CTI Workshop discusses potential for market-based approaches after Paris

July 2016 - On 23-24 June, more than 60 experts from 20 different countries met in Berlin for the 16^th Climate Technology Initiative (CTI) Workshop to discuss the potential of market-based approaches for climate mitigation in the light of the Paris Agreement. The workshop was organised by the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) to provide a platform for exchange for policy experts, decision-makers, scientists and representatives of financial institutions who work on climate mitigation and market-based approaches.

This year’s CTI Workshop topic “Modes of Cooperation after Paris – Market-based Approaches and Raising Ambition” followed up on the momentum that international climate action gained through the 21^st Conference of the Parties (COP) to the United Nations Framework Convention on Climate Change (UNFCCC) in Paris last year. The workshop took a conceptual approach to the new provisions for market-based climate action via an analysis of Article 6 of the Paris Agreement, but also dealt with more practical issues, such as the role of market mechanisms in Nationally Determined Contributions (NDCs) as well as climate action at subnational levels. Taking a technical perspective, the workshop further dealt with recent challenges in accounting, monitoring, reporting and verification (MRV) as well as financing of climate action after Paris.

One of the event’s main insights was that the Paris Agreement’s provisions, and particularly Article 6, hold a significant potential for on-the-ground market-based climate action as well as for raising ambition. At the same time it became evident that future climate talks will have to make significant contributions to the eventual design of a post-Kyoto carbon market and its mechanisms to make the Agreement operational.

Using Art. 6 - Raising Ambition of Nationally Determined Contributions

On the first day, Ann-Sophie Weihe-Feijó welcomed all participants on behalf of BMU. Next, Deputy Director General for Climate Action Policy at BMU Berthold Goeke opened the workshop’s first session. He emphasised the success of COP21 and the need for all parties to further raise ambition, including through both bottom-up approaches from sub-national initiatives and top-down efforts from national levels. His co-panelist, a UNFCCC Secretariat representative, explained that all Parties are invited to submit their views on how to best turn the Agreement’s provisions into concrete steps of action in the run-up to COP22 in Marrakesh in November this year.

The initial session was followed by a thorough examination of the Paris Agreement’s provisions for market-based approaches. After presentations on Article 6, the future of the Kyoto mechanisms and the potential of emissions trading systems, the speakers discussed the linkages between these topics. They agreed that even though the Paris Agreement does not provide any guidance for the future of the Kyoto mechanisms, the lessons learned from CDM and JI are valuable sources for the design of a new carbon market. Further, they discussed the multiple purposes of Article 6, ranging from the establishment of a new (yet to be named) market mechanism, to the prevention of trading “hot air” and the provision of internationally transferred mitigation outcomes (ITMOs) as a new trading unit that might have the potential to link national mitigation efforts.

The following session focused on national climate action. Representatives from Chile, Brazil, Senegal, Vietnam and Norway presented their respective country’s Nationally Determined Contribution (NDC) and its potential for market-based approaches. In the subsequent panel discussion they exchanged their views on and experiences with engaging in carbon markets. While Chile is currently collaborating with the World Bank to set up a carbon trading system from 2017 onwards, Brazil has not yet decided on the use of market mechanisms for achieving its national mitigation targets and Senegal prefers to make its impact at project rather than at international level. Norway on the other hand will definitely use carbon markets to achieve not only the joint fulfillment targets agreed upon with the European Union but also country-wide climate neutrality by 2030.

The first day closed with a session on accounting and monitoring, reporting and verification (MRV) as major cross-cutting issue for all mitigation efforts. The panelists came to the conclusion that streamlining methodologies for tracking greenhouse gas (GHG) emissions is key to achieving coherence and consistency of accounting and MRV at different levels as well as to avoid double counting.

The Role of Market-Based Approaches in Cities

The second day of the workshop focused on the role of cities in the Paris Agreement as well as on financing approaches. In the first session representatives of city networks and sub-national governments expressed their confidence that local climate action can make significant contributions to achieving current mitigation targets and to raising ambition beyond these targets – for instance by serving as “laboratories” for market-based approaches. According to the panelists, cities and regions are “ready to roll” and to start implementing climate action programmes. They emphasised the significance of co-benefits as part of a new narrative that can be a strong driver to climate action at sub-national level. Their main concern was with the limited financial capacities of most sub-national actors. These findings were partly echoed in the next session which dealt with the three urban sectors building, transport and waste and their respective potential for applying market-based approaches. Project examples from Peru, China and Uzbekistan displayed the progress achieved at urban level regarding the use of market instruments such as congestion charges.

Options for Closing the Climate Finance Gap

In the last session, representatives from public and private financing institutions shared their view on potential remedies to the climate financing gap. The main questions discussed were how public money can best be used to raise private sector investments and how demand for tradable carbon units can be stimulated. The panelists presented results-based financing, the World Bank’s Transformative Carbon Asset Facility, green bonds as well as the continued work of the Green Climate Fund (GCF) as major contributors to financing international mitigation efforts.

At the end of the 16^th CTI Workshop all participants came together to review key take-aways from the two days of intensive discussions. Their findings pointed both to the success of international climate action to date and to the challenges ahead. The workshop was closed by Enrico Rubertus on behalf of BMU who thanked all participants for their interesting contributions and discussions.