Market Readiness: Building blocks for market approaches

Transcription

1 Market Readiness: Building blocks for market approaches André Aasrud (IEA), Richard Baron (IEA), Katia Karousakis (OECD) IEA day, 07/12/10 Climate Change Expert Group on the UNFCCC

2 Context New market mechanisms needed to address rapidly growing emissions in developing countries Some developing countries moving forward with domestic market based instruments (e.g. India s PAT scheme; China low-carbon pilot programs) Market readiness: building blocks needed to make market mechanisms operational Climate Change Expert Group on the UNFCCC 2

3 Categories of market mechanisms Domestic market mechanisms with a link to international carbon markets e.g. Emissions Trading Systems International crediting mechanisms based on domestic emission reduction policies e.g. NAMA crediting (LCA/KP texts) Climate Change Expert Group on the UNFCCC 3

4 Categories of building blocks Market Readiness Technical: The basic structure of a market mechanism (e.g. coverage, MRV, registry, etc.) Policy: Ambition of the environmental goals and policy measures to reach it (e.g. indentifying mitigation potential and costs and choice of policy instruments) Legal/institutional: Institutions needed to operate the market mechanism (e.g. collection of inventory data, issuance of allowances/credits, compliance, etc.) Climate Change Expert Group on the UNFCCC 4

5 PHASES OF MARKET READINESS Specific actions/activities in each phase Policy actions Implementation activities (1) Assessing mitigation potential and policy instruments - Setting environmental goals - Use national GHG inventory etc. to estimate likely BAU path - Cost estimation of goals (2) Feasibility assessment and choice of market based approaches (3) Setting up the technical framework (4) Aligning policy and legal/institutional framework (5) Piloting, testing and review - Determine coverage - Setting environmental goal for market mechanism - Allocation of allowances / credits - Responsibility for enforcement, collecting GHG data and verification - Interaction with accounting and tax legislation - Policy coherence with other policy areas - Gather data on GHG trends by relevant sector/ NAMA - Identify and close data gaps - Stakeholder consultations -Establish reference year emissions (baseline or cap) -Establish MRV system, registry and transaction log Following piloting and testing a review process may feed back into preceding steps resulting in a redesign of some elements of the market mechanism

6 Need for harmonisation? The technical building blocks, and in particular MRV and registry requirements, may require harmonisation (not necessarily a single standard) to facilitate broad access Within an international framework there are two possible developments along the lines of Article 17 or CDM (KP text on revision of Art. 17 to include all Parties) Climate Change Expert Group on the UNFCCC 6

7 Moving forward with scaled-up market mechanisms Lack of progress in the negotiations, but pilot activities may be a useful first step COP13 decision on REDD demonstration activities Fragmented post-2012 carbon market: Co-ordination of international support for market readiness initiatives (World Bank Partnership for Market Readiness) Question of post-2012 accounting framework with different/bilateral crediting standards Climate Change Expert Group on the UNFCCC 7

8 IEA review of emissions trading systems Goal to share information on practice (rather than theory) in emissions trading implementation Emissions pricing is critical to energy sector decarbonisation Many countries are currently considering establishment of domestic emissions trading schemes Lessons have been learned from existing schemes and designs (particularly EU ETS) OECD/IEA

9 2. Current and Proposed Emissions Trading Systems Operating Likely (?) Considering OECD/IEA

10 Key ETS Design Features (1) Sectoral coverage Cap setting Cost impacts (and managing these) Price volatility Long-term investment signals OECD/IEA

11 Source: US EPA OECD/IEA

12 Emerging Lessons No free allocation for electricity generation Set ambitious targets Provide clear long-term investment signals Don t over-estimate cost impacts Allow flexibility in early years Supplementary policies will be needed OECD/IEA