Issue 4/2012

The Clean Development Mechanism as a Governance Problem
Prof. Dr. Felix Ekardt, Anne-Katrin Exner
This essay analyses the evolution of legal rules, questions of law interpretation, as well as climate and development policy effects of the Clean Development Mechanism (CDM) as a mechanism which is linked to state and company-level emissions trading (ETS) and combines transnational climate protection law with the promotion of renewable energies. The essential goal of the CDM is to provide opportunities for cost efficient compliance with the Kyoto Protocol targets entered by Annex I countries, and to assist developing countries in achieving sustainable development. Therefore, Annex I countries are allowed to achieve part of their emission reduction targets by conducting mitigation measures in developing countries. It turns out, however, that specific CDM projects are frequently questionable in terms of climate and development policy. This is also related to enforcement problems, which represent a variation of the common environmental law issue of the latent identity of interests of controllers and controlled ones. It is hence questionable whether the discussed and partly decided reforms of the CDM and the subsequent restrictions adopted by the EU are sufficient to address the underlying deficits. That implies, at the same time, a kind of exemplary governance analysis on the basis of important aspects of the ETS.
Carbon Market Opportunities in Southern Mediterranean Countries
Noriko Fujiwara, Monica Alessi, Anton Georgiev
To date, Southern Mediterranean countries have hosted a limited number of projects under the Clean Development Mechanism. This study examines existing and emerging activities in Southern Mediterranean countries that could fit into new market-based mechanisms.
To Tax or Trade (or Both or Neither)? - The Confusing South African Status Quo on Carbon Taxation and Emissions Trading
Andrew Gilder
South Africa has a rapidly evolving climate change policy environment, which is in keeping with the country’s view of itself as a developing country leader in the climate change arena. Part of the policy environment includes attention to financial mechanisms that can be marshaled in support of the response to climate change. Flowing from the notion of using financial mechanisms in this manner, the South African National Treasury has taken initial steps towards the implementation of carbon taxation over emissions trading. While Treasury’s progress towards carbon taxation is in keeping with its primary role in financial matters, a dichotomy exists between Treasury’s view on how revenue raised from carbon taxation should be applied and the view of the Department of Environmental Affairs (which is the custodian of the national climate change policy). This article explores these and related issues with the purpose of giving a flavour and the status quo of the debate around carbon taxation and emissions trading in South Africa.
Building Capacity for Emissions Trading: The ICAP Training Courses for Emerging Economies and Developing Countries
Tobias Hausotter, Michael Mehling
Several contributions to this issue of the Carbon & Climate Law Review have illustrated current efforts to introduce emissions trading systems in the developing world. Overall, this is a welcome trend, as it shows that carbon markets are successfully incentivizing more robust mitigation efforts in countries with the fastest growth in greenhouse gas emissions. Given that any meaningful action on climate change will necessitate allocation of scarce resources among many competing aims, the flexibility and efficiency gains offered by a marketbased approach may indeed be critical for any prospect of avoiding dangerous anthropogenic interference with the global climate system. It is thus readily apparent that ensuring the integrity of these emissions trading systems will become vitally important far beyond the national boundaries of the countries that introduce them.
Beyond DĂ©jĂ  Vu: Opportunities for Policyv Learning from Emissions Trading in Developed Countries
Sonja Klinsky, Michael Mehling, Andreas Tuerk
Under pressure to abate greenhouse gas emissions without burdening their economies, several countries around the world have introduced emissions trading systems as a centerpiece of their climate change mitigation strategies. Drawing on the experiences with emissions trading made in Europe, North America, and the Asia-Pacific region, this article shows that considerable diversity can be observed across systems, providing valuable opportunities for comparison and policy learning. Individually, and in comparison, existing trading systems offer lessons that can be applied to the design and implementation of new systems – especially in emerging economies where carbon markets are currently under development, such as China – and to the improvement of already operating systems. Such lessons are identified in three different categories: the role of the political process and economic context; system design; and system implementation and operation.
Negotiations on the New Market Mechanism and the Framework for Various Approaches - What Future Role for the UNFCCC in Regulating the Carbon Market?
Dr. Kati Kulovesi
This article reviews on-going negotiations under the UNFCCC on the New Market Mechanism (NMM) and Framework for Various Approaches (FVA), which covers both market-based and non-market-based approaches. It argues that limited progress has been achieved in the past five years under the UNFCCC concerning the future international legal framework for carbon trading. A number of important design elements remain outstanding in the negotiations concerning the NMM and its modalities and procedures. The general objective and scope of the FVA also remain undefined. The article concludes that to successfully complete these negotiations, UNFCCC Parties must find convergence on principled questions concerning multilateralism and the future role of the UNFCCC in developing and overseeing market mechanisms.
Between Twilight and Renaissance: Changing Prospects for the Carbon Market
Michael Mehling
While several established carbon markets are experiencing a crisis of confidence, a remarkable transition towards carbon trading is currently underway in the developing world. Given the multiple benefits ascribed to market-based instruments for greenhouse gas abatement, the rise of carbon markets in important emerging economies should come as no surprise: no other policy option promises certainty of environmental outcome while lowering the cost of its achievement, and developing countries with rapidly growing economies are no less sensitive to the impacts of carbon constraints than their developed counterparts. But it would be premature to assume a carbon market renaissance: as the experience in industrialized countries has shown, quantity rationing with tradable emission units places considerable demands on the implementing jurisdiction, requiring technical capacity and political will in order to succeed. Although the rise of carbon trading in developing countries affirms the continued relevance of this policy instrument, it also highlights the importance of policy learning and clarity about objectives if earlier missteps are to be avoided. Providing the introductory background for a special issue of the Carbon & Climate Law Review (CCLR) on carbon markets in the developing world, this article canvasses recent developments and central trends in carbon trading, suggesting tentative priorities for developing countries engaged in the pursuit of domestic markets.
Market-based Instruments for Greenhouse Gas Mitigation in Brazil: Experiences and Prospects
Michael Mehling, Dr. Sebastian Mielke
Brazil has become an increasingly important participant in the discussion about climate change, combining an active role in climate diplomacy with credible domestic policy efforts. Market-based instruments have featured prominently in its domestic policy landscape, with carbon markets envisioned both at the federal and regional level. Aside from successful participation in the Clean Development Mechanism (CDM) and some progress in the creation of voluntary offset markets, however, the pathway towards a domestic carbon market has so far been fraught by delays and ongoing uncertainty. Still, Brazil can build on proven institutional structures, quantified emissions limitation targets, and new rules on the collection of emissions data and sectoral mitigation plans to establish robust market-based instruments. A carbon market can help leverage its vast mitigation potential to abate greenhouse gas emissions at sufficient scale while limiting the cost of compliance for domestic entities. Given its unique emissions profile, however, Brazil should not focus on becoming a net seller of carbon credits or allowances to foreign entities, but should instead harness the opportunity to create an ambitious, welldesigned market and thereby become a leader on climate change mitigation in Latin America.
A Green Emerging Market: India’s Experiments with Market Based Mechanisms for Climate Mitigation
Anjum Rosha, David Freestone
India is the fourth largest emitter of greenhouse gases in the world. After Copenhagen in 2009, India announced that it will be working to reduce voluntarily the carbon intensity of its emissions by 20–25 % against 2005 levels by the year 2020, while maintaining a growth rate of 8 %. In 2011–2012, it introduced a number of innovative initiatives to help reach that goal. This paper will discuss three of these measures. Two of these schemes are market based initiatives in the field of energy: the first is called “Perform, Achieve and Trade” and is aimed at improved energy efficiency; the second scheme promotes increased use of renewable sources of energy through trade in renewable energy certificates. The third scheme is a pilot market based emissions trading mechanism that seeks to reduce the levels of particulate matter emissions in three leading industrial states in India.
Emissions Trading around the World: Dynamic Progress in Developed and Developing Countries
Peter Sopher
Drawing on a series of forthcoming case studies developed under a joint project of the Environmental Defense Fund (EDF) and the International Emissions Trading Association (IETA), this article conveys the dynamic bottom-up progress on emissions trading systems (ETS) around the world. The case studies will provide an easily accessible tool that facilitates the analysis of ETS based on examples from existing and developing policies. Each of the 18 case studies provides an overview of the history on climate action within the specified jurisdiction, highlights ongoing challenges and unique features, and describes key ETS elements. The jurisdictions of focus lie within both developed and developing parts of the world, and the set of case studies encompasses multinational-, national-, regional-, state/provincial-, and city-scale jurisdictions. This article summarizes the key design features and differentiating aspects of ETS development in each jurisdiction. While designs vary, each ETS described ultimately belongs to the same category of quantity-based market mechanism.
New Market Mechanisms: Prerequisites for Implementation
Wolfgang Sterk, Florian Mersmann
The Durban climate conference decided to establish a new market-based mechanism (NMM) that is to cover broad segments of countries’ economies. This article aims to explore the essential prerequisites for the implementation of an NMM. In addition to a theoretical discussion it considers the cases of China and Mexico. The article finds that the challenges in establishing market mechanisms that cover a broad segment of the economy are formidable and most developing countries have serious capacity constraints. Lead times can be expected to be at least 3–5 years. To move the process forward, it may be useful to consider promoting pilot activities similar to the Activities Implemented Jointly pilot phase that preceded the introduction of the flexible Kyoto mechanisms and the demonstration activities for Reducing Emissions from Avoided Deforestation and Forest Degradation.
Designing the Regulatory Framework of an Emissions Trading Programme in China: Lessons from Tianjin
Hao Zhang
The goal of this article is to examine the underlying considerations of designing and establishing the regulatory framework of an emissions trading program in China after the National Development and Reform Commission initiated the emissions trading pilots in seven provinces and cities in 2011. The article provides the policy development context and discusses the findings through empirical work on the design features of an emissions trading program in Tianjin. The underlying considerations and constraints are analyzed as followed to set the basis for further research into the regulatory design of an emissions trading program in China.


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