Creating, Regulating and Allocating Rights to Offset and Pollute: Carbon Rights in Practice

The adoption and entering into force of the Paris Agreement is a welcome occasion to re-assess the legal foundations of emissions trading and, in particular, the nature of ‘carbon rights’. Cap-and-trade (‘allowances’) and baseline-and-credit (‘credits’) represent the main Emission trading approaches, the former imposing compliance obligations, the latter stipulating voluntary action to reduce and monetize emissions. Each approach comes with legal characteristics and raises legal questions concerning property rights and protection, taxation, and financial regulation, on the one hand, and the proper recognition of individual mitigation efforts (in the context of environmental services) and participation rights, on the other hand. This article places the different type of rights in the context of their creation, purpose, and function.

In December 2015, representatives of almost 200 sovereign nations gathered in Paris to negotiate a longterm legal framework to address the risks of climate change. The resulting Paris Agreement (PA) establishes an obligation for all Parties to develop and communicate ‘nationally determined contributions’ (NDCs) that formulate a country’s mitigation strategies and goals. It is the first universal climate treaty that expects all – developing and developed – Parties to formulate mitigation pledges. The Agreement builds in significant flexibility in meeting the commitments. Parties can put forward joint NDCs, can cooperate in meeting NDCs and can engage in a mechanism that contributes to mitigation and sustainable development. While the Paris Agreement does mention market mechanisms, it allows the transfer of ‘mitigation outcomes’ and of ‘emission reductions’ that can be used to meet NDCs. The secarefully chosen, purposefully vague formulations allow the linking of the Paris Agreement and country-specific NDCs to market mechanisms without explicitly authorising market-based transactions or anchoring them as an integral element in the treaty architecture. The drafters of the Paris Agreement also failed to define trading rules and an infrastructure with institutions similar to those of the Kyoto Protocol.

Mitigation outcomes or emission reductions – however they will eventually be defined – are expected to be acquired by Parties to meet the NDCs communicated under the Paris Agreement. Authorised public and private entities may engage in acquisitions to meet obligations under national legislation. That means that the tradable mitigation outcomes, as recognized under the PA, will belong to the growing number of ‘carbon rights’, a shorthand term for a plethora of different tradable greenhouse gas (GHG)rights. Carbon rights tend to come with little explanation, but that hardly can disguise their colourful legal nuance including rights as distinct as administrative emissions allowances, private certificates, or beneficial rights to natural (tangible and intangible) resources.

Copyright: © Lexxion Verlagsgesellschaft mbH
Quelle: Issue 03/2016 (September 2016)
Seiten: 12
Preis: € 41,65
Autor: Dr. Charlotte Streck
Moritz von Unger

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