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The report evaluates the foundation “Future for the Carbon Market”, focusing on three different aspects: the foundation’s general concept and strategy, its supported projects / activities, and an outlook on the three remaining years in its lifecycle. The German foundation has the objective to support programmatic approaches in international carbon markets through acquisition of emission credits (CERs) under the Clean Development Mechanism (CDM), as well as through consultancy and promotional activities for programmatic activities. The review concludes an overall positive evaluation of the foundation’s strategic mission and vision and highlights the pros and cons of the utilized approach of upfront payment against future carbon revenues, including its potential application under Article 6 of the Paris Agreement.

Perspectives and the Senegalese consultancy Afrique Énergie Environnement find a carbon tax with careful redistribution as most promising carbon pricing opportunity for Senegal.

The Paris Agreement will greatly benefit from the past experience with international market mechanisms for greenhouse gas (GHG) emissions reductions and related regulatory systems, which have gone through four periods with specific challenges. The first period 1997 - 2004 operationalized the mechanisms defined in the Kyoto Protocol, the Clean Development Mechanism (CDM) and Joint Implementation (JI). Pilot activities in different sectors were undertaken by the public sector, and the first baseline and monitoring methodologies officially approved. Between 2005 and 2011, the carbon markets expanded massively. The EU emission trading scheme (EU ETS) was linked to the Kyoto mechanisms, creating demand for carbon credits from the private sector. During this “gold rush” period criticism emerged with regarding the uneven geographical distribution of projects, as well as environmental integrity problems related to baselines and additionality. The next period saw a collapse in carbon prices between 2012 and 2014, limiting the development of new projects. The quantitative limits on the offset use in the EU ETS were reached and the failure to agree on a new international regime resulted in a drying up of demand from governments. The 2015 – 2018 period is characterized by a gradual stabilization of the international climate regime. The Paris Agreement adopted in 2015 increases complexity through global participation in mitigation. Future carbon markets will therefore face both old challenges – supply-demand balance, environmental integrity, transaction costs – and new ones – interactions with other policies and national targets, and sectoral/policy baselines and additionality checks preventing hot air proliferation.

This paper analyzes the implications of different interpretations of additionality for the market mechanisms under Article 6 and reflects on options how to anchor further additionality provisions in the negotiation text. The authors find that several quality criteria of mitigation outcomes are often discussed under the term additionality, but they need to be differentiated from one another. In the context of Article 6.2, additionality can be anchored through stringent international oversight, e.g. through the review of additionality by the A6TER. Particpating Parties can ensure additionality by applying stringent additionality test and controlling the quality of acquired ITMOs. In the context of Article 6.4, reliable additionality tests under the CDM can continue, with the addition of new tests for sectoral activities. Furthermore, options for additionality can be secured in the governance and responsibilities of the Article 6.4 Supervisory Body.

Following the positive response from readers, the study has been updated to reflect the dynamic process made in operationalizing Article 6. It contains additional information and highlights ongoing developments in Article 6 pilot activities supported through bilateral channels, regional organizations and multilateral development banks. The authors analyse emerging trends and early experience with Article 6 implementation and look particularly at how the pilots are responding to the new challenges posed by the Paris Agreement. This includes a discussion of the stronger role of governments in Article 6 cooperation, the relationship with NDC commitments, e.g. for challenges related to determining additionality and baselines, the need for tracking and accounting of ITMOs, sustainable development impacts and overall mitigation in global emissions.

Together with Climate Focus and Frankfurt School of Finance & Management, Perspectives has analyzed how Article 6 market mechanisms can be designed to incentivize mobilization of private financing and to reorient global finance flows towards low-carbon development and climate resilience in line with Article 2.1c of the Paris Agreement. On the international level, private and public sector trust in Article 6 mechanisms must be enhanced through keeping transaction low while robustly safeguarding integrity. On the national level, mitigation policy instruments should incentivize demand for emission reduction units, while higher-cost private sector mitigation should be mobilized through effective blending of ITMO revenues with public climate finance.

The year 2018 saw the emergence of a broad social movement demanding stringent policies for climate change mitigation in Europe and other world regions. Widespread meteorological extreme events consistent with rapid global warming are stoking this movement. Especially in Europe, it has already changed the political landscape in a number of countries as green parties have scored record votes. Therefore, policymakers in many countries are sharpening their emission reduction targets for 2030 and 2050. At the same time, strong interest in an integrated hydrogen economy is emerging, where hydrogen would become a key fuel for transportation, industrial uses and even electricity generation. Countries as diverse as Australia, China, European Union (EU) member states and Japan are embarking on far-reaching strategies for a hydrogen economy, starting with the support of fuel- cell electric vehicles (FCEVs) but reaching beyond the transport sector. Hydrogen production technologies are manifold: feedstocks include fossil fuels and renewable electricity. At present, the costs of ‘green’ hydrogen, which is produced with renewable electricity, are still about five times higher than those of gas or coal-based hydrogen. An expansion of green hydrogen production, however, is likely to close the gap within less than a decade. Especially promising are emerging technologies that allow to use hydrogen as a fuel in existing thermal power plants without major refurbishment. The Gulf region faces a significant risk of oil exports becoming squeezed by a successful hydrogen revolution in the next decades. At the same time, Gulf countries are blessed with abundant solar energy resources that can easily be used for green and low-cost hydrogen production at large scale. Therefore, it is recommended that they proactively participate in this revolution, also given the region’s long experience with pipeline and ship transport of other flammable materials. Early movers are likely to benefit from sca

The role of market mechanisms was far from certain in the lead up to the 2015 Paris Climate Conference. The use of ‘constructive ambiguity’ led to Article 6 of the Paris Agreement, with Article 6.2 specifying a mechanism with limited international oversight, and Article 6.4 establishing a ‘Sustainable Development Mechanism’ (SDM) subject to detailed rules. Clear operationalization of these mechanisms remains a challenge, especially regarding the critical accounting issue that could not be resolved at the 2018 Katowice Climate Conference (COP24) – how to apply corresponding adjustments, especially regarding sectors not covered by targets under nationally-determined contributions (NDCs). By using fictitious examples, we explain two possible approaches to using Internationally Transferred Mitigation Outcomes (ITMOs) under Article 6.2 for achieving NDCs: a ‘target-based’ one where the acquiring Party adds the ITMO amount to the target level of its NDC; and a ‘tally-based’ one where the acquiring Party removes the ITMO amount from the final tally of its NDC. We discuss how these approaches influence the way to make corresponding adjustments and to avoid ‘double counting’. The first one leads to ‘target/budget-based accounting’, the second one to ‘emission-based accounting’. For mitigation outside the scope of the host Party's NDC, we propose using a tally-based interpretation of ITMO use, as opposed to the target-based variety used in the 1997 Kyoto Protocol, and stress the need for additionality testing. This interpretation allows for mandatory corresponding adjustments for all ITMO usage, while the host Party NDC level remains unchanged. A buffer registry is created for corresponding non-NDC adjustments of the selling party.

In this study commissioned by GIZ, Perspectives’ authors discuss how to finance HFC mitigation beyond the KA commitments. They propose an integrated approach of public finance and international market mechanisms under Article 6 of the Paris Agreement.

At COP24 in December 2018, Parties adopted a large part of the so-called “rulebook” operationalizing the articles of the Paris Agreement and the accompanying decision 1/CP.21. Due to lack of consensus on several contentious topics surrounding accounting, integrity and ambition, the rules for the market mechanisms under Article 6 have been postponed to COP25. Even if the guidelines for transfers of international emission reduction credits in cooperative approaches (Article 6.2) and the rules, modalities and procedures for the UNFCCC-supervised crediting mechanism (Article 6.4) are adopted as planned at COP25, the full operationalization of these mechanisms is expected to take several years. In this context, the objective of this study is to provide a comprehensive overview of key design elements implemented in existing “baseline and credit” carbon crediting schemes and to draw lessons that can inform the negotiations on Article 6. In a first step, the paper identifies the most important carbon crediting schemes at different levels of governance and of different geographical focus for analysis and subsequently compares them along six main dimensions: Governance and accounting; scope and eligibility; environmental integrity; monitoring, reporting and verification (MRV); sustainable development (SD) contributions; and linkages with other carbon pricing instruments. While international crediting schemes have suffered from a lack of demand since the early 2010s, domestic crediting schemes are spreading at national and subnational levels. At the international level, the study reviews key features of the international crediting schemes under the Kyoto Protocol, notably the Clean Development Mechanism, Joint Implementation and Green Investment Schemes for International Emissions Trading. As an example for bilaterally implemented schemes, the Joint Crediting Mechanism is included. At a (sub)national level, schemes from Australia, California, Canadian provinces, China, Spain a

This short policy-oriented study seeks to contribute to the elaboration of the rulebook for carbon market instruments under Article 6 of the Paris Agreement. The tax on market mechanism activities (officially called “Share of Proceeds (SOP)”) is a key topic and priority for the African Group of Negotiators and other alliances. The objective of the study is to enhance the base of evidence for this discussion by providing an analytical background on previous experiences with the SOP under the CDM and current technical options as an input to the political negotiations.

The Paris Agreement requires mitigation contributions from all Parties. Therefore, the determination of additionality of activities under the market mechanisms of its Article 6 will need to be revisited. This paper provides recommendations on how to operationalize additionality under Article 6. We first review generic definitions of additionality and current approaches for testing of additionality before discussing under which conditions additionality testing of specific activities or policies is still necessary under the new context of the Paris Agreement, that is, in order to prevent increases of global emissions. We argue that the possibility of ‘hot air’ generation under nationally-determined contributions (NDCs) requires an independent check of the NDC’s ambition. If the NDC of the transferring country does contain ‘hot air’, or if the transferred emission reductions are not covered by the NDC, a dedicated additionality test should be required. While additionality tests of projects and programmes could continue to be done through investment analysis, for policy instruments new approaches are required. They should be differentiated according to type of policy instrument. For regulation, we suggest calculating the resulting pay-back period for technology users. If the regulation generates investments exceeding a payback period threshold, it could be deemed additional. Similarly, carbon pricing policies that generate a carbon price exceeding a threshold could qualify; for trading schemes an absence of over-allocation needs to be shown. The threshold should be differentiated according to country categories and rise over time.

The Paris Agreement requires mitigation contributions from all Parties. Therefore, the determination of additionality of activities under the market mechanisms of its Article 6 will need to be revisited. This paper provides recommendations on how to operationalize additionality under Article 6. We first review generic definitions of additionality and current approaches for testing of additionality before discussing under which conditions additionality testing of specific activities or policies is still necessary under the new context of the Paris Agreement, that is, in order to prevent increases of global emissions. We argue that the possibility of "hot air" generation under nationally-determined contributions (NDCs) requires an independent check of the NDC's ambition. If the NDC of the transferring country does contain "hot air", or if the transferred emission reductions are not covered by the NDC, a dedicated additionality test should be required. While additionality tests of projects and programmes could continue to be done through investment analysis, for policy instruments new approaches are required. They should be differentiated according to type of policy instrument. For regulation, we suggest calculating the resulting pay-back period for technology users. If the regulation generates investments exceeding a payback period threshold, it could be deemed additional. Similarly, carbon pricing policies that generate a carbon price exceeding a threshold could qualify; for trading schemes an absence of over-allocation needs to be shown. The threshold should be differentiated according to country categories and rise over time.

Before introducing an emissions trading system, jurisdictions have to consider the ex-isting energy and climate policy framework. This report seeks to analyse and evaluate non-ETS climate policy instruments, such as carbon taxes or green certificate trading schemes, regarding their suitability to serve as a basis for establishing emission trading systems. There is a general assessment of prototypical policy instruments. Besides, the report contains insights from case studies in India and Mexico. The report is meant to inform ETS development by showing how existing policy instruments could contribute to this process and by illustrating how non-ETS policy instruments could coexist with an emissions trading system, allowing for an effective policy mix.

What's holding up the Article 6 negotiations? Can differences be resolved at the 25th Conference of Parties (COP25) to the UN Framework Convention on Climate Change? This policy paper explains the crunch issues in Article 6 negotiations in generally accessible language. It sheds light on the key differences between negotiating Parties on the eve of COP25 in Madrid. Understanding the issues and Party positions is a key step to identify solutions in these highly political and technically complex negotiations.

In 2016, the International Civil Aviation Organization (ICAO) adopted the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). The scheme requires participating airline operators to purchase carbon offset credits to compensate for the increase in their carbon dioxide emissions from international flights above 2019/2020 levels. This paper synthesizes key lessons learned from an assessment of the first 14 applications of carbon-offsetting programs for eligibility under CORSIA, focussing on five out of eight eligibility criteria established by ICAO. The evaluation shows that the degree to which the applicants satisfy the ICAO requirements differs substantially. Some applicants hardly meet any of the requirements and may not even be considered carbon-offsetting programs. However, there are also notable differences in relation to specific criteria. With regard to ensuring additionality and establishing baselines, key shortcomings are that many programmes apply approaches that do not guarantee environmental integrity of the generated credits. Not all programs regularly reassess whether their approaches are still appropriate in the light of new circumstances, such as lower costs of renewable energy technologies, and programs may still need to update their approaches for assessing additionality and establishing baselines in the light of the new context of the Paris Agreement. Some programs also do not require an independent third-party assessment of baseline methodologies. Most programs do not yet have procedures in place or planned for avoiding double counting between CORSIA and nationally determined contributions (NDCs) under the Paris Agreement. However, a few programs are in the process of implementing detailed procedures, based on voluntary Guidelines developed by a multistakeholder group. To address non-permanence, most programs use "buffer" approaches. The duration for which non-permanence is ensured, the avoidance of moral hazard risks of inte

Le Guide des négociations est un document réalisé annuellement par l’OIF/IFDD pour accompagner les sessions de la Conférence des Parties (CdP) à la Convention-cadre des Nations Unies sur les changements climatiques (CCNUCC). Compte tenu du contexte inédit induit par la pandémie de Covid-19, et du report des sessions formelles à 2021, le présent document constitue plutôt un Guide de décryptage « passerelle » d’ici à la prochaine édition du Guide des négociations qui sera publié en amont de la 26e session de la Conférence des Parties (CdP26) (1-12 novembre 2021, Glasgow). Il reste toutefois une source précieuse pour offrir à chacun l’accès à une présentation analytique des enjeux. Dans ce cadre, ce document apparait en effet d’autant plus utile, voire nécessaire. Face à une situation à laquelle personne n’était préparé, l’ensemble des entités impliquées dans le cadre des négociations, dont certaines Parties elles-mêmes, n’ont pas la capacité de se tenir informées, ni de se préparer avec le plus d’efficacité possible à la reprise des sessions en présentiel prévue en 2021. Alors que l’urgence climatique ne peut souffrir d’aucun retard supplémentaire, et que d’importantes décisions devront aboutir dès la reprise des activités formelles, ce document entend ainsi s’inscrire dans une dynamique positive et constructive permettant de tendre vers une CdP26 réussie et ambitieuse. Le Guide propose, dans un premier temps, un décryptage des résultats clés de la dernière session de la Conférence des Parties (CdP25 – Chili/Madrid, 2019), en indiquant les perspectives associées aux prochains enjeux des négociations. Il présente ensuite un cadre de lecture indicatif des incidences de la pandémie sur le processus de la CCNUCC et des dispositifs inédits mis en place pour s’y adapter. Comme chaque année, le Guide bénéficie de l’apport d’un groupe d’auteurs et de contributeurs issus de différents pays de la Francophonie, impliqués dans les négociations sur le climat depuis de nombreuses a