THE NETWORKED CARBON MARKETS INITIATIVE Barcelona May 26, 2017
MARKETS, KEY TOOL TO ADDRESS CLIMATE CHALLENGES Political alignment: NDCs of 84 countries call for markets and/or carbon pricing mechanisms including 72 in developing countries Cost Savings: market efficiencies reduce costs of low carbon growth Resource mobilization: crowd-in public and private capital Cost of each country acts alone Intl cooperation through carbon market by 2030 3 0 % Intl cooperation through carbon market by 2050 5 0 % $ $ $ Source: World Bank Group, 2016 2
AN INTERNATIONAL MARKET - 2030 3
4 Bottom-up WHERE DO MARKETS FIT UNDER PARIS? Article 6 has the opening for developing markets agreement on guidance and rules is still under negotiation by Parties Objectives Governance Metrics Using cooperative approaches to enhance mitigation ambition under NDCs Art. 6.2 Art. 6.4 Under bi- or plurilateral governance Under the authority/supervision of the COP Introduces mitigation outcomes (MOs) from any mechanism/procedure/protocol a mechanism to contribute to the mitigation of GHG and support sustainable development Top Down Parties can design and use carbon pricing instruments domestically. Today. Examples: Chile, China, India, Mexico and South Africa, among others. Markets instruments should create demand for a domestic market that will grow over time to include linkages to create an international market. Bottom-up markets appear to be the most promising approach under the Article 6.2 paradigm.
5 WHERE DO MARKETS FIT IN PARIS? Paris Agreement encourages mitigation action relevant to national circumstances (as reflected in their NDCs) by all Parties Comparability of the mitigation outcome of the mitigation action will be the starting point for any international transfer of the mitigation outcome Assessment of mitigation action: Use of MAAP Assessment of climate ambition: Climate Transparency initiative Country mitigation action National assessment process MOs Domesti c and/or NDC accounting Registry system ITMOs Clubs International markets
WHAT IS NETWORKING? Direct Linking A common market is explicitly established between Systems A and B (e.g. California-Quebec, EU-Switzerland) System A System B Indirect Linking Systems B,C, and D are indirectly linked via System A (e.g. Clean Development Mechanism) System A System B System C System D Networking Designed to link heterogeneous climate actions System A System B 6
WBG STRATEGY FOR CLIMATE MARKETS AND LINKAGE PROMOTING THE CASE AND EVIDENCE BASE FOR CARBON PRICING AND MARKETS e.g., Carbon Pricing Leadership Coalition; State and Trends of Carbon Pricing reports CONNECTIVITY AND GLOBAL TRANSFER PLANNING, DESIGN AND PILOTS Innovating and building readiness for climate action, including carbon pricing instruments e.g., PMR IMPLEMENTATION AND SCALE-UP Enabling scale-up of climate actions such as carbon pricing mechanisms e.g., TCAF, PAF, Ci-DEV Enabling cooperation of all types of climate actions, including carbon pricing mechanisms, through internationally connected climate and carbon markets The NCM Initiative 7
NCM S SHORT, MEDIUM AND LONG TERM VISION LONG TERM SHORT TERM MEDIUM TERM Design and implementation of robust, marketready mitigation actions Benchmarking Guide climate finance Comparability and transfer of mitigation outcomes: within a country between countries on a bilateral basis Comparability and linkage of mitigation outcomes between countries on a regional or multilateral basis 8
NCM S CONCEPTUAL FRAMEWORK Independent Assessment Framework Within country: use of MAAP to assess mitigation actions Between countries: use of CTi for national climate ambition International Settlement Platform International Carbon Asset Reserve Establishment of an overarching, coordinated framework to measure the relative mitigation outcomes ( mitigation value ) of different actions Track cross-border trades (manage risk of double counting) and provide possible clearing house functions A pooled reserve of carbon assets to manage carbon market related risks (e.g., price volatility, invalidity of issued and allocated carbon units) 9
MAAP: INDEPENDENT ASSESSMENTS AT THE PROGRAM LEVEL Program Definition & Scope Objectives & Targets Planning Financial and Investment https://maap.worldbank.org/#/homepage Financial Planning and Documents, document stakeholders participation control and records Emissions reductions from interventions Monitoring and reporting Environmental integrity 1 2 3 4 Manageme nt Entity MAAP launch Structure Management Framework Financial coherence Programs management Infrastructure at the program level Financial Monitoring financial flows Developme nt Benefits Development objectives and targets May 23 (Tue) from 2:45 pm to 5 pm Monitoring of development benefits MAAP-Design and MAAP-Implementation 10
MAAP PARTNERSHIPS AND COLLABORATION 11
ASSESSMENT OF CLIMATE AMBITION: CLIMATE TRANSPARENCY Secretariat Climate Transparency is a consortium of experts and organizations that have a common goal to enhance assessments of climate action Technical partners Technical partners Funding partners http://www.climate-transparency.org/ 12
Concept Development * Options for Operationalizing a Carbon Trading Ratio Mechanism (Austin) * Achieving compatibility and synergy between the NCM Initiative and Climate Clubs (Climate Strategies) * Comparison and Linkage of Climate Mitigation Efforts in a New Paris Regime (Harvard/IETA) Explore the relevance and feasibility of the NCM Initiative in Japan (IGES) * A model for NCM based on the key elements and principles of Comparative Markets (Macinante) * NCM and its compatibility with a future UNFCCC regime (Marcu) * Enabling Comparability of heterogeneous Emissions Trading Systems Caps, MRV frameworks and non-compliance penalties (Munnings) * Enabling Comparability and Linkage of the REC and PAT Schemes (TERI) * The METRIC for successful linking post-paris (Vivid Economics) Institutional frameworks Partners: INFRAS, Grantham Institute, Reed Smith, Xpansiv NCM Partners Private sector outreach Partners: Climate Markets and Investment Association (CMIA), IETA, CPLC MAAP Partners: PMR, DNVGL, Thai Greenhouse Gas Office, Ministry of Environment of Peru, Wageningen University, UNEP- DTU Partnership, Gold Standard, IGES, Perspectives, Carbon Trust, Government of Jalisco in Mexico, ITAM, TERI Assessment and modelling Partners: DNV, IISD, New Climate Institute, Climate Transparency, Observer to ISO Climate Change Standards Committee, Enerdata 13
14 NETWORKED CARBON MARKET INITIATIVE International Carbon Reserve Independent Assessment Framework International Settlement Platform Assessment of mitigation action: Use of MAAP Assessment of climate ambition: Climate Transparency initiative Country mitigation action National assessment process MOs Domesti c and/or NDC accounting Registry system ITMOs International markets/ Carbon Clubs
SCALING UP THE APPLICATION OF THE MAAP ONLINE INTERFACE Barcelona May 26, 2017
ACTIVITIES YTD 2 work streams: Internal identify Bank supported projects and opportunities with Bank local offices - Ecuador, Mexico Independent Assessments. IGES, Perspectives, GS, UNEP DTU, Carbon Trust. MAAP Design and MAAP Implementation Assessor Guidelines Training and support to MAAP partners e.g. SECO, DTU-OLADE workshop Scouting activities for MAAP Policy alignment module. 16
CONCLUSSIONS MAAP ROUNDTABLE Benefit for having a reference point for the design of MA for NDCs Evaluate strategy of targeting multiple (too many?) different users. Partner with key stakeholders for those users to roll out online tool. Need for comprehensive set of capacity building activities to ensure online tool is used. MAAP in the context of the overall NCM long term strategy 17
SCALING UP MAAP Regional workshops with MA practitioners: Capacity building Populate online database Evaluate integration of UNDP SD Online Tool Strategy for external partnerships Adaptation Module Develop existing draft of MAAP Policy Alignment Module 18
1 RATIONALE, VISION AND OBJECTIVES SUPPORTING MARKETS AND NDC IMPLEMENTATION THROUGH THE MAAP TOOL 19
SHORT, MEDIUM AND LONG TERM VISION LONG TERM SHORT TERM MEDIUM TERM Design and implementation of robust, marketready mitigation actions Generation of mitigation outcomes at the program level Comparability of mitigation actions Comparability and transfer of mitigation outcomes across countries Exchangeability of carbon assets Self-evaluation Prioritization 20
WHAT IS THE MAAP? Environmental integrity 1 2 3 4 Program Definition & Scope Objectives & Targets Planning Documents, document control and records Emissions reductions from interventions Monitoring and reporting Manageme nt Entity Management Framework Financial and Investment Programs management Infrastructure at the program level Financial Structure Financial coherence Financial stakeholders Monitoring financial flows Developme nt Benefits Development objectives and targets Planning and participation Monitoring of development benefits MAAP-Design and MAAP-Implementation 21
National and Subnational Jurisdictions Donor and Investors Project Developers Carbon Market Regulators Multilateral Development Banks 22
Stakeholder Consultations Stakeholder consultations held at various climate change fora, such as Carbon Expo Latin America Carbon Forum (Rio de Janeiro), FICCI (New Delhi) and Asian Carbon Forum (Bangkok) Working group formed by experts Progress presented to a working group during technical sessions and webinars Peer review IISD, NewClimate Institute, Asia LEDS Training Center, IdeaCarbon and FC2E Carbon Fund provided technical reviews to the draft report and components of the MAAP. Pilot and deployment - Piloted the MAAP on NAMAs in Peru in December 2015 and Low Carbon City Programs in February 2016. - In collaboration with expert groups, such as UNEP-DTU Partnership, Perspectives, IGES and Gold Standard, applied the MAAP to more than 180 mitigation actions globally May 2014 Sep 2014 April 2015 Dec 2015 - now 23
MAAP independent assessments by UDP in Costa Rica, Ecuador, Jamaica, El Salvador, Morocco, Indonesia, Chile, Sri Lanka, Ghana, Kenya, Peru, Tunisia, Colombia, Armenia Cambodia, Mexico: 50 mitigation actions including NAMAs, energy programs waste management programs etc. (Jun 2017) MAAP in the Mediterranean Region: 20 low carbon city programs (Apr 2017) MAAP in Mongolia and Vietnam: JCM projects (Apr 2017) MAAP in Mexico: NAMAs (Nov 2017) and Jalisco s State Climate Plan (April 2017) MAAP in Ecuador: National Energy Efficiency Plan (Jan 2017) Scoping Study in India: Green certificate (REC) and white certificate (PAT) schemes (Apr 2017) MAAP in Peru: 83 NAMAs (Dec 2015) MAAP in Thailand: 2 low carbon city programs (Feb 2016) 24
2 IMPLEMENTATION THE MAAP ONLINE INTERFACE 25
Limitations of the MAAP excel-based tool Disaggregated information on MAAP assessment Lack of visualization tools to compare and benchmark MAAP scores between different actions Inability to collaborate and share results and related documents Practical challenges related to the usability of the MAAP 26
User-friendly platform to manage results and store related documents Access to datasets generated by partners worldwide Visualization tools for comparison and benchmarking How-to video, interactive guidelines and helpdesk Centralize and secure platform to quickly and reliably run search queries 27
3. RECORD RELATIVE SCORES Assign weights and/or scores for key indicators and assessment areas for selected module(s) Select confidence level Provide evidence in attachments and observation box 28
4. RESULTS FOR INDIVIDUAL MITIGATION ACTIONS Review results and evidence for individual mitigation actions in order to identify strengths and areas for improvement Save results and export to excel 29
5. SHARE RESULTS Share results with partners for editing/comments Share results for comparison and review 30
6. SEARCH RESULTS ON DATABASE Filter own/shared assessments based on their development phase, sector, region and date modified Search results to compare 31
7. COMPARE AND BENCHMARK RESULTS (TABLE/CHART FORMAT) Compare results for each module, assessment area and key indicator Benchmark results against overall best/average score or the user s best score 32
CERs from CDM Tradable units from ETSs VERs from voluntary schemes VALIDATION AND VERIFICATION YES/NO OUTCOME on whether the project will potentially achieve its envisaged emissions reduction targets or the actual reported emissions reductions Mitigation actions MAAP ASSESSMENT SCALED APPROACH Allow a range of possible outcomes Risk profile Enhanced comparability of carbon assets Benchmarking Assess development benefits in addition to environmental benefits Users can emphasize modules based on their priorities 33
METRIC Principles for linking and potential next steps 26th May 2017
METRIC Principles for linking and potential next steps 35 please note that this presentation is based on a finalised, but not yet published, paper commissioned by the Networked Carbon Markets (NCM) initiative and Carbon Pricing Leadership Coalition (CPLC)
METRIC Principles for linking and potential next steps 36 There are substantial cost savings to be achieved by international linking 3.5 54% saving Costs as a percent of global GDP 3 2.5 2 1.5 1 0.5 0 32% saving 2030 2050 Without international carbon market With an international carbon markets
METRIC Principles for linking and potential next steps 37 But, with some exceptions, it has proved challenging 2 examples of operational links to date California Québec Tokyo - Saitama challenges trade-offs when making the choice of linking partner; negotiation of the link, which may take a long time and may be politically contested prospect that the link might be insufficiently flexible to accommodate domestic policy changes
METRIC Principles for linking and potential next steps 38 The METRIC principles aim to help stakeholders, understand and assess the range of linking options and design features Market Integrity ensuring that capital is allocated efficiently and avoiding disturbing the continued efficient function of carbon and related markets Environmental Integrity giving all participants, as well as external stakeholders, confidence that the linking arrangements are supporting real and additional emission reductions that will in turn support the objective of the Paris Agreement Transparency being transparent and providing all stakeholders with a clear understanding of its rationale in order to generate support, and allowing the free exchange of information between linked systems Recognize Ambition recognizing early action and avoiding incentives to reduce effort Inclusiveness facilitating and encouraging more jurisdictions to join the system, promoting greater international cooperation, and considering domestic and international equity concerns Cost Effectiveness reducing the overall cost of mitigation, including administrative and transaction costs, and improving economic efficiency
METRIC Principles for linking and potential next steps 39 The application of the METRIC principles may lead policymakers to consider a range of different linking options what to do when one ETS has a price floor and other does not? remove/introduce floor and direct link? surrender charges? quantitative limits? exchange rates? environmental integrity may be preserved either though standardised MRV and a direct link alternative MRV approaches and a heterogeneous link the linking paradox might be addressed by heterogeneous linking but further work needed to measure relative ambition Market integrity Environmental Integrity Recognise ambition
METRIC Principles for linking and potential next steps 40 A potential next step would be to model different linking options building on the application of the METRIC principles METRIC principles highlight important considerations that can inform linking design next stage could be to use these principles to develop different linking options for a particular set of market and quantitatively assess their implications building on the qualitative case study in the paper, and announced plans, this could focus on Mexico s ETS linking to carbon markets in North America
METRIC Principles for linking and potential next steps 41 Contact us: Vivid Economics 26-28 Ely Place London EC1N 6TD Author contact details: John Ward T: +44 7790 613951 E: John.ward@vivideeconomics.com Company Profile Vivid Economics is a leading strategic economics consultancy with global reach. We strive to create lasting value for our clients, both in government and the private sector, and for society at large. We are a premier consultant in the policy-commerce interface and resource and environment-intensive sectors, where we advise on the most critical and complex policy and commercial questions facing clients around the world. The success we bring to our clients reflects a strong partnership culture, solid foundation of skills and analytical assets, and close cooperation with a large network of contacts across key organisations. Practice areas Energy & Industry Natural Resources Public & Private Finance Growth & Development Competitiveness & Innovation Cities & Infrastructure
Enerdata/NCM Initiative: Mexico-California quantitative case study Assessment of mitigation and financial implications of different linking rules between Mexico-California Enerdata NCM Initiative Expert Workshop, Barcelona, 26 May 2017
Linking: a great opportunity to increase ambition Reduce cost of emission reduction Increase ambition of emission reduction But linking requires: Transparency Guarantee the environmental integrity Satisfy domestic circumstances Support the global transition to sustainable development Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 43
Linking implications of Emissions Trading Schemes + Many research works on ETS assessment: At jurisdiction level On direct linking - Few quantitative modeling exercise on networked ETS under different trading rules: Discounting permits, traded volume limitation Enerdata realized for NCM in 2016, a first modeling exercise assessing implications of different linking rules between China, South Korea and Mexico national ETS. Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 44
First modeling exercise: Context Objective: Analyze impacts of various design options for Emissions Trading Schemes (ETS) and their potential linking: Domestic and International Discounting Values between jurisdictions Trading limitations between jurisdictions Methodology: Assessment of mitigation and financial implications of different linking rules through Marginal Abatement Cost Curves (MACCs) Use POLES global energy model to calculate MACCs for each jurisdiction at each sector level Generated MACCs express the sector transformation under a marginal carbon price incentive. They are coherent and comparable. Use EVALUATE tool to simulate linking rule scenarios Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 45
Project result illustration Varying discounting value (DV) Discount 1 Discount 2 2300.00 2250.00 2200.00 2150.00 2100.00 2050.00 2000.00 1950.00 Reduction target China: 0.3 South-Korea: 1 China: 0.5 South-Korea: 1 Enhanced emissions reductions 400 300 200 100 0-100 Lower DV difference between jurisdictions More imports from South Korea Less reductions from China Resulting in lower Resulting in lower abatement costs in South Korea and in China carbon price in SK driven by low price in China China South Korea China South Korea China South Korea Abatement Imports Marginal cost 1900.00-200 1850.00 1800.00 Direct Scenario 2 Scenario Discount 3-13 Scenario Discount 3 2-4 Linking reduction MtCO2 - China MtCO2 - South Korea -300 $/tco2 - Scenario Dir. Linking 2 $/tco2 - Scenario Discount 3-13 $/tco2 - Scenario Discount 3-24 Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 $Bn - Scenario Dir. Linking 2 $Bn - Scenario Discount 3 1-3 $Bn - Scenario Discount 3-24 MtCO2 - Scenario Dir. Linking 2 MtCO2 - Scenario Discount 3-13 MtCO2 - Scenario Discount 3-24 46
Key learnings: Varying discounting rate Discounting could enable higher emissions reduction. Varying discounting rates may enhance acceptability from jurisdictions by adjusting domestic political context (carbon price, burden cost, domestic emission reduction plans ) while ensuring the environmental integrity of the trade. Dom. ETS Direct linking China Discount 1 Discount 2 Dom. ETS South Korea Direct linking Discount 1 Discount 2 Emission reduction (MtCO2) 1769 1955 2034 2024 275 89 195 147 Additional reduction (MtCO2) -185-128 Imports (MtCO2) -186-264 -255 186 79 127 Carbon price ($/tco2) 42 46 49 48 310 46 163 97 Total Abatement costs ($Bn) 262 258 255 255 232 78 188 138 A way to find the best compromise between: environmental integrity & costs Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 47
2 nd modeling exercise: Quantitative case study proposition in collaboration with Vivid Economics Realisation in 2 phases: Phase 1: Mexico-California ETS linking rules case study Phase 2: Implications for the regional Mexico-California-Quebec- Ontario ETS Proposed Phase 1 approach: a) Using POLES model to calibrate baselines for Mexico and California from which Marginal Abatement Costs (MACCs) will be generated. b) Simulate with EVALUATE tool, 6-10 scenarios of different direct and heterogeneous linking arrangements. c) Quantitative assessment of the mitigation and financial impacts of these scenarios; and identify key benefits and challenges of each scenario. d) Suggest possible solutions and next steps to address key challenges of linking Mexico and California s ETSs (Vivid Economics & Enerdata) Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 48
Expected findings Put quantitative values on various ETS linking rule options for a practical case-study. Quantitative indicators to be provided for each scenario: Financial value/s of carbon allowances (i.e. carbon price/s); Emissions (both domestic and traded) achieved by sector; Emission intensity by sector; Total cumulative (2015-2030) abatement costs by sector; and Net trade balance by sector; EVALUATE tool populated with Mexico and California MACCs could be provided to the WB NCM Initiative. Identification of advantages and challenges for each jurisdiction of linking Provide technical support to WB to support stakeholder discussions on ETS linking. Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 49
Contact: Global Energy Forecasting Cyril CASSISA cyril.cassisa@enerdata.net About Enerdata: Thank you for your attention! Enerdata is an energy intelligence and consulting company established in 1991. Our experts will help you tackle key energy and climate issues and make sound strategic and business decisions. We provide research, solutions, consulting and training to key energy players worldwide. www.enerdata.net Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 50
Annex: POLES and GHG models Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017
POLES: a Multi-Issue Energy Model Resources International markets Oil Gas Coal Biomass (1 market) (3 markets) (15 markets) (1 market) International prices National energy balances (66) SUPPLY Macroeconomic assumptions Domestic production Import/ Export PRIMARY DEMAND Trade routes Consumption Fossil fuels Nuclear Hydro Biomass & wastes Oth. RES Climate and Energy policies TRANSFORMATION Production Power sector Investments/capacity planning Electricity generation Refineries (incl. synfuels) Technologies FINAL DEMAND GHG emissions Industry Transport Buildings Agriculture Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 52
Marginal Abatement Cost Curves (MACCs) Top-down MACCs produced by the POLES model as the result of sensitivities on carbon value Curves are produced by POLES for: 66 countries/regions 20 emitting sectors 6 GHGs (from energy and industrial activities) All years from 2020 to 2050 The MACCs from POLES are based on: Power sector: full technological description and load curve simulation Final demand sectors: econometric demand functions (including short-term price and long-term price elasticities), incorporating explicit description of technologies in road transport and buildings Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 53
Exemplary MAC curves China Mexico South Korea Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 54
MACCs are an essential inputs A set of coherent and interdependent MACCs for all sectors and countries considered Covers all GHG and emitting sectors, with the exception of LULUCF and non-co 2 agriculture MACCs for the year 2030 constitute the main input data to the EVALUATE model More information can be found in EVALUATE Carbon Expo presentation & WB internal presentations 2016 Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017 55
Conceptual model for NCM on DLT architecture Justin Macinante Link to published paper: http://ssrn.com/abstract=2948580
Map of existing, emerging and potential regional, national and sub-national carbon pricing instruments 62 Jurisdictions are currently putting a price on carbon 57
Different types of Linking Type of Linking Full Limited Indirect Networking Definition Compliance unit in one jurisdiction is accepted without restriction in the linked jurisdiction Compliance unit in one jurisdiction is accepted with qualitative/quantitative restrictions in the linked jurisdiction Markets are not linked directly, but have access to the same third carbon market. Fungibility of carbon assets across schemes facilitated by an Independent Assessment Framework that recognizes the differences between schemes
The NCM initiative The assumptions underlying NCM accord with the principles evident in the Paris Agreement: Governments need information about jurisdictions and schemes with which they might link Changes may take place in a scheme and its effectiveness over time, or with a jurisdiction s economy, so information needs to be collected and monitored on an on-going basis Similarly, market participants need information to make informed investment decisions Some governments and market participants have the resources to make these assessments, others will not Implicit that governments retain the sovereignty to act on this information as they see fit, and the hegemony over their schemes and policies
Key components of Networked Carbon Markets The NCM initiative is comprised of 3 key components 1 Independent assessment framework to determine the climate change mitigation value of different climate actions and enable their fungibility in the international market. 2 International Carbon Asset Reserve to support and facilitate carbon market related functions. 3 International Settlement Platform to track crossborder trades and possible clearing house function.
The concept of Mitigation Value is fundamental to the Independent Assessment Framework Determining mitigation value is a function of a robust MRV framework that assesses: Risk relating to the characteristics of a specific program Risk relating to the characteristics of a jurisdiction s collective low-carbon policies Risk relating to the characteristics of a jurisdiction s contribution to addressing global climate change Mitigation value 8/10/2017
Overarching Supervisory Body ICAR Central Registry Settlement Platform/ Clearing Regulatory Supervision of conversion setting Regulatory Supervisory Body for MV Assessment Trading Conversion Rate Setting Suitable Entities Performing MV Assessments Jurisdiction A Jurisdiction B Jurisdiction C A 1 A 2 A 3 B 1 B 2 B 3 C 1 C 2 C 3
Conceptual model for NCM on DLT architecture What is distributed ledger technology? Combination of a distributed database, with public/private key encryption, and decentralised infrastructure Doesn t offer significant functionality that couldn t be achieved otherwise BUT does provide potential for innovative solutions to data sharing and transaction management application areas
Conceptual model for NCM on DLT architecture Paper sets out key elements of underlying technology framework as platform for the components of inter-jurisdictional emissions trading I II III IV V VI how such a market might come into being possible alternative mechanisms for transactions institutional elements and requirements of digital infrastructure smart contracts as the key transactional component types and roles of participants other legal and regulatory concerns Smart Contracts term of art for transactional T&Cs embedded in computer code allows automatic execution, once precise conformity with T&Cs has been established
Conceptual model for NCM on DLT architecture Firstly, there might be rules governing jurisdictional participation and market operation, including, for example: Preservation of environmental integrity Application of the supplementarity principle Applying an national rules for acceptance or exclusion Then, there are the rules for the transaction, that might include: Seller holding the units offered for sale Buyer having the funds necessary to complete transaction Automatic application of a conversion rate between the jurisdictions On settlement, automatic updating of all copies of the ledger
Conceptual model for NCM on DLT architecture As set out in the paper, preconditions for a contract might typically include the following information and specifications: name and jurisdiction of seller; domestic authorization, satisfactory KYC and AML checks on seller; name and jurisdiction of buyer; domestic authorization, satisfactory KYC and AML checks on buyer; certification or proof that the transaction is accepted as not negatively impacting upon environmental integrity; certification that the transaction would not cause the buyer s jurisdiction to breach the supplementarity principle (noting that either jurisdiction may have the level set lower than maximum applicable in the distributed system as a whole); certification that the transaction would not cause either the seller or the seller s jurisdiction to breach the compliance reserve (noting that the level may have been set higher than the minimum required for the distributed system as a whole); that the conversion rate is acceptable to the buyer s jurisdiction; that both jurisdictions have provided and maintain an acceptable surety in regard to their financial obligations towards the operation of the distributed network; confirmation that the seller holds and is entitled to sell the units offered for sale; confirmation that buyer has funds to complete transaction; and the application of the correct conversion rate between jurisdictions
Conceptual model for NCM on DLT architecture What does it offer? (potentially!) Flexibility Cost and time efficiencies Consensus + cooperation + voluntary engagement Simplicity with certainty Transparency and confidentiality
Conceptual model for NCM on DLT architecture DLT element Paris Agreement Blockchain (ledger) accumulative, immutable Security of transaction (e.g., fraud prevention) Robust accounting, double-counting control auditable Distributed database, permissioning Transparency (based on permissioning) Confidentiality protected as necessary Security against IT attack (e.g., loss of data) Private/public key encryption Security against IT attack (e.g., fraud, theft) Transparency but with appropriate protection of confidentiality Decentralised infrastructure Cost efficiency Other peer-to-peer efficiency (e.g., transaction time) Regulation by code (contract terms) Environmental integrity Supplementarity National rules flexibility (sovereignty)
Conceptual model for NCM on DLT architecture Conceptual Model: Key elements of underlying technology framework as platform for the components of inter-jurisdictional emissions trading how such a market might come into being possible alternative mechanisms for transactions institutional elements and requirements of digital infrastructure smart contracts as the key transactional component types and roles of participants other legal and regulatory concerns Elements of the application need to be developed, especially the concept of how a value is put on the mitigation outcomes that will be transferred
THANK YOU for your attention 8/10/2017 70