Issues in Accoun+ng. Michael Lazarus, Stockholm Environment Ins8tute US Centre interna8onal.org

Transcription

1 Issues in Accoun+ng Michael Lazarus, Stockholm Environment Ins8tute US Centre interna8onal.org PMR Technical Workshop: Different Market- based Approaches & Implica8ons For A Future Carbon Market November 6, 2014

2 Overview Context Importance Issues and op8ons

3 Key sources drawn upon OECD/IEA CCXG papers Various SEI publica8ons Literature on (cross- border) unit accoun8ng is rela8vely limited 3

4 Context: an evolving landscape Mul8plicity of new and exis8ng market mechanisms Interest in greater linkages, direct or indirect Lack of clarity around concepts such as net mi8ga8on and avoiding double coun8ng Unclear role that unit transfers might play in mee8ng na8onal goals (pledges, targets, INDCs, etc.) 4

5 Importance of robust and shared accoun8ng rules (for unit transfers) 1. Improves unit fungibility 2. Facilitates use of market mechanisms 3. Enhances comparability of effort 4. Improves transparency 5. Reduces risks to integrity/credibility Supports (indirectly) increased mi4ga4on? 5

6 Importance of robust and shared accoun8ng rules (for unit transfers) 6

7 Accoun8ng systems at various levels are overlapping and interconnected na8ons Importance of na8onal emissions budgets and targets in the future? carbon market mechanisms Extent of flows between markets, domes8c and interna8onal? other policies and ac8ons Poten8al for overlaps in claimed ERs?

8 Without na8onal accoun8ng systems for unit flows, progress towards targets cannot be assessed Unless, of course, there are no cross border flows Figure source: Prag, Briner, and Hood, Made to Measure: Op8ons for Emissions Accoun8ng under the UNFCCC

9 Key stages in unit accoun8ng Issues arise at crea8on ( coun8ng ) and use ( accoun8ng ) Effec8ve tracking is cri8cal, but is not an (ac)coun8ng ques8on per se Figure source: Prag, Briner, and Hood, 2013

10 Such issues could include, among others: a) Differing GWPs within/across mul8- gas mechanisms b) Poten8al overlaps in scope and coverage c) Lack of alignment in measurement/quan8fica8on between na8onal inventories and mechanism units d) Net mi8ga8on benefit and other approaches where 1 ton 1 ton and avoiding double coun8ng in its many possible forms 10

11 a) Differing GWPs within/across mul8- gas mechanisms and accounts GWPs con8nue to evolve as scien8fic understanding improves E.g. 100 yr for methane now 34 (28) in 5AR vs. 21 in 2AR UNFCCC inventories use 2AR values, as do most market mechanisms GWPs could differ among mechanisms and within a given mechanism (if values change) Risk of incompa8bili8es and arbitrage è Not a current (ac)coun4ng issue of much significance (?), but might become one in the future; could be complex to address 11

12 b) Scope and coverage Overlapping (ac)coun8ng issues could arise with upstream vs. downstream; direct vs. indirect emissions; cross- boundary energy flows, e.g.: Credi8ng for both biofuel use and produc8on Credi8ng for renewable energy in power sector covered by an ETS Addressing emissions from cross- border electricity trade Risk of double issuance or double claiming if ac8vi8es (credi8ng) or coverage (ETS) overlap è Not yet an accoun4ng issue of major significance; can be managed (some issues more easily than others) through good accoun4ng rules 12

13 c) Alignment between inventories and transferable units Market mechanisms, par8cularly credi8ng, may use different measurement / emissions es8ma8on methods than inventories E.g. credi8ng mechanisms may generate and quan8fy reduc8ons that are not detected by coarser na8onal inventory methods è Unlikely to be of large magnitude or consequence; can be managed through accoun4ng measures if needed 13

14 d) Net mi8ga8on benefit and other approaches where 1 ton 1 ton Net mi8ga8on approaches (e.g. through pre- and post- issuance discounts, voluntary cancella8ons) may require maintaining dual accounts (actual vs. goal alainment) Use of exchange rates among units could pose addi8onal challenges (e.g. to enable reconciling with na8onal accounts) è May need to be addressed and reconciled within an overall (shared) accoun4ng approach 14

15 Double coun8ng: a cross- cumng issue Considerable poten8al if units are used extensively Possible consequences if double coun8ng not managed: Disincen8ve to use interna8onal carbon markets Incomparability of goals Reduced economic efficiency Risks to credibility of the climate regime Avoid ex ante or track ex post? Accoun8ng methods are straighoorward but reaching agreement on how to avoid double coun8ng ex ante may be difficult Quan8fying double coun8ng and adjus8ng goals to compensate ex- post may be (even more?) difficult

16 Types of double coun8ng Principal concerns: Double issuance (e.g. one ER, 2 units) Double claiming (e.g. one ER, used towards 2 na8onal goals) Other risks: Double use (e.g. one ER, re8red twice) Double purpose (e.g. one ER ac8vity used toward goal alainment and financial commitments) 16

17 Addressing double coun8ng Addressing double coun8ng requires: Accoun8ng rules, AND Consistent carbon market design rules, AND Tracking and recording rules For example: Accoun8ng rules could limit double claiming by requiring that units transferred (and used) interna8onally be added to selling country s emissions account Market designs could use consistent approaches to account for indirect emissions; use alesta8ons and oversight to limit double issuance and use; etc. Tracking and recording rules could require common and comprehensive informa8on about units

18 In summary Robust, shared accoun8ng approaches can increase unit fungibility, use of mechanisms, comparability of effort, transparency, credibility are technically achievable can support (indirectly) increased mi8ga8on 18

19 Some ques8ons In your view, what are the key (ac)coun8ng issues? In what sequence should they be addressed? To what extent do accoun8ng rules need to be common and shared? What can and should be done to advance more robust, shared accoun8ng approach? 19

20 Thanks for your alen8on For more informa8on Contact: us.org Publica8ons interna8onal.org Single- year mi8ga8on targets: Uncharted territory for emissions trading and unit transfers Addressing double coun8ng of emission reduc8ons under UNFCCC Poten8al for Interna8onal Offsets to Provide a Net Decrease of GHG Emissions 20