches undertaken under the auspices of the Annex I Expert Group on the United Nations Framework Convention on Climate Change (UNFCCC).

Link to IEA work on sectoral approaches to GHG mitigation.


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