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IETA AWG-LCA Submission on Market-Based Mechanisms Feb 2011[3]-web

IETA AWG-LCA Submission on Market-Based Mechanisms Feb 2011[3]-web

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IETA submitted the following proposals for two new market-based mechanisms to the UNFCCC Secretariat: the NAMAs Crediting Mechanism and a Credit Conversion Mechanism.
IETA submitted the following proposals for two new market-based mechanisms to the UNFCCC Secretariat: the NAMAs Crediting Mechanism and a Credit Conversion Mechanism.

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Published by: ieta2 on Mar 07, 2011
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Page|1
IETA–CLIMATECHALLENGES,MARKETSOLUTIONS
www.ieta.org
Geneva
24rueMerled’Aubigné1207Geneva,SwitzerlandTel:+41.22.737.05.00
Washington
1730RhodeIslandAve.NWWashington,DC20036,USATel:+1.202.629.5980
Brussels
Boite27,RuedelaLoi2351040Brussels,BelgiumTel:+32(0)22.30.11.60
Toronto
100KingSt.West,Suite5700
Toronto,OntarioM5X1C7,Canada
Tel:+1.416.913.0135
Subject:IETAresponsetotheAWG-LCAcallforinputregardingnewmarket-basedmechanisms
21February2011UNFCCCSecretariatMartin-Luther-King-Strasse8D53153BonnGermany
DearMr.Reifsnyder,
Iamwritingtoyouinresponsetotheinvitationinthe
OutcomeoftheworkoftheAdHocWorkingGrouponLong-TermCooperativeActionundertheConvention
-/CMP.16
)
forPartiesandobserverorganizationstomakessubmissionsonnewmarket-basedmechanisms.
Intheattacheddetailedsubmission,IETAputsforwardproposalsfortwonewmarket-basedmechanisms.
(1)ANAMAsCreditingMechanism
IETArecommendstheestablishmentofanewcreditingmechanismforcreditingNAMAsthatentailalarge-scaleactivityorsetofactivitieswithinoneofthefollowingthreecategories:
1.
 
BenchmarkCrediting:
Generatesemissionreductioncreditsattheproject-levelbasedonbenchmarksdefinedasatargetlevelofperformanceofagivenactivity,expressedintonsofCO
2
eperunitoutput,andbasedonthecurrentperformanceofaclearlydefinedpopulation.
2.
 
PolicyCrediting:
Generatesemissionreductioncreditsatthenationalorregionallevelbasedonhighlystandardized,country-specificmethodologiesthatcalculateconservativecreditingamountsfortheimplementationofcommonpolicystructures(suchas,feed-intariffs)andthatincentivizethewidespreaddiffusionofcleanenergyandotherlow-emissiontechnologies.3.
 
AggregateCrediting
:Generatesemissionreductioncreditsatapre-definedsectoralorsub-sectorallevelbyestablishinganaggregatebaselinebasedpartlyonhistoricperformance.
(2)ACreditConversionMechanism
IETArecommendstheestablishmentofanewmechanismtoconvertenvironmentalcommoditycreditsofdiversedenominationsintointernationallyfungiblecredits.Thismechanismwillconvertunitsofadifferentdenomination(MWh,e.g.)intometrictonnesandtherebycertifythemforinternationaltransfer.Certifiedemissionreductioncreditscouldbeissuedforcountriesthatdevelopnewdomesticenvironmentalcommoditytradingsystemsorincreasetheambitionoftheiralready-existentsystems.
IETAgreatlyappreciatestheopportunitytoprovideourinputonthisissue.PleasedonothesitatetocontactmyselforKimCarnahan,atcarnahan@ieta.org,ifyouhavequestionsregardingthissubmission.
Sincerely,

HenryDerwentPresidentandCEO,IETA
 
21February2011
IETAresponsetothecallforinputtotheAWG-LCAatCMP16regardingnewmarket-basedmechanisms
Page|
2
IETA–MAKINGMARKETSWORKFORTHEENVIRONMENT
Geneva–Washington–Brussels–Ottawawww.ieta.org
Introduction
Asanorganizationstronglysupportiveofthedevelopmentofglobalcarbonmarketsasameanstoefficiently,effectivelyachieveemissionreductions,IETAapplaudstheworkoftheAWG-LCAasitmovestoexpandthereachofmarket-basedmechanisms.Theeconomicbenefitsofofferingaswideasetofoptionsaspossibleformitigationhavebeenmodeled,measuredandemphasizedagainandagainbyexpertsandcommentators,includingtheIPCC.IETAtakes“market-basedmechanisms”tomeaninstitutionalstructures,voluntaryorobligatory,thatwillmakeuseofmarketprinciplestogenerateorcollectfundsanddistributethemformitigationand/oradaptationpurposes.Acommoncurrencyoftradablecreditse.g.AAUs,CERs,orERUsisusedtofacilitatecomparisonandexchangeoftheeffectivenessofdifferenttypesofactivities.TheKyotomechanismsemissionstrading,CDMandJIaremarket-basedmechanismsinthatsense,withthecommoncurrencydenominatedinCO
2
equivalentemissionreductions.ItisnotessentialthatthetradablecreditsaredenominatedasCO
2
e,however,orthattheybe“offsetcredits”inthetraditionaluseoftheterm.ThePartieshaveacceptedthataddressingclimatechangerequiresmajormitigationandadaptationactionsonthepartofdevelopedanddevelopingcountriesalike.Indeed,manydevelopingcountriesarealreadymovingquicklytowardstheestablishmentofrobustdomesticpoliciesandregulationstoreduceemissionsandenergyconsumption;severalhavealreadyopenlyembracedtheuseofmarket-basedmechanismsastheydoso.OthershaveputforwardstrongproposalsforNationallyAppropriateMitigationActions(NAMAs)theycommittoundertakeupontheprovisionofexternalsupport.Thevariationsinregulatory,economic,andpoliticalstructuresacrossthesecountrieshaveandwillcontinuetoleadthemtochoosediversecombinationsofpoliciesandactivitiestoreduceemissionsandachieveotherancillarybenefits.SomehavedecidedtoexplorethedevelopmentofdomesticCO2eemissiontradingsystemsorenergyefficiencyandrenewableenergycredit(REC)tradingsystems.Othershavechosentosticktoaproject-by-projectorprogramme-levelapproachortofocusonenergyandotherregulatoryreform.Theseactivitiesallhavethreethingsincommon.Theyrequirefundingsources,financeoptions,andincreasinglevelsofinstitutionalinfrastructureforthemeasuringandreportingofemissions.Inthissense,IETAusestheterm
fundingto
refertothegenerationofmoneyor,moreprecisely,thegenerationoftheincentivetoexpendmoneyforaparticularactivity.Inthecontextofemissionstrading,theamountof
funding
availableisakintothe
demand 
allowancesorcarboncredits,whichisdirectlyrelatedtothestringencyofemissionscaps.
Finance
,ontheotherhand,referstothestructuresavailabletoputthatfundingtouseandtoleverageitintomorefunding,wherenecessary,inthesenseofcreatingborrowingstructuresand/orblendingdifferentfundingstreamstogether.Itshouldbenotedthatthemorefundstheyaimtodeployandfinancetheyaimtoaccess,themoreadvancedtheemissionsmonitoringandreportinginfrastructureneedstobe.IETAexpandsabitmoreontheneedforenhancedmonitoringandemissionsreportinginfrastructureinthe
Principles
sectionofthissubmission,thoughmuchmorecouldandshouldbesaid.Astheneedforadditionalfundingsourcesandfinanceoptionsforscaled-upemissionreductionsismet,IETAbelievesthatnewmarket-basedmechanismswillbeneededdrawprivatefinancetoemissionredutionactivityandtoensurethatenvironmentallystrongemissionreductionscanbemadewiththemosteconomicefficiency.ThesenewmechanismscanandshouldbedesignedtoaccommodateasmanyofthetoolsandactivitiesthatdevelopingcountrieshavechosenforthemselvesandproposedasNAMAsthroughtheUNFCCCaspossible.Participationinthesemechanismswill,ofcourse,beentirelyvoluntary.Itshouldalsobenotedthatallcountriesandsectorswillnotbewell-suitedtomarketmechanisms.The
 
21February2011
IETAresponsetothecallforinputtotheAWG-LCAatCMP16regardingnewmarket-basedmechanisms
Page|
3
IETA–MAKINGMARKETSWORKFORTHEENVIRONMENT
Geneva–Washington–Brussels–Ottawawww.ieta.org
WorldBank’snewPartnershiponMarketReadinesswilllikelygoalongwaytohelpingidentifywheremarketscanandshouldbedeployed.Inourview,thePartieswillneedtogeneratemorethanonenewmarket-basedmechanisminordertobeabletocovermanyofthetypesofNAMAselaboratedbythePartiestodate,atthescalenecessary.Forthisreason,thissubmissionfocusesonelaboratingtwodifferentmechanismsaNAMAscreditingmechanismwhichcoversthreedifferenttypesofactivities,andCreditConversionMechanism.IETAbelievesthatthesetwomechanismswouldcomplementtheexistingCleanDevelopmentMechanism(CDM).Therearelikelyothergoodcandidatesaswell,andwelookforwardtocommentingontheproposalsputforwardbyPartiesandotherobserverorganizations.
Thefinaltwosectionsofthedocumentarenotintendedtobethefocusofthissubmissionbutdohelptoputthecallfornewmarket-basedmechanismsinperspective.Theygofurthertoacknowledgetheneedforthedevelopmentand/oridentificationofnew
fundingsources
and
financestructures
thatprovidethe
incentive
andthe
means
,respectively,toundertakereductionactivitieswithinthecontextofnewmarket-basedmechanisms.IETAbelievesthatinthefutureitislikelythatsourcesoffundingforemissionreductionswillnotbelimitedtofundinggeneratedasaresultofdevelopedcountryemissionscaps.Indeed,manyoptionshavealreadybeenwellelaboratedintherecentreportbytheUNFCCCSecretaryGeneral’sHigh-LevelAdvisoryGrouponClimateChangeFinancing(AGF).
Principles
WhileIETAbelievesthatmultiplenewmarket-basedmechanismsareneededtomeetthechallengeofaccommodatingtheambitiousNAMAsofdevelopingcountriespost-2012,wealsobelievethatafewclearprinciplesshouldguidetheParties’effortstodevelopthemall.
Bebuiltuponrobustemissionsdatasystems.
Robust,andcontinuouslyimprovinginstitutionalinfrastructureforthemonitoringandreportingofemissionsdataisnecessarytofacilitatetheimplementationofincreasinglyadvancedemissionreductionpoliciesandactivities.Inordertoprovidetheinternationalcommunity,includingmarketparticipants,confidenceinthedataprovidedthroughthesesystems,theyshouldaimtofollowcommoninternationalstandards.Thedevelopmentofdomesticinfrastructureandinternationalstandardswillbeagradualprocessthatoccursoverseveralyears,butitshouldbeginimmediately.Whilsttheproject-by-project 
1
designutilizedbytheCDMremainseffectiveanddesirableinsomesectorsandcountriesespeciallythosewithlowinstitutionalinfrastructuretheconsequencesoflimitingcreditingtoindividualprojectsinwelldevelopedsectorsandadvanceddevelopingcountriesarebecoming

1
TheCDMwasabletogetthecarbonmarketup-and-runningindevelopingcountriesbecauseitrequiredlittlehostcountryinfrastructuretooperate;alltheworkwasdoneattheprojectsitebytheprojectdevelopers,theDOEs,theUNFCCCSecretariatandtheEB.ThehostcountrywasonlyrequiredtoestablishaDNAandissueaLetterofApproval.ButnowtheCDMisexperiencingthelimitationsofapiece-mealapproach.Project-by-projectapprovalstendtobeslowandcumbersome,whichhobblestheCDMindeliveringreductionsatthelargescalerequired.

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