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The use of carbon markets under a post-2020 climate deal

Prepared for the Subsidiary Body for Scientific and Technological Advice (SBSTA) 1 to 6 December 2014 in Lima, Peru

Carbon Market Watch welcomes the opportunity to provide views on the deliberations of the Framework for Various Approaches (FVA) which will be discussed at SBSTA41. In June 2014, SBSTA40 agreed to elaborate the FVA with a view to recommending draft decisions for consideration and adoption by COP 20 in Lima.

The development of the FVA, which is often referred to as “transparency framework” to enable the international transfer of units from market based approaches, needs be seen in the wider context of the negotiations towards a 2015 climate agreement: The role of carbon markets under the Kyoto Protocol was set under the context of a bifurcated differentiation between Annex I and non-Annex I countries. The future climate agreement in contrast will have to include climate commitments by most countries to prevent catastrophic climate change.

Before establishing a new platform to trade international units, experience with market based mechanisms to date such as the CDM, JI and existing emissions trading systems need to be reflected and addressed: The demand-supply imbalance caused by insufficient climate targets and lenient rules has led to a large supply of offset credits resulting the offset prices to nose-dive, not providing the investment needed for truly sustainable projects, especially in least developed countries. The vast majority of offset credits come from large energy projects that would also be viable without the additional CDM investment. Experiences from local communities have shown that projects often do not live up to their sustainability promises and in some cases even have negative impacts. Experiences with the two biggest emissions trading schemes the European Emissions Trading Scheme (EU ETS) and International Emissions Trading (ET) under the Kyoto Protocol have been grim: they are severely oversupplied with 2 and 13 billion allowances respectively.

Market-based mechanisms alone will not suffice to finance adequate emission reduction activities. Public finance to seed mitigation activities by building capacity and governance infrastructures and by fostering mitigation policies is vital to enable sufficient private finance for global low-carbon development.

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