WhattheParisAgreementmeansfor
coopera3ononcarbonmarkets/
pricing
AlexHanafi+JosCozijnsen
(withNatKeohane,AnniePetsonk)
FORESWorkshop
October17,2016
WhoWeAre
Non-governmental
Non-profit
Non-par3san
1millionmembers
Foundedin1967
Where We Work
United Kingdom
China
U.S.
Mexico
Cuba
India
Brazil
As of Spring 2015
500 staff including scientists, economists, engineers,
lawyers, and policy and business experts.
Partnerships and projects around the world.
Preview
•  WhatdoestheParisAgreementsayoncarbon
markets/pricing?
•  WhatistherolefortheUNgoingforward?
•  Howcoulda“minilateral”coaliVonhelp?
ContextoncarbonmarketsintheParis
Agreement
•  Nonewlegalauthority
neededinParisAgreement
formarketcooperaVon
•  IdeologicalopposiVonto
marketsfromafew
countries
•  Sohowdidtheyget
agreement?
–  Widespreadinterestinusing
“markets”
–  Greatercost-effecVveness→
greaterambiVon
–  Issuetobe“tradedoff”
–  Allcould“seethemselves”in
theagreedtext(Art6)
MarketsintheParisAgreement(1/2)
“Mechanism”language
•  EstablishesacentralizedoffsetcrediVngmechanismunderthe
authorityoftheUNFCCC(i.e.,successortoJI/CDM)
MarketsintheParisAgreement(2/2)
“CooperaVveapproaches/ITMOs”language
•  ClearpathforParVestomoveaheadwithbilateraland
plurilateraltradingonavoluntary,decentralizedbasis
•  RecognizestransacVons,butdoesnotchargeUNFCCwith
overseeingthemorcreaVngmarketinsVtuVons
Marketsaremuchmorethan
transfers
Whatisrequiredto
establishwellfunc3oningmarkets
andensure
environmental
integrity?
Whatcanthe
UNFCCCdo?
Marketsaremuchmorethan
transfers
Whatisrequired
toestablishwellfunc3oning
marketsand Whatcanthe
UNFCCCdo?
ensure
environmental
integrity?
TheKyotoProtocol
TheParisAgreement
TheParisAgreement:whatabouttrading?
?
Unresolvedques3ons/nextsteps
Photo credit: adoptanegotiator.org
•  Scopeofguidanceunder6.2?
•  DefiniVonofkeytermsin6.2and6.4?
•  MuchdiversionamongstParVesontheseissuesatfirst
post-ParismeeVng(May2016),despitefastentryinto
forceandprogressatICAOandMontrealProtocol
•  Acomplementaryrolefor“minilateral”cooperaVon?
Complementaryroles:“Coali3on”+
UNFCCC
•  UNFCCCgivenfullauthorityandoversightoverthedesignofa
centralizedoffsetcrediVngmechanism(6.4)
•  Incontrast:narrowerroleonbilateraltrading,limitedto“robust”
accounVngguidance,includingavoidingdouble-counVng(6.2)
•  PracVcalrecogniVonoflimitaVonsofUNFCCC195-Party
approachincreaVngmarkets(cf.experienceof“FVA”process)
•  Leavesanopeningforcomplementary“minilateral”approaches
–  Ini1alfocusoncommonstandardsandguidelinestobuild
confidenceinenvt’lintegrityofinternaVonalemissions
trading+efficiencyofNDCimplementaVon
–  Later(ifmemberschoose):creaVonofmarketinsVtuVons
(linkedregistry,tradingplagorm,etc.)/linkage
AClubofCarbonMarkets(1/2)
•  Purpose:todrivegreatermiVgaVonambiVonbyencouraging
useofrobust,high-integrityemissiontradingsystems
Phasedapproach
1.  IniValfocusonstandardsand
guidelinesforenvironmental
integrity:reNDCs,MRV,
pracVcalavoidanceofdouble
counVng,roleofinternaVonal
credits.
2.  Eventualestablishmentof
commonmarketthrough
mutualrecogniVonofcarbon
emissionunits
AClubofCarbonMarkets(2/2)
•  Full-fledged“club”couldofferexclusivebenefits
–  Benefitsoflinkage(liquidity,pricestability,marketaccess)
–  ReducedbarrierstopolicyadopVon/commoninfrastructure(“plugin”)
–  ReputaVonalbenefits
–  “Safeharbor”frompotenValtrademeasures
–  Enhancedaccesstolowcarboninvestmentcapital
–  Infosharing/capacitybuilding
Whohascapacitytotreatjoin?
CouldincludestatesandprovincesaswellasnaVons;
perhapsindustrysectorsaswell(e.g.civilaviaVon?)
Membershipcriteria(e.g.)
ü AtleastoneambiVousabsoluteemissionscapona
sector(e.g.,electricpower,industry)coveringa
significantfracVonofnaVonalemissions
ü Usingamarket-basedmeasuretoimplementthecap
ü Transparencyrequirements(MRV)
ü DomesVccapacitytoenforcethecap,andclear
consequencesforfailuretocomply(createsscarcity)
Whatifallwegetisphase1?
•  ClubtheorysuggestsimportanceofincenVves
–  Exclusivetradeincarbonunits
–  SancVonsfornoncompliance
–  Bordercarbonadjustments
•  MaynotbeabletogetsuchincenVvesrightaway
–  Limitednear-termdemandforlinkage
–  Thusthe“phasedapproach”
•  CanacoaliVonshedthe"pseudo-"andevolveintoatrueclub?
•  ProgresswithinUNFCCCa:erall?
Whatcanwelearnfromexis3ngmodels?
•  Ques3onsfordiscussion:
•  Towhatmilestonesmight“phase1”aim?
•  FromwhatexisVngmodelsmightaphase1or
phase2clublearn(i.e.WCI,GATT,PSI/MTCR)?
•  HowmightaclubinteractwithexisVnglandscape
andinsVtuVonswithrelatedobjecVves/acVviVes?
(PMR,CPLC,ICAP,APCMR,exisVnglinkages(CAQC-ON,EU)
Key takeaways
•  Paris Agreement recognizes growth of carbon markets, and
may contribute to further domestic development
•  Coordination on carbon market integrity and transparency
standards can broaden participation in climate action and
promote ambitious reductions in carbon emissions
•  The UNFCCC likely has a limited role, and may move slowly
•  A “minilateral” Coalition of Carbon Markets could add to
Paris momentum, by 1) creating common standards and
guidelines for environmental integrity, and 2) informing
development of Paris Agreement’s multilateral guidance
Thank you!
Alex Hanafi
[email protected]
The World’s Carbon Markets
Source: World Bank 2015