the networked carbon markets initiative -...
TRANSCRIPT
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MARKETS, KEY TOOL TO ADDRESS CLIMATE CHALLENGES
Cost Savings: market efficiencies reduce costs of low carbon growth
Resource mobilization: crowd-in public and private capital
Political alignment: NDCs of 84 countries call for markets and/or carbon pricing mechanisms – including 72 in developing countries
Cost of each country acts
alone
Intl cooperation through
carbon market by 2030
Intl cooperation through
carbon market by 2050
Source: World Bank Group, 2016
$ $ $
3
0
%
5
0
%
WHERE DO MARKETS FIT UNDER PARIS?
4
Article 6 has the opening for developing markets – agreement on guidance and rules is still under negotiation by Parties
Under the authority/supervision of the
COPUnder bi- or plurilateral governance
Introduces “mitigation outcomes” (MOs) from
any mechanism/procedure/protocol
Using cooperative approaches to enhance mitigation ambition under NDCs
“a mechanism to contribute to the mitigation of
GHG and support sustainable development”Metrics
Governance
Objectives
Art. 6.2 Art. 6.4
Parties can design and use carbon pricing instruments domestically. Today.
Examples: Chile, China, India, Mexico and South Africa, among others.
Markets instruments should create demand for a domestic market that will grow over time to include linkages to create an international market. Bottom-up markets appear to be the most promising approach under the Article 6.2 paradigm.
Top D
ow
n
Bottom
-up
WHERE DO MARKETS FIT IN PARIS?
5
• Paris Agreement encourages mitigation action relevant to national circumstances (as reflected in their NDCs) by all Parties
• Comparability of the mitigation outcome of the mitigation action will be the starting point for any international transfer of the mitigation outcome
Country mitigation action
MOs ITMOs
Domesti
c
and/or
NDC accounting
Registry
system
International
markets
National assessment
process
Assessment of mitigation action:
Use of MAAP
Assessment of climate ambition:
Climate Transparency initiative
Clubs
6
WHAT IS NETWORKING?
NetworkingDesigned to link heterogeneous climate actions
System ADirect LinkingA common market is explicitly established between Systems A and B(e.g. California-Quebec, EU-Switzerland)
Indirect LinkingSystems B,C, and D are indirectly linked via System A(e.g. Clean Development Mechanism)
System A
System A
System B
System
B
System B
System D
System C
7
WBG STRATEGY FOR CLIMATE MARKETS AND LINKAGE
CONNECTIVITY AND GLOBAL TRANSFER
The NCM Initiative
Enabling cooperation of all
types of climate actions,
including carbon pricing
mechanisms, through
internationally connected
climate and carbon markets
PROMOTING THE CASE AND EVIDENCE BASE FOR CARBON PRICING AND MARKETSe.g., Carbon Pricing Leadership Coalition; State and Trends of Carbon Pricing reports
IMPLEMENTATION AND SCALE-UP
Enabling scale-up
of climate actions such as
carbon pricing mechanisms
e.g., TCAF, PAF, Ci-DEV
Innovating and building
readiness for climate action,
including carbon pricing
instruments
PLANNING, DESIGN AND PILOTS
e.g., PMR
8
NCM’S SHORT, MEDIUM AND LONG TERM VISION
Design and implementation of robust, “market-ready” mitigation actions
• Benchmarking
• Guide climate finance
Comparability and transfer of mitigation outcomes:
• within a country
• between countries on a bilateral basis
Comparability and linkage of mitigation outcomes between countries on a regional or multilateral basis
SHORT TERM
MEDIUM TERM
LONG TERM
9
NCM’S CONCEPTUAL FRAMEWORK
Independent Assessment FrameworkWithin country: use of MAAP to assess mitigation actions
Between countries: use of CTi for national climate ambition
International Carbon Asset Reserve
International Settlement Platform
Establishment of an overarching, coordinated
framework to measure the relative mitigation
outcomes (“mitigation value”) of different
actions
A pooled reserve of carbon assets to manage
carbon market related risks (e.g., price
volatility, invalidity of issued and allocated
carbon units)
Track cross-border trades (manage risk of
double counting) and provide possible clearing
house functions
10
MAAP: INDEPENDENT ASSESSMENTS AT THE PROGRAM LEVEL
Program
Definition & Scope
Objectives & Targets
Planning
Documents, document control and records
Emissions reductions from interventions
Monitoring and reporting
Management Entity
Management Framework
Financial and Investment
Programsmanagement
Infrastructure at theprogram level
Financial Structure
Financial coherence
Financial stakeholders
Monitoring financial flows
Development Benefits
Development objectives and
targets
Planning and participation
Monitoring of development
benefits
Environmental integrity
MAAP-Design and MAAP-Implementation
1 2 3 4
MAAP launchMay 23 (Tue) from 2:45 pm to 5 pmhttps://maap.worldbank.org/#/homepage
ASSESSMENT OF CLIMATE AMBITION: CLIMATE TRANSPARENCY
12
Technical partners
Secretariat
Funding partners
Technical partnersClimate
Transparency
is a consortium of
experts and
organizations that
have a common goal to
enhance assessments
of climate action
http://www.climate-transparency.org/
13
NCM
Partners
Assessment and modelling
Partners:
DNV, IISD, New Climate Institute,
Climate Transparency, Observer
to ISO Climate Change
Standards Committee, Enerdata
MAAP
Partners: PMR, DNVGL, Thai
Greenhouse Gas Office, Ministry
of Environment of Peru,
Wageningen University, UNEP-
DTU Partnership, Gold Standard,
IGES, Perspectives, Carbon Trust,
Government of Jalisco in Mexico,
ITAM, TERI
Institutional frameworks
Partners: INFRAS,
Grantham Institute, Reed
Smith, Xpansiv
Concept Development
* ‘Options for Operationalizing a Carbon Trading
Ratio Mechanism’ (Austin)
* Achieving compatibility and synergy between the
NCM Initiative and Climate Clubs (Climate
Strategies)
* ‘Comparison and Linkage of Climate Mitigation
Efforts in a New Paris Regime’ (Harvard/IETA)
‘Explore the relevance and feasibility of the NCM
Initiative in Japan’ (IGES)
* ‘A model for NCM based on the key elements and
principles of Comparative Markets’ (Macinante)
* ‘NCM and its compatibility with a future UNFCCC
regime’ (Marcu)
* ‘Enabling Comparability of heterogeneous
Emissions Trading Systems – Caps, MRV frameworks
and non-compliance penalties’ (Munnings)
* Enabling Comparability and Linkage of the REC
and PAT Schemes (TERI)
* The METRIC for successful linking post-Paris (Vivid
Economics)
Private sector
outreach
Partners: Climate
Markets and Investment
Association (CMIA),
IETA, CPLC
NETWORKED CARBON MARKET INITIATIVE
14
Country mitigation action
MOs ITMOs
Domesti
c
and/or
NDC accounting
Registry
system
International
markets/
Carbon
Clubs
National assessment
process
Assessment of mitigation action:
Use of MAAP
Assessment of climate ambition:
Climate Transparency initiative
Independent Assessment
Framework
International
Settlement Platform
International
Carbon Reserve
ACTIVITIES YTD
2 work streams: Internal – identify Bank supported projects and opportunities with Bank local offices - Ecuador, Mexico
Independent Assessments. IGES, Perspectives, GS, UNEP DTU, Carbon Trust.
MAAP Design and MAAP Implementation
Assessor Guidelines
Training and support to MAAP partners e.g. SECO, DTU-OLADE workshop
Scouting activities for MAAP Policy alignment module.
16
CONCLUSSIONS MAAP ROUNDTABLE
Benefit for having a reference point for the design of MA for NDCs
Evaluate strategy of targeting multiple (too many?) different users.
Partner with key stakeholders for those users to roll out online tool.
Need for comprehensive set of capacity building activities to ensure online tool is used.
MAAP in the context of the overall NCM long term strategy
17
SCALING UP MAAP
Regional workshops with MA practitioners:
Capacity building
Populate online database
Evaluate integration of UNDP SD Online Tool
Strategy for external partnerships
Adaptation Module
Develop existing draft of MAAP Policy Alignment Module
18
19
RATIONALE, VISION AND OBJECTIVESSUPPORTING MARKETS AND NDC IMPLEMENTATION
THROUGH THE MAAP TOOL
1
20
SHORT, MEDIUM AND LONG TERM VISION
Design and implementation of robust, “market-ready” mitigation actions
• Self-evaluation
• Prioritization
Generation of mitigation outcomes at the program level
• Comparability of mitigation actions
Comparability and transfer of mitigation outcomes across countries
• Exchangeability of carbon assets
SHORT TERM
MEDIUM TERM
LONG TERM
21
WHAT IS THE MAAP?
Program
Definition & Scope
Objectives & Targets
Planning
Documents, document control and records
Emissions reductions from interventions
Monitoring and reporting
Management Entity
Management Framework
Financial and Investment
Programsmanagement
Infrastructure at theprogram level
Financial Structure
Financial coherence
Financial stakeholders
Monitoring financial flows
Development Benefits
Development objectives and
targets
Planning and participation
Monitoring of development
benefits
Environmental integrity
MAAP-Design and MAAP-Implementation
1 2 3 4
22
National and
Subnational
Jurisdictions
Donor and
Investors
Project
DevelopersCarbon Market
Regulators
Multilateral
Development
Banks
23
StakeholderConsultations
Stakeholder consultations held at various climate change fora, such as Carbon Expo LatinAmerica Carbon Forum(Rio de Janeiro), FICCI (New Delhi) and AsianCarbon Forum (Bangkok)
Working group formedby experts
Progress presented to a working group during technical sessions and webinars
Peer review
IISD, NewClimate Institute, Asia LEDS Training Center, IdeaCarbon and FC2E Carbon Fund provided technical reviews to the draft report and components of the MAAP.
Pilot and deployment
- Piloted the MAAP on NAMAs in Peru in December 2015 and Low Carbon City Programs in February 2016.
- In collaboration with expert groups, such as UNEP-DTU Partnership, Perspectives, IGES and Gold Standard, applied the MAAP to more than 180 mitigation actions globally
May 2014 Sep 2014 April
2015
Dec 2015 - now
24
MAAP in Mexico: NAMAs
(Nov 2017) and Jalisco’s
State Climate Plan (April
2017)
MAAP in Ecuador:
National Energy
Efficiency Plan (Jan
2017)MAAP in Peru: 83
NAMAs (Dec 2015) MAAP in Thailand: 2
low carbon city
programs (Feb 2016)
MAAP in Mongolia and
Vietnam: JCM projects
(Apr 2017)
MAAP in the
Mediterranean Region: 20
low carbon city programs
(Apr 2017)
MAAP independent assessments by UDP
in Costa Rica, Ecuador, Jamaica, El
Salvador, Morocco, Indonesia, Chile, Sri
Lanka, Ghana, Kenya, Peru, Tunisia,
Colombia, Armenia Cambodia, Mexico: 50
mitigation actions including NAMAs, energy
programs waste management programs etc.
(Jun 2017)
Scoping Study in
India: Green certificate
(REC) and white
certificate (PAT)
schemes (Apr 2017)
26
Lack of visualization tools to compare and
benchmark MAAP scores between different actions
Practical challenges related to the usability of
the MAAP
Inability to collaborate and share results and
related documents
Disaggregated information on MAAP assessment
Limitations of the MAAP excel-based tool
27
User-friendly platform to manage
results and store related documents Access to datasets generated
by partners worldwide
Visualization tools for
comparison and benchmarking
How-to video, interactive guidelines
and helpdesk
Centralize and secure platform to
quickly and reliably run search queries
28
3. RECORD RELATIVE SCORES
• Assign weights and/or scores for key
indicators and assessment areas for selected
module(s)
• Select confidence level
• Provide evidence in attachments and
observation box
29
4. RESULTS FOR INDIVIDUAL MITIGATION
ACTIONS
• Review results and evidence for
individual mitigation actions in order to
identify strengths and areas for
improvement
• Save results and export to excel
30
5. SHARE RESULTS
• Share results with partners for
editing/comments
• Share results for comparison and review
31
6. SEARCH RESULTS ON DATABASE
• Filter own/shared assessments based on their
development phase, sector, region and date
modified
• Search results to compare
32
7. COMPARE AND BENCHMARK RESULTS
(TABLE/CHART FORMAT)
• Compare results for each module, assessment
area and key indicator
• Benchmark results against overall
best/average score or the user’s best score
33
CERs from
CDM
VERs from
voluntary
schemes
Mitigation
actions
SCALED APPROACH
• Allow a range of possible outcomes
• Risk profile
• Enhanced comparability of carbon assets
• Benchmarking
• Assess development benefits in addition to
environmental benefits
• Users can emphasize modules based on their
priorities
YES/NO OUTCOME on whether the
project will potentially achieve its
envisaged emissions reduction targets
or the actual reported emissions
reductionsTradable units
from ETSs
VALIDATION AND VERIFICATION
MAAP ASSESSMENT
35METRIC Principles for linking and potential next steps
please note that this presentation is based on a finalised, but not yet published,
paper commissioned by the Networked Carbon Markets (NCM) initiative and
Carbon Pricing Leadership Coalition (CPLC)
36
There are substantial cost savings to be achieved by international linking
METRIC Principles for linking and potential next steps
0
0.5
1
1.5
2
2.5
3
3.5
2030 2050
Costs
as a
perc
ent
of
glo
bal G
DP
Without international carbon market With an international carbon markets
32% saving
54% saving
37
2 examples of operational links to date
― California – Québec
― Tokyo - Saitama
challenges
― trade-offs when making the choice of linking partner;
― negotiation of the link, which may take a long time and may be politically contested
― prospect that the link might be insufficiently flexible to accommodate domestic
policy changes
But, with some exceptions, it has proved challenging
METRIC Principles for linking and potential next steps
38
The METRIC principles aim to help stakeholders, understand and assess the range of linking options and design features
METRIC Principles for linking and potential next steps
•ensuring that capital is allocated efficiently and avoiding disturbing the continued efficient function of carbon and related marketsMarket Integrity
•giving all participants, as well as external stakeholders, confidence that the linking arrangements are supporting real and additional emission reductions that will in turn support the objective of the Paris Agreement
Environmental Integrity
•being transparent and providing all stakeholders with a clear understanding of its rationale in order to generate support, and allowing the free exchange of information between linked systems
Transparency
•recognizing early action and avoiding incentives to reduce effortRecognize Ambition
•facilitating and encouraging more jurisdictions to join the system, promoting greater international cooperation, and considering domestic and international equity concerns
Inclusiveness
•reducing the overall cost of mitigation, including administrative and transaction costs, and improving economic efficiencyCost Effectiveness
39METRIC Principles for linking and potential next steps
The application of the METRIC principles may lead policymakers to consider a range of different linking options
Market integrityEnvironmental Integrity
Recognise ambition
what to do when one
ETS has a price floor
and other does not?
― remove/introduce
floor and direct
link?
― surrender
charges?
― quantitative limits?
― exchange rates?
environmental integrity
may be preserved
either though
― standardised MRV
and a direct link
― alternative MRV
approaches and a
heterogeneous link
the ‘linking paradox’
might be addressed by
heterogeneous linking
― but further work
needed to measure
relative ambition
A potential next step would be to model different linking options building on the application of the METRIC principles
40METRIC Principles for linking and potential next steps
METRIC principles highlight important considerations that can inform linking design
next stage could be to use these principles to develop different linking options for a
particular set of market and quantitatively assess their implications
building on the qualitative case study in the paper, and announced plans, this could
focus on Mexico’s ETS linking to carbon markets in North America
Company Profile
Vivid Economics is a leading strategic economics consultancy with global
reach. We strive to create lasting value for our clients, both in government and
the private sector, and for society at large.
We are a premier consultant in the policy-commerce interface and resource
and environment-intensive sectors, where we advise on the most critical and
complex policy and commercial questions facing clients around the world.
The success we bring to our clients reflects a strong partnership culture, solid
foundation of skills and analytical assets, and close cooperation with a large
network of contacts across key organisations.
Contact us:
Vivid Economics
26-28 Ely Place
London EC1N 6TD
Author contact details: John Ward
T: +44 7790 613951
Practice areas
Energy & Industry Growth & Development
Natural Resources Competitiveness & Innovation
Public & Private Finance Cities & Infrastructure
METRIC Principles for linking and potential next steps 41
Enerdata/NCM Initiative: Mexico-California quantitative case study
Assessment of mitigation and financial implications of different linking rules
between Mexico-California
NCM Initiative Expert Workshop, Barcelona, 26 May 2017
Enerdata
Linking: a great opportunity to increase ambition
Reduce cost of emission reduction
Increase ambition of emission reduction
But linking requires:
• Transparency
• Guarantee the environmental integrity
• Satisfy domestic circumstances
• Support the global transition to sustainable development
43Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
Linking implications of Emissions Trading Schemes
+ Many research works on ETS assessment:– At jurisdiction level
– On direct linking
- Few quantitative modeling exercise on networked ETS under different trading rules:
– Discounting permits, traded volume limitation…
Enerdata realized for NCM in 2016, a first modeling exercise assessing implications of different linking rules between China, South Korea and Mexico national ETS.
44Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
First modeling exercise: Context
• Objective: Analyze impacts of various design options for Emissions Trading Schemes (ETS) and their potential linking:– Domestic and International
– Discounting Values between jurisdictions
– Trading limitations between jurisdictions
• Methodology: Assessment of mitigation and financial implications of different linking rules through Marginal Abatement Cost Curves (MACCs)– Use POLES global energy model to calculate MACCs for each
jurisdiction at each sector level
– Generated MACCs express the sector transformation under a marginal carbon price incentive. They are coherent and comparable.
– Use EVALUATE tool to simulate linking rule scenarios
45Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
Project result illustration• Varying discounting value (DV)
Discount 1China: 0.3
South-Korea: 1
Discount 2China: 0.5
South-Korea: 1
-300
-200
-100
0
100
200
300
400
China South Korea China South Korea China South Korea
Abatement Imports Marginal cost
$/tCO2 - Scenario 2 $/tCO2 - Scenario 3 - 3 $/tCO2 - Scenario 3 - 4
$Bn - Scenario 2 $Bn - Scenario 3 - 3 $Bn - Scenario 3 - 4
MtCO2 - Scenario 2 MtCO2 - Scenario 3 - 3 MtCO2 - Scenario 3 - 4
1800.00
1850.00
1900.00
1950.00
2000.00
2050.00
2100.00
2150.00
2200.00
2250.00
2300.00
Scenario 2 Scenario 3 - 3 Scenario 3 - 4
reduction
MtCO2 - China MtCO2 - South Korea
Lower DV difference between jurisdictions More imports from South Korea Less reductions from China
Resulting in lower carbon price in SKdriven by low price in China
Resulting in lower abatement costs in South Korea and in China
Reduction target
Enhanced emissions reductions
Direct Linking
Discount 1 Discount 2
Dir. Linking
Dir. Linking
Dir. Linking Discount 1
Discount 1
Discount 1
Discount 2
Discount 2
Discount 2
46Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
Key learnings: Varying discounting rate• Discounting could enable higher emissions reduction.
• Varying discounting rates may enhance acceptability from jurisdictions by adjusting domestic political context (carbon price, burden cost, domestic emission reduction plans…) while ensuring the environmental integrity of the trade.
China South Korea
Dom.ETS
Direct linking
Discount 1
Discount 2
Dom.ETS
Direct linking
Discount 1
Discount 2
Emission reduction (MtCO2) 1769 1955 2034 2024 275 89 195 147
Additional reduction (MtCO2) -185 -128
Imports (MtCO2) -186 -264 -255 186 79 127
Carbon price ($/tCO2) 42 46 49 48 310 46 163 97
Total Abatement costs ($Bn) 262 258 255 255 232 78 188 138
A way to find the best compromise between: • environmental integrity & costs
47Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
2nd modeling exercise: Quantitative case study proposition in collaboration with Vivid Economics
Realisation in 2 phases:
• Phase 1: Mexico-California ETS linking rules case study
• Phase 2: Implications for the regional Mexico-California-Quebec-Ontario ETS
Proposed Phase 1 approach:a) Using POLES model to calibrate baselines for Mexico and California from
which Marginal Abatement Costs (MACCs) will be generated.
b) Simulate with EVALUATE tool, 6-10 scenarios of different direct and heterogeneous linking arrangements.
c) Quantitative assessment of the mitigation and financial impacts of these scenarios; and identify key benefits and challenges of each scenario.
d) Suggest possible solutions and next steps to address key challenges of linking Mexico and California’s ETSs (Vivid Economics & Enerdata)
48Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
Expected findings
• Put quantitative values on various ETS linking rule options for a practical case-study.
• Quantitative indicators to be provided for each scenario:– Financial value/s of carbon allowances (i.e. carbon price/s);– Emissions (both domestic and traded) achieved by sector;– Emission intensity by sector;– Total cumulative (2015-2030) abatement costs by sector; and– Net trade balance by sector;
• EVALUATE tool populated with Mexico and California MACCs could be provided to the WB NCM Initiative.
• Identification of advantages and challenges for each jurisdiction of linking
• Provide technical support to WB to support stakeholder discussions on ETS linking.
49Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
www.enerdata.net
Thank you for your attention!
Contact:
About Enerdata:
Enerdata is an energy intelligence and consulting company established in 1991. Our experts will help you tackle key energy and climate issues and make sound strategic and business decisions. We provide research, solutions, consulting and training to key energy players worldwide.
Cyril CASSISA
Global Energy Forecasting
50Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
POLES: a Multi-Issue Energy Model
Consumption
Production
GHG emissions
Climate and Energy policies
Macroeconomic assumptions
National energy balances (66)
SUPPLY
International markets
Resources
PRIMARY DEMAND
TRANSFORMATION
Domestic production
Import/Export
Trade routes
Fossil fuels
Nuclear Hydro
Biomass & wastes
Oth. RES
Power sector Investments/capacity planning Electricity generation
Refineries(incl. synfuels)
FINAL DEMAND
Industry Transport Buildings Agriculture
Technologies
Gas(3 markets)
Coal(15 markets)
Biomass(1 market)
Oil(1 market) International
prices
52Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
Marginal Abatement Cost Curves (MACCs)
• Top-down MACCs produced by the POLES model as the resultof sensitivities on carbon value
• Curves are produced by POLES for:
– 66 countries/regions
– 20 emitting sectors
– 6 GHGs (from energy and industrial activities)
– All years from 2020 to 2050
• The MACCs from POLES are based on:
– Power sector: full technological description and load curve simulation
– Final demand sectors: econometric demand functions (including short-term price and long-term price elasticities), incorporating explicit description of technologies in road transport and buildings
53Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
Exemplary MAC curves
China Mexico South Korea
54Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
MACCs are an essential inputs
• A set of coherent and interdependent MACCs for all sectors and countries considered
• Covers all GHG and emitting sectors, with the exception of LULUCF and non-CO2 agriculture
• MACCs for the year 2030 constitute the main input data to the EVALUATE model
More information can be foundin EVALUATE Carbon Expo presentation&WB internal presentations 2016
55Enerdata, NCM Initiative Expert Workshop,
Barcelona, 26 May 2017
Justin Macinante
Link to published paper:
http://ssrn.com/abstract=2948580
Conceptual model for NCM
on DLT architecture
57
Map of existing, emerging and potential regional, national and sub-national carbon pricing instruments
62
Ju
risd
icti
on
s ar
e c
urr
en
tly
pu
ttin
g a
pri
ce o
n c
arb
on
Type of Linking Definition
FullCompliance unit in one jurisdiction is accepted without
restriction in the “linked” jurisdiction
Limited
Compliance unit in one jurisdiction is accepted with
qualitative/quantitative restrictions in the “linked”
jurisdiction
IndirectMarkets are not linked directly, but have access to the
same third carbon market.
NetworkingFungibility of carbon assets across schemes facilitated by
an Independent Assessment Framework that recognizes
the differences between schemes
Different types of Linking
The NCM initiative
The assumptions underlying NCM accord with the principles evident in the Paris Agreement:• Governments need information about jurisdictions and schemes with which
they might ‘link’• Changes may take place in a scheme and its effectiveness over time, or with a
jurisdiction’s economy, so information needs to be collected and monitored on an on-going basis
• Similarly, market participants need information to make informed investment decisions
• Some governments and market participants have the resources to make these assessments, others will not
• Implicit that governments retain the sovereignty to act on this information as they see fit, and the hegemony over their schemes and policies
Key components of Networked Carbon Markets
1
3
2
Independent assessment framework to determine the
climate change mitigation value of different climate
actions and enable their fungibility in the international
market.
International Carbon Asset Reserve to support and facilitate carbon market related functions.
International Settlement Platform to track cross-
border trades and possible clearing house function.
The NCM initiative is comprised of 3 key components
8/10/2017
Mitigation value
Risk relating to the characteristics of a specific program
Risk relating to the characteristics of a
jurisdiction’s collective low-carbon
policiesRisk relating to the characteristics of a
jurisdiction’s contribution to
addressing global climate change
Determining mitigation value is a function of a robust MRV framework that assesses:
The concept of Mitigation Value is fundamental to the Independent Assessment Framework
Overarching Supervisory Body
Settlement Platform/ Clearing
Central Registry
ICAR
Conversion Rate
Setting
Regulatory Supervision of
conversion setting
Suitable Entities Performing
MV Assessments
Regulatory Supervisory Body for MV Assessment
Trading
Jurisdiction A
Jurisdiction B
Jurisdiction C
A1
A3
A2
B1
B3
B2
C1
C3
C2
Conceptual model for NCM on DLT architecture
What is distributed ledger technology?
• Combination of a distributed database,
• with public/private key encryption, and
• decentralised infrastructure
Doesn’t offer significant functionality that couldn’t be achieved otherwise
BUT does provide potential for innovative solutions to data sharing and transaction
management application areas
Conceptual model for NCM on DLT architecture
Paper sets out key elements of underlying technology framework as platform for the
components of inter-jurisdictional emissions trading
I how such a market might come into being
II possible alternative mechanisms for transactions
III institutional elements and requirements of digital infrastructure
IV ‘smart contracts’ as the key transactional component
V types and roles of participants
VI other legal and regulatory concerns
‘Smart Contracts’
• term of art for transactional T&Cs embedded in computer code
• allows automatic execution, once precise conformity with T&Cs has been
established
Conceptual model for NCM on DLT architecture
Firstly, there might be rules governing jurisdictional participation and market
operation, including, for example:
• Preservation of environmental integrity
• Application of the supplementarity principle
• Applying an national rules for acceptance or exclusion
Then, there are the rules for the transaction, that might include:
• Seller holding the units offered for sale
• Buyer having the funds necessary to complete transaction
• Automatic application of a conversion rate between the jurisdictions
• On settlement, automatic updating of all copies of the ledger
Conceptual model for NCM on DLT architecture
As set out in the paper, preconditions for a contract might typically include the following information and specifications:
• name and jurisdiction of seller;
• domestic authorization, satisfactory KYC and AML checks on seller;
• name and jurisdiction of buyer;
• domestic authorization, satisfactory KYC and AML checks on buyer;
• certification or proof that the transaction is accepted as not negatively impacting upon environmental integrity;
• certification that the transaction would not cause the buyer’s jurisdiction to breach the supplementarity principle (noting that either jurisdiction may have the level set lower than maximum applicable in the distributed system as a whole);
• certification that the transaction would not cause either the seller or the seller’s jurisdiction to breach the compliance reserve (noting that the level may have been set higher than the minimum required for the distributed system as a whole);
• that the conversion rate is acceptable to the buyer’s jurisdiction;
• that both jurisdictions have provided and maintain an acceptable surety in regard to their financial obligations towards the operation of the distributed network;
• confirmation that the seller holds and is entitled to sell the units offered for sale;
• confirmation that buyer has funds to complete transaction; and
• the application of the correct conversion rate between jurisdictions
Conceptual model for NCM on DLT architecture
What does it offer? (potentially!)
• Flexibility
• Cost and time efficiencies
• Consensus + cooperation + voluntary engagement
• Simplicity with certainty
• Transparency and confidentiality
Conceptual model for NCM on DLT architecture
DLT element Paris Agreement
Blockchain (ledger) accumulative, immutable • Security of transaction (e.g., fraud prevention)• Robust accounting, double-counting control• auditable
Distributed database, ‘permissioning’ • Transparency (based on permissioning)• Confidentiality protected as necessary• Security against IT attack (e.g., loss of data)
Private/public key encryption • Security against IT attack (e.g., fraud, theft)• Transparency but with appropriate protection
of confidentiality
Decentralised infrastructure • Cost efficiency• Other peer-to-peer efficiency (e.g., transaction
time)
Regulation by code (contract terms) • Environmental integrity• Supplementarity• National rules flexibility (sovereignty)
Conceptual model for NCM on DLT architecture
Conceptual Model:
• Key elements of underlying technology framework as platform for the components of inter-jurisdictional emissions trading
– how such a market might come into being
– possible alternative mechanisms for transactions
– institutional elements and requirements of digital infrastructure
– ‘smart contracts’ as the key transactional component
– types and roles of participants
– other legal and regulatory concerns
• Elements of the application need to be developed, especially the concept of how a value is put on the mitigation outcomes that will be transferred