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Herding the global carbon market cats: Recommendations for the negotiations of the FVA

Executive Summary of the Position Paper for COP-19, Warsaw, November 2013

Countries agreed at COP17 in Durban that various approaches, including opportunities for using markets and non-markets, may be used to enhance the cost-effectiveness of, and to promote, mitigation actions. At COP18 in Doha it was decided that these approaches shall be governed by a Framework for Various Approaches (FVA). In November 2013, Parties will attend COP19 in Warsaw and will continue discussing the FVA.

One of the main arguments in favour of market mechanisms has been that they create an incentive for countries to take on higher targets than they would otherwise. But to date carbon markets have not incentivised countries to take on adequate commitments.

  • Mitigation targets need to be much more ambitious than they currently are in order to stay within the safe limits of the remaining global carbon budget.
  • Any agreement on an FVA covering multiple carbon markets would be premature should it precede clear and ambitious mitigation commitments from Parties.

The argument is also often made that market mechanisms lead to more cost-effective emission reductions. But cost-effectiveness must be considered from a long-term perspective. Low-cost short-term mitigation may lead to technological lock-in. Also, cost-effectiveness can only be achieved if the offsets or allowances sold have environmental integrity. When this is not the case, scarce finance is spent on units that do not actually represent real emission reductions. This makes staying within the limited carbon budget more expensive.

Experience made to date with carbon markets must therefore be taken into account when discussing the role of future carbon markets. Although negotiations under ADP are still at an early stage, several Parties including the COP Presidency have stressed the importance of establishing the FVA in Warsaw.

Given that the scope and role of the FVA is still unclear, Carbon Market Watch believes that Parties must address the following recommendations in Warsaw first:

  • Access to carbon markets should require ambitious reduction commitments.
  • The FVA should not be established and no pilot phase should be started before the negotiations under ADP have defined mitigation commitment requirements and rules for a common accounting framework.
  • Eligibility criteria need to be established that ensure only Parties with sufficiently ambitious reduction commitments can participate in international carbon markets.
  • All double-counting of emission reductions need to be addressed. In addition, financial flows should only be counted once.
  • Detailed and comprehensive rules need to ensure the environmental integrity of units.
  • All units should be assessed by an international body and should be fully accounted through a rigorous, robust and transparent common accounting framework.
  • Mitigation targets need to be much more ambitious than they currently are in order to stay within the safe limits of the remaining global carbon budget. 
  • Any agreement on an FVA covering multiple carbon markets would be premature should it precede clear and ambitious mitigation commitments from Parties.

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