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As numerous jurisdictions implement emissions mitigation mechanisms that put a price on carbon, this incisive book explores the emerging emissions markets and their diverse and fragmented nature. It proposes an innovative model for connecting such markets, offering a significantly more successful and expeditious achievement of climate policy objectives.
Carbon markets are key components in the climate change mitigation response, enabling a price to be placed on carbon emissions. Connecting these markets has the potential to allow a more integrated, efficient, and globally consistent price on carbon which will promote greater confidence in the market, investment and, ultimately, help foster new technology development through climate finance.The challenge to connecting carbon markets is that each individual carbon market has its own legal and regulatory framework and its own rules for assigning and accounting for the carbon units traded. This presents significant legal and political hurdles that rule out a single, global, carbon market being established. An alternative, 'bottom-up' solution, to enable carbon trading between a range of markets without forcing legal and regulatory homogeneous standardisation and conformity on those markets, would be a more practical way to connect them.One candidate technology to facilitate such connection, is the 'Distributed Ledger' (DL), which provides the combination of a distributed database with public/private key encryption and a decentralised infrastructure. This potentially allows for innovative solutions to data sharing, or transaction management application areas, making it a good first-order match to the emerging requirements for an interoperable carbon market infrastructure.To meet the objectives of the Paris Agreement, a solution needs to be found that facilitates a global-scale distributed infrastructure, which allows a diverse set of markets and participants to utilise and exploit it. The established literature on innovation and technology diffusion gives guidance on this issue, but no ability to predict success.The purpose of this White Paper, therefore, is to outline the most important questions identified in relation to the connecting of carbon markets through the application of DL technologies, and outline the authors' current thoughts on those questions.
This Mitigation Action As ...
This paper considers the regulatory frameworkthat is required to be put in place in order to support theestablishment of carbon market linkages, in particular, in light of the bottom-up approach contemplated by theParis Agreement. Section two describes the key purpose ofthe paper and details the assumptions and other factorsthat are made in this paper concerning "networking"--Aform of linking contemplated by the World Bank Group's Networked Carbon Markets (NCM) initiative. The key assumption in the paper is that the parties seeking to link two or more carbon markets will, before considering theregulatory elements required for linking, have concluded that there must be political, administrative and/oreconomic rationale for linking. Section three considers the impact of the Paris Agreement, in particular Article 6, on carbon market linkage. Section four introduces the concepts of governance, legal and regulatory frameworks and seeks to draw a distinction between these three concepts, whilst recognising there is a degree of overlap. In section five discuss the regulatory framework that we consider to be necessary for carbon market linking when considered in the context of traditional linkage models (i.e., those that require greater homogeneity in order to establish linkages). In section six analyses a number of existing trading arrangements to assess whether they offer a suitable foundation for future linked carbon markets. This would potentially enable existing regulatory frameworks to be used as a means of jump-starting the linkage process. Section seven includes a more detailed discussion of the World Bank Group's proposal for networking and the concept of mitigation value (MV) which is a fundamental element of networking. We consider the variety of modalities for linking, including the networking modeland the NCM transaction scenarios discussed in the NCM Concept Paper. This relates to the acceptance by one country of its MV assessment by a third party assessor. Although we highlight some of the new challenges this will throw up, we conclude that further development about how MV could be operationalised will be required before guidance on the regulatory frameworkfor networking can be further advanced.
Carbon markets are undergoing a significant transformation, moving from what could be called Greenhouse Gas (GHG) Markets 1.0, to a new state that may be called GHG Markets 2.0. GHG Markets 2.0 is comprised of a diversity of domestic carbon pricing approaches, as countries choose different approaches depending on their national circumstances and what is politically feasible. A global carbon market remains a key objective, but may take some time to become a reality. A global market could be achieved in a number of ways, including through the "classic" linking approach, which aims to harmonize differences between systems. It implies that a linking agreement has been negotiated between jurisdictions, which then enables trade between the two jurisdictions. Networked Carbon Markets (NCM) offers an alternative approach, which recognizes differences and aims to put a relative value on the units that emerge from different systems. NCM does not seek to 'police' but rather seeks to ensure that jurisdictions have the information they need to make their own decisions about connecting and trading with other carbon markets. This Paper assumes that a carbon unit can have three values, all of which are central to NCM: a Mitigation Value (MV), a Compliance Value (CV) and Financial Value (FV). MV refers to the relative value of a unit versus a defined Standard Unit of reduction. It is important to emphasize that the concept refers to units in the carbon market, not tons. Therefore, MV does not challenge the reality that the atmospheric impact of emitting or reducing a ton of greenhouse gas (GHG) is the same everywhere in the world. The Paper identifies four scenarios with increasing centralized governance for the framework of markets under the upcoming 2015 Paris agreement. It argues that unless a centralized framework is put it in place, it is unlikely that there will be overlap and conflict between the international agreement framework and an NCM.