The Sustainable Development Mechanism AKA The New Carbon Market Mechanism



Photo Source: IBNLive

The Sustainable Development Mechanism is a new mitigation mechanism established in Art. 3 ter of the draft Paris Agreement. The purpose of this mechanism is to “promote the mitigation of greenhouse gas emissions [in developing country Parties] while fostering sustainable development….” In order to achieve its goals, the mechanism provides incentives for successfully mitigating GHG emissions. Under this mechanism, Parties that contribute to the reduction of GHG emissions in a host country Party can benefit from their mitigation activities by using the resulting emission reductions to fulfill their own mitigation ambition requirements.

Overall, the structure of the Sustainable Development Mechanism closely resembles the Clean Development Mechanism, which is the carbon market mechanism in the Kyoto Protocol. Carbon markets and offsets were created under Art. 6 of the Kyoto Protocol, which states that “…any Party included in Annex I may transfer to, or acquire from, any other such Party emission reduction units resulting from projects aimed at reducing anthropogenic emissions by sources or enhancing anthropogenic removals by sinks of greenhouse gases in any sector of the economy….” Additionally, the Clean Development Mechanism was established under Art. 12 of the Kyoto Protocol, which provides a process for handling all of the carbon credits created under Art. 6.


Photo Source: YaleNews

Ultimately, the major difference between the new Sustainable Development Mechanism from the Clean Development Mechanism is that carbon markets will no longer be limited to developed country Parties. Instead, all Parties will be able to participate in this mechanism. Expanding the scope of a carbon market mechanism to allow all types of Parties to participate in transferring mitigation GHG reductions is unprecedented. We don’t know how all Parties will use this mechanism or how successfully it will address sustainable development issues. Therefore, a  s a successful Paris Outcome appears to be on the horizon, this new carbon market mechanism is one more aspect of the Agreement that will be worth watching develop.



Past as Prologue? Joint Implementation and the Future for Flexibility Mechanisms

TradingA recent report by the Stockholm Environmental Institute (SEI) raises some serious questions about the integrity of the Joint Implementation (JI) program, one of the Kyoto Protocol’s main flexibility mechanisms. Since flexibility mechanisms are a core part of Geneva Negotiating Text, this report raises the question of how the UNFCCC will learn from its past mistakes as it enters into the new, post-2020 agreement.

JI is one of three flexibility mechanisms created under the Kyoto Protocol (KP) to assist Annex I Parties in meeting their emission reduction targets. JI allows Annex I countries to meet their targets by purchasing emission reduction units (ERUs) countries.  The JI program design is a creature of the changing political landscape of Europe in the early 1990s. Most JI projects transferred ERUs from Economies in Transition (EIT) countries to other Annex 1 countries in Europe. EITs were the Russian Federation and the former Soviet bloc countries emerging from communism in the early 1990s.

The KP built special exemptions into the JI program to help EITs in their transition to a market-based economic system. Decades of central planning left the EITs with inefficient and outdated manufacturing and energy production facilities that could not compete in the EU marketplace. To give the EITs an advantage, the KP let them set their emission baselines at or before 1990 levels. Since their pre-1990 emissions were significantly higher than their post-1990 emissions, the EITs immediately had a surplus of ERUs to sell into the JI market. As of March 2015, almost 872 million ERUs have been transferred through the JI program with four countries – Ukraine, Russia, Poland, and Germany – accounting for 94% of ERUs issued.

The SEI report indicates “significant environmental integrity concerns” for 80% of the ERUs from Ukraine and Russia. What are these concerns?  The main concern is the faulty determination of a JI project’s “newness” of emission reductions.  One of JI’s key requirements is additionality, which means that the emissions reduction would not have occurred without the project. The SEI report revealed that additionality claims were not plausible for 43% of the projects and 73% of the ERUs. For example, seventy-eight projects received credits for preventing the spontaneous combustion of coal waste piles, projects that cannot plausibly produce additional emissions reductions. The report estimates that unqualified JI projects resulted in an extra 600 million t CO2e of global GHG emissions from 2008-12, the first commitment period of the Protocol. How did this happen?  One main reason given was that host countries established their own lenient rules, without international oversight, for approving projects and ERUs.

This happened because KP rules allow JI projects to be approved under two very different tracks. Track 1 allows host countries approve and issue ERUs and determine if the reductions meet the additionality requirement. Track 2 gives the Joint Implementation Supervisory Committee, an UNFCCC body, the power to review projects and requests for ERU issuance and to certify JI auditors. 97% of the ERUs have been issued under Track 1, demonstrating the JI program design incentivizes countries to self-approve non-additional reductions.

Flexibility mechanisms are going to be a crucial element in getting Parties to agree to a post-2020 agreement in Paris, but they need to change how they measure and verify reductions. The SEI report lists a number of options to improve reporting and measurement practices including improving the program’s transparency by making all documentation publicly available, implementing an internationally accepted verification methodology, and banning the practice of retroactively crediting projects. These recommendations need to be implemented in the post-2020 agreement. The past doesn’t need to be the prologue for Paris and beyond.

It’s plane to sea: COP21 should address international aviation and shipping

International aviation and shipping account for 8% of global greenhouse gas emissions. The aviation sector already emits as much as Germany, and emissions are set to triple by 2050. Similarly, shipping currently contributes almost 3% of global emissions—a number projected to grow between 50 and 250% by 2050. To date these sectors have largely passed under the radar in terms of compliance with global emissions targets and reductions. But many see COP21 as a prime opportunity to set ambitious emissions targets for these sectors in line with the limiting the global temperature increase to below two degrees Celsius.

The Kyoto Protocol exempted aviation and maritime “bunker fuels” from emission reduction commitments. Article 2.2 directed Annex I parties to “pursue limitation or reduction of emissions of greenhouse gases not controlled by the Montreal Protocol from aviation and marine bunker fuels, working through the International Civil Aviation Organization [ICAO] and the International Maritime Organization [IMO], respectively.” This left responsibility for international aviation and maritime bunker fuels with UN Specialized Agencies—the ICAO and IMO—rather than with individual countries. Many think these agencies have dropped the ball: while other sectors are decoupling from carbon emissions, aviation and shipping are consuming an increasing share of the global carbon budget.

Source: Creative Commons, Flickr

A recent Business Green article highlights how the ICAO and IMO’s “progress has been slow.” Since the 1997 Kyoto summit these organizations have only implemented “a handful of measures” focused on emissions. In 2011, the IMO adopted energy efficiency design standards for new ships, but new ships are already exceeding these standards. While the IMO is working on developing a global data collection system for monitoring ship emissions, the organization resists calls for an overall emissions target. Meanwhile, the ICAO has set a target for “carbon neutral growth” by 2020, but has thus far not released details about how the organization plans to achieve this target. This slow progress is causing pressure to mount as the Paris climate negotiations approach.

A new paper from the New Climate Economy points to the huge potential for fuel efficiency gains in the aviation and shipping sectors. Improved efficiency would provide two-fold benefits: cut costs and reduced emissions, by as much as 0.9 Gt CO2e annually by 2030. With economic and environmental benefits alike, it makes sense that aviation and shipping should be at the table in upcoming global climate negotiations.

The most recent draft of the UN’s negotiation text highlights “the need for global sectoral emissions reduction targets for international aviation and maritime transport” and the need for parties to work through the ICAO and IMO “on developing global policy frameworks for meeting these targets.” Whether this language will last through the final agreement has yet to be determined. For now aviation and shipping remain the two “elephants in the room” at COP21.