CDM from 2013
Within the second commitment period, the greenhouse gas nitrogen trifluoride (NF3) will be monitored under the Kyoto Protocol. Basically, nothing changes initially for project developers – the EU regulated in 2008 that stakeholders under the EU emissions trading can use CERs until 2020 regardless of the progress of the UN climate negotiations. However, new regulations are in force for the EU emissions trading system for the third trading period starting in 2013. Future usability of CERs depends on the date of registration of a CDM project by the CDM Executive Board and excludes credits from so-called "industrial gas projects". CERs from projects registered from 2013 onwards may only be used in European emissions trading if they come from the so-called "Least Developed Developed Countries" (LDCs), i.e. the poorest developing countries.
New market mechanisms & NAMAs
In addition to the existing flexible mechanisms under the Kyoto Protocol, the creation of new market mechanisms to set incentives for further emission reductions over entire industrial sectors or policies will be discussed at the UNFCCC climate negotiations. These so-called sectoral mechanisms are supported by the EU. The EU Emissions Trading Directive provides, under certain conditions, for bilateral agreements with emerging and developing countries that will enable the use of such sectoral mechanisms and further reduction credits to be used in EU emissions trading.
Source: Perspectives GmbH
In December 2011, the Conference of the Parties in Durban decided to launch a new market mechanism, whose development however is delayed. It is expected that this new market mechanism will only be implemented in practice in the next couple of years.
The implementation of "Nationally Appropriate Mitigation Actions" (NAMAs) was decided within the international climate negotiations at the UNFCCC level. NAMAs are to combine national development plans and international funding to provide incentives for a "green" growth path. The host countries can make use of national and international donor funding and, where appropriate, financing through the carbon market.
CDM and the development of new market-based mechanisms
International climate protection projects to offset domestic reduction obligations have entered a critical stage. The positive effects of project-based carbon market mechanisms for reduction of greenhouse gas emissions – such as the Clean Development Mechanism (CDM) – no longer provide sufficient incentives for the initiation of greenhouse gas mitigation activities.
Though the development of a new marked-based mechanism was adopted internationally, its modalities and procedures are not yet defined. In this gap period, bilateral agreements between countries provide a basis for piloting new market-based approaches at the sectoral level and which will benefit from experiences with the CDM.
The paper, as part of the UFOPLAN research project “Fragmentation of the carbon market and options for counteraction” assesses opportunities towards the implementation of credited pilot projects based on bilaterally agreed reference levels. The research presents concepts for developing reference levels tested for the Chilean electricity sector and the low-income segment of the buildings sector in South Africa. The interim report shows that there is scope to adapt and adopt elements from the CDM to support the development of new market-based mechanisms.
Sectoral approaches as a bridge between existing and future mechanisms
Market-based systems are important elements in the international climate protection regime. In addition to enabling cost-effective mitigation efforts, they can also contribute to increasing the ambition level in both developed and developing countries. New international market approaches were introduced as early as at the 17th Conference of the Parties of the UNFCCC in Durban. Firstly, a new market mechanism (NMM) was specified, secondly, the development of a Framework for Various Approaches (FVA) was initiated. These instruments should contribute to a scaling up of emission reductions from those previously expedited by the Clean Development Mechanism (CDM) and ultimately holistically cover all sectors with their reduction potential. Also, these new instruments should facilitate a much greater net reduction effect than that achieved by the CDM.
Since the exact configuration of NMM and FVA is still pending and their implementation is only realistic in the long-term perspective, the question arises as to how to shape the transition period into a new useful climate treaty for market mechanisms.
This final report of the UFOPLAN project "Development of sectoral market mechanisms in the transition period to a new climate treaty" investigates how sectoral approaches in an international climate policy regime can build a bridge between existing and future mechanisms and instruments.
Industrial gas projects
By issuing Regulation (EU) No 550/2011, the European Commission has banned the use of international credits from 01/01/2013 for projects undertaking the destruction of two industrial gases, HFC-23 (a waste product of refrigerant HFC 22 production) and N2O (nitrous oxide or laughing gas from adipic acid production) within the EU emissions trading scheme. The only exceptions are credits from existing projects which were issued for emission reductions that occurred before 2013. The use of these credits was permitted up to and including 30/04/2013.
Reductions resulting from industrial gas projects make up the majority of the CERs issued under the CDM so far. Various aspects caused the EU to exclude the above-mentioned industrial gases from EU emissions trading: among other things, they do not promote the intended transformation of the energy system, nor do they contribute to technology transfer in the opinion of EU legislature. Furthermore, the huge appeal of these projects may even have caused emissions.