THE NETWORKED CARBON MARKETS INITIATIVE -...

THE NETWORKED CARBON MARKETS INITIATIVE

Barcelona

May 26, 2017

2

MARKETS, KEY TOOL TO ADDRESS CLIMATE CHALLENGES

Cost Savings: market efficiencies reduce costs of low carbon growth

Resource mobilization: crowd-in public and private capital

Political alignment: NDCs of 84 countries call for markets and/or carbon pricing mechanisms – including 72 in developing countries

Cost of each country acts

alone

Intl cooperation through

carbon market by 2030

Intl cooperation through

carbon market by 2050

Source: World Bank Group, 2016

$ $ $

3

0

%

5

0

%

3

AN INTERNATIONAL MARKET - 2030

WHERE DO MARKETS FIT UNDER PARIS?

4

Article 6 has the opening for developing markets – agreement on guidance and rules is still under negotiation by Parties

Under the authority/supervision of the

COPUnder bi- or plurilateral governance

Introduces “mitigation outcomes” (MOs) from

any mechanism/procedure/protocol

Using cooperative approaches to enhance mitigation ambition under NDCs

“a mechanism to contribute to the mitigation of

GHG and support sustainable development”Metrics

Governance

Objectives

Art. 6.2 Art. 6.4

Parties can design and use carbon pricing instruments domestically. Today.

Examples: Chile, China, India, Mexico and South Africa, among others.

Markets instruments should create demand for a domestic market that will grow over time to include linkages to create an international market. Bottom-up markets appear to be the most promising approach under the Article 6.2 paradigm.

Top D

ow

n

Bottom

-up

WHERE DO MARKETS FIT IN PARIS?

5

• Paris Agreement encourages mitigation action relevant to national circumstances (as reflected in their NDCs) by all Parties

• Comparability of the mitigation outcome of the mitigation action will be the starting point for any international transfer of the mitigation outcome

Country mitigation action

MOs ITMOs

Domesti

c

and/or

NDC accounting

Registry

system

International

markets

National assessment

process

Assessment of mitigation action:

Use of MAAP

Assessment of climate ambition:

Climate Transparency initiative

Clubs

6

WHAT IS NETWORKING?

NetworkingDesigned to link heterogeneous climate actions

System ADirect LinkingA common market is explicitly established between Systems A and B(e.g. California-Quebec, EU-Switzerland)

Indirect LinkingSystems B,C, and D are indirectly linked via System A(e.g. Clean Development Mechanism)

System A

System A

System B

System

B

System B

System D

System C

7

WBG STRATEGY FOR CLIMATE MARKETS AND LINKAGE

CONNECTIVITY AND GLOBAL TRANSFER

The NCM Initiative

Enabling cooperation of all

types of climate actions,

including carbon pricing

mechanisms, through

internationally connected

climate and carbon markets

PROMOTING THE CASE AND EVIDENCE BASE FOR CARBON PRICING AND MARKETSe.g., Carbon Pricing Leadership Coalition; State and Trends of Carbon Pricing reports

IMPLEMENTATION AND SCALE-UP

Enabling scale-up

of climate actions such as

carbon pricing mechanisms

e.g., TCAF, PAF, Ci-DEV

Innovating and building

readiness for climate action,

including carbon pricing

instruments

PLANNING, DESIGN AND PILOTS

e.g., PMR

8

NCM’S SHORT, MEDIUM AND LONG TERM VISION

Design and implementation of robust, “market-ready” mitigation actions

• Benchmarking

• Guide climate finance

Comparability and transfer of mitigation outcomes:

• within a country

• between countries on a bilateral basis

Comparability and linkage of mitigation outcomes between countries on a regional or multilateral basis

SHORT TERM

MEDIUM TERM

LONG TERM

9

NCM’S CONCEPTUAL FRAMEWORK

Independent Assessment FrameworkWithin country: use of MAAP to assess mitigation actions

Between countries: use of CTi for national climate ambition

International Carbon Asset Reserve

International Settlement Platform

Establishment of an overarching, coordinated

framework to measure the relative mitigation

outcomes (“mitigation value”) of different

actions

A pooled reserve of carbon assets to manage

carbon market related risks (e.g., price

volatility, invalidity of issued and allocated

carbon units)

Track cross-border trades (manage risk of

double counting) and provide possible clearing

house functions

10

MAAP: INDEPENDENT ASSESSMENTS AT THE PROGRAM LEVEL

Program

Definition & Scope

Objectives & Targets

Planning

Documents, document control and records

Emissions reductions from interventions

Monitoring and reporting

Management Entity

Management Framework

Financial and Investment

Programsmanagement

Infrastructure at theprogram level

Financial Structure

Financial coherence

Financial stakeholders

Monitoring financial flows

Development Benefits

Development objectives and

targets

Planning and participation

Monitoring of development

benefits

Environmental integrity

MAAP-Design and MAAP-Implementation

1 2 3 4

MAAP launchMay 23 (Tue) from 2:45 pm to 5 pmhttps://maap.worldbank.org/#/homepage

https://maap.worldbank.org/#/homepage

11

MAAP PARTNERSHIPS AND COLLABORATION

ASSESSMENT OF CLIMATE AMBITION: CLIMATE TRANSPARENCY

12

Technical partners

Secretariat

Funding partners

Technical partnersClimate

Transparency

is a consortium of

experts and

organizations that

have a common goal to

enhance assessments

of climate action

http://www.climate-transparency.org/

13

NCM

Partners

Assessment and modelling

Partners:

DNV, IISD, New Climate Institute,

Climate Transparency, Observer

to ISO Climate Change

Standards Committee, Enerdata

MAAP

Partners: PMR, DNVGL, Thai

Greenhouse Gas Office, Ministry

of Environment of Peru,

Wageningen University, UNEP-

DTU Partnership, Gold Standard,

IGES, Perspectives, Carbon Trust,

Government of Jalisco in Mexico,

ITAM, TERI

Institutional frameworks

Partners: INFRAS,

Grantham Institute, Reed

Smith, Xpansiv

Concept Development

* ‘Options for Operationalizing a Carbon Trading

Ratio Mechanism’ (Austin)

* Achieving compatibility and synergy between the

NCM Initiative and Climate Clubs (Climate

Strategies)

* ‘Comparison and Linkage of Climate Mitigation

Efforts in a New Paris Regime’ (Harvard/IETA)

‘Explore the relevance and feasibility of the NCM

Initiative in Japan’ (IGES)

* ‘A model for NCM based on the key elements and

principles of Comparative Markets’ (Macinante)

* ‘NCM and its compatibility with a future UNFCCC

regime’ (Marcu)

* ‘Enabling Comparability of heterogeneous

Emissions Trading Systems – Caps, MRV frameworks

and non-compliance penalties’ (Munnings)

* Enabling Comparability and Linkage of the REC

and PAT Schemes (TERI)

* The METRIC for successful linking post-Paris (Vivid

Economics)

Private sector

outreach

Partners: Climate

Markets and Investment

Association (CMIA),

IETA, CPLC

NETWORKED CARBON MARKET INITIATIVE

14

Country mitigation action

MOs ITMOs

Domesti

c

and/or

NDC accounting

Registry

system

International

markets/

Carbon

Clubs

National assessment

process

Assessment of mitigation action:

Use of MAAP

Assessment of climate ambition:

Climate Transparency initiative

Independent Assessment

Framework

International

Settlement Platform

International

Carbon Reserve

SCALING UP THE APPLICATION OF THE MAAP ONLINE INTERFACE

Barcelona

May 26, 2017

ACTIVITIES YTD

2 work streams: Internal – identify Bank supported projects and opportunities with Bank local offices - Ecuador, Mexico

Independent Assessments. IGES, Perspectives, GS, UNEP DTU, Carbon Trust.

MAAP Design and MAAP Implementation

Assessor Guidelines

Training and support to MAAP partners e.g. SECO, DTU-OLADE workshop

Scouting activities for MAAP Policy alignment module.

16

CONCLUSSIONS MAAP ROUNDTABLE

Benefit for having a reference point for the design of MA for NDCs

Evaluate strategy of targeting multiple (too many?) different users.

Partner with key stakeholders for those users to roll out online tool.

Need for comprehensive set of capacity building activities to ensure online tool is used.

MAAP in the context of the overall NCM long term strategy

17

SCALING UP MAAP

Regional workshops with MA practitioners:

Capacity building

Populate online database

Evaluate integration of UNDP SD Online Tool

Strategy for external partnerships

Adaptation Module

Develop existing draft of MAAP Policy Alignment Module

18

19

RATIONALE, VISION AND OBJECTIVESSUPPORTING MARKETS AND NDC IMPLEMENTATION

THROUGH THE MAAP TOOL

1

20

SHORT, MEDIUM AND LONG TERM VISION

Design and implementation of robust, “market-ready” mitigation actions

• Self-evaluation

• Prioritization

Generation of mitigation outcomes at the program level

• Comparability of mitigation actions

Comparability and transfer of mitigation outcomes across countries

• Exchangeability of carbon assets

SHORT TERM

MEDIUM TERM

LONG TERM

21

WHAT IS THE MAAP?

Program

Definition & Scope

Objectives & Targets

Planning

Documents, document control and records

Emissions reductions from interventions

Monitoring and reporting

Management Entity

Management Framework

Financial and Investment

Programsmanagement

Infrastructure at theprogram level

Financial Structure

Financial coherence

Financial stakeholders

Monitoring financial flows

Development Benefits

Development objectives and

targets

Planning and participation

Monitoring of development

benefits

Environmental integrity

MAAP-Design and MAAP-Implementation

1 2 3 4

22

National and

Subnational

Jurisdictions

Donor and

Investors

Project

DevelopersCarbon Market

Regulators

Multilateral

Development

Banks

23

StakeholderConsultations

Stakeholder consultations held at various climate change fora, such as Carbon Expo LatinAmerica Carbon Forum(Rio de Janeiro), FICCI (New Delhi) and AsianCarbon Forum (Bangkok)

Working group formedby experts

Progress presented to a working group during technical sessions and webinars

Peer review

IISD, NewClimate Institute, Asia LEDS Training Center, IdeaCarbon and FC2E Carbon Fund provided technical reviews to the draft report and components of the MAAP.

Pilot and deployment

- Piloted the MAAP on NAMAs in Peru in December 2015 and Low Carbon City Programs in February 2016.

- In collaboration with expert groups, such as UNEP-DTU Partnership, Perspectives, IGES and Gold Standard, applied the MAAP to more than 180 mitigation actions globally

May 2014 Sep 2014 April

2015

Dec 2015 - now

24

MAAP in Mexico: NAMAs

(Nov 2017) and Jalisco’s

State Climate Plan (April

2017)

MAAP in Ecuador:

National Energy

Efficiency Plan (Jan

2017)MAAP in Peru: 83

NAMAs (Dec 2015) MAAP in Thailand: 2

low carbon city

programs (Feb 2016)

MAAP in Mongolia and

Vietnam: JCM projects

(Apr 2017)

MAAP in the

Mediterranean Region: 20

low carbon city programs

(Apr 2017)

MAAP independent assessments by UDP

in Costa Rica, Ecuador, Jamaica, El

Salvador, Morocco, Indonesia, Chile, Sri

Lanka, Ghana, Kenya, Peru, Tunisia,

Colombia, Armenia Cambodia, Mexico: 50

mitigation actions including NAMAs, energy

programs waste management programs etc.

(Jun 2017)

Scoping Study in

India: Green certificate

(REC) and white

certificate (PAT)

schemes (Apr 2017)

25

IMPLEMENTATIONTHE MAAP ONLINE INTERFACE

2

26

Lack of visualization tools to compare and

benchmark MAAP scores between different actions

Practical challenges related to the usability of

the MAAP

Inability to collaborate and share results and

related documents

Disaggregated information on MAAP assessment

Limitations of the MAAP excel-based tool

27

User-friendly platform to manage

results and store related documents Access to datasets generated

by partners worldwide

Visualization tools for

comparison and benchmarking

How-to video, interactive guidelines

and helpdesk

Centralize and secure platform to

quickly and reliably run search queries

28

3. RECORD RELATIVE SCORES

• Assign weights and/or scores for key

indicators and assessment areas for selected

module(s)

• Select confidence level

• Provide evidence in attachments and

observation box

29

4. RESULTS FOR INDIVIDUAL MITIGATION

ACTIONS

• Review results and evidence for

individual mitigation actions in order to

identify strengths and areas for

improvement

• Save results and export to excel

30

5. SHARE RESULTS

• Share results with partners for

editing/comments

• Share results for comparison and review

31

6. SEARCH RESULTS ON DATABASE

• Filter own/shared assessments based on their

development phase, sector, region and date

modified

• Search results to compare

32

7. COMPARE AND BENCHMARK RESULTS

(TABLE/CHART FORMAT)

• Compare results for each module, assessment

area and key indicator

• Benchmark results against overall

best/average score or the user’s best score

33

CERs from

CDM

VERs from

voluntary

schemes

Mitigation

actions

SCALED APPROACH

• Allow a range of possible outcomes

• Risk profile

• Enhanced comparability of carbon assets

• Benchmarking

• Assess development benefits in addition to

environmental benefits

• Users can emphasize modules based on their

priorities

YES/NO OUTCOME on whether the

project will potentially achieve its

envisaged emissions reduction targets

or the actual reported emissions

reductionsTradable units

from ETSs

VALIDATION AND VERIFICATION

MAAP ASSESSMENT

METRIC Principles for

linking and potential next

steps

26th May 2017

35METRIC Principles for linking and potential next steps

please note that this presentation is based on a finalised, but not yet published,

paper commissioned by the Networked Carbon Markets (NCM) initiative and

Carbon Pricing Leadership Coalition (CPLC)

36

There are substantial cost savings to be achieved by international linking

METRIC Principles for linking and potential next steps

0

0.5

1

1.5

2

2.5

3

3.5

2030 2050

Costs

as a

perc

ent

of

glo

bal G

DP

Without international carbon market With an international carbon markets

32% saving

54% saving

37

2 examples of operational links to date

― California – Québec

― Tokyo - Saitama

challenges

― trade-offs when making the choice of linking partner;

― negotiation of the link, which may take a long time and may be politically contested

― prospect that the link might be insufficiently flexible to accommodate domestic

policy changes

But, with some exceptions, it has proved challenging


38

The METRIC principles aim to help stakeholders, understand and assess the range of linking options and design features


•ensuring that capital is allocated efficiently and avoiding disturbing the continued efficient function of carbon and related marketsMarket Integrity

•giving all participants, as well as external stakeholders, confidence that the linking arrangements are supporting real and additional emission reductions that will in turn support the objective of the Paris Agreement

Environmental Integrity

•being transparent and providing all stakeholders with a clear understanding of its rationale in order to generate support, and allowing the free exchange of information between linked systems

Transparency

•recognizing early action and avoiding incentives to reduce effortRecognize Ambition

•facilitating and encouraging more jurisdictions to join the system, promoting greater international cooperation, and considering domestic and international equity concerns

Inclusiveness

•reducing the overall cost of mitigation, including administrative and transaction costs, and improving economic efficiencyCost Effectiveness


The application of the METRIC principles may lead policymakers to consider a range of different linking options

Market integrityEnvironmental Integrity

Recognise ambition

what to do when one

ETS has a price floor

and other does not?

― remove/introduce

floor and direct

link?

― surrender

charges?

― quantitative limits?

― exchange rates?

environmental integrity

may be preserved

either though

― standardised MRV

and a direct link

― alternative MRV

approaches and a

heterogeneous link

the ‘linking paradox’

might be addressed by

heterogeneous linking

― but further work

needed to measure

relative ambition

A potential next step would be to model different linking options building on the application of the METRIC principles


METRIC principles highlight important considerations that can inform linking design

next stage could be to use these principles to develop different linking options for a

particular set of market and quantitatively assess their implications

building on the qualitative case study in the paper, and announced plans, this could

focus on Mexico’s ETS linking to carbon markets in North America

Company Profile

Vivid Economics is a leading strategic economics consultancy with global

reach. We strive to create lasting value for our clients, both in government and

the private sector, and for society at large.

We are a premier consultant in the policy-commerce interface and resource

and environment-intensive sectors, where we advise on the most critical and

complex policy and commercial questions facing clients around the world.

The success we bring to our clients reflects a strong partnership culture, solid

foundation of skills and analytical assets, and close cooperation with a large

network of contacts across key organisations.

Contact us:

Vivid Economics

26-28 Ely Place

London EC1N 6TD

Author contact details: John Ward

T: +44 7790 613951

E: [email protected]

Practice areas

Energy & Industry Growth & Development

Natural Resources Competitiveness & Innovation

Public & Private Finance Cities & Infrastructure

METRIC Principles for linking and potential next steps 41

Enerdata/NCM Initiative: Mexico-California quantitative case study

Assessment of mitigation and financial implications of different linking rules

between Mexico-California

NCM Initiative Expert Workshop, Barcelona, 26 May 2017

Enerdata

Linking: a great opportunity to increase ambition

Reduce cost of emission reduction

Increase ambition of emission reduction

But linking requires:

• Transparency

• Guarantee the environmental integrity

• Satisfy domestic circumstances

• Support the global transition to sustainable development

43Enerdata, NCM Initiative Expert Workshop,

Barcelona, 26 May 2017

Linking implications of Emissions Trading Schemes

+ Many research works on ETS assessment:– At jurisdiction level

– On direct linking

- Few quantitative modeling exercise on networked ETS under different trading rules:

– Discounting permits, traded volume limitation…

Enerdata realized for NCM in 2016, a first modeling exercise assessing implications of different linking rules between China, South Korea and Mexico national ETS.



First modeling exercise: Context

• Objective: Analyze impacts of various design options for Emissions Trading Schemes (ETS) and their potential linking:– Domestic and International

– Discounting Values between jurisdictions

– Trading limitations between jurisdictions

• Methodology: Assessment of mitigation and financial implications of different linking rules through Marginal Abatement Cost Curves (MACCs)– Use POLES global energy model to calculate MACCs for each

jurisdiction at each sector level

– Generated MACCs express the sector transformation under a marginal carbon price incentive. They are coherent and comparable.

– Use EVALUATE tool to simulate linking rule scenarios



Project result illustration• Varying discounting value (DV)

Discount 1China: 0.3

South-Korea: 1

Discount 2China: 0.5

South-Korea: 1

-300

-200

-100

0

100

200

300

400

China South Korea China South Korea China South Korea

Abatement Imports Marginal cost

$/tCO2 - Scenario 2 $/tCO2 - Scenario 3 - 3 $/tCO2 - Scenario 3 - 4

$Bn - Scenario 2 $Bn - Scenario 3 - 3 $Bn - Scenario 3 - 4

MtCO2 - Scenario 2 MtCO2 - Scenario 3 - 3 MtCO2 - Scenario 3 - 4

1800.00

1850.00

1900.00

1950.00

2000.00

2050.00

2100.00

2150.00

2200.00

2250.00

2300.00

Scenario 2 Scenario 3 - 3 Scenario 3 - 4

reduction

MtCO2 - China MtCO2 - South Korea

Lower DV difference between jurisdictions More imports from South Korea Less reductions from China

Resulting in lower carbon price in SKdriven by low price in China

Resulting in lower abatement costs in South Korea and in China

Reduction target

Enhanced emissions reductions

Direct Linking

Discount 1 Discount 2

Dir. Linking

Dir. Linking

Dir. Linking Discount 1

Discount 1

Discount 1

Discount 2

Discount 2

Discount 2



Key learnings: Varying discounting rate• Discounting could enable higher emissions reduction.

• Varying discounting rates may enhance acceptability from jurisdictions by adjusting domestic political context (carbon price, burden cost, domestic emission reduction plans…) while ensuring the environmental integrity of the trade.

China South Korea

Dom.ETS

Direct linking

Discount 1

Discount 2

Dom.ETS

Direct linking

Discount 1

Discount 2

Emission reduction (MtCO2) 1769 1955 2034 2024 275 89 195 147

Additional reduction (MtCO2) -185 -128

Imports (MtCO2) -186 -264 -255 186 79 127

Carbon price ($/tCO2) 42 46 49 48 310 46 163 97

Total Abatement costs ($Bn) 262 258 255 255 232 78 188 138

A way to find the best compromise between: • environmental integrity & costs



2nd modeling exercise: Quantitative case study proposition in collaboration with Vivid Economics

Realisation in 2 phases:

• Phase 1: Mexico-California ETS linking rules case study

• Phase 2: Implications for the regional Mexico-California-Quebec-Ontario ETS

Proposed Phase 1 approach:a) Using POLES model to calibrate baselines for Mexico and California from

which Marginal Abatement Costs (MACCs) will be generated.

b) Simulate with EVALUATE tool, 6-10 scenarios of different direct and heterogeneous linking arrangements.

c) Quantitative assessment of the mitigation and financial impacts of these scenarios; and identify key benefits and challenges of each scenario.

d) Suggest possible solutions and next steps to address key challenges of linking Mexico and California’s ETSs (Vivid Economics & Enerdata)



Expected findings

• Put quantitative values on various ETS linking rule options for a practical case-study.

• Quantitative indicators to be provided for each scenario:– Financial value/s of carbon allowances (i.e. carbon price/s);– Emissions (both domestic and traded) achieved by sector;– Emission intensity by sector;– Total cumulative (2015-2030) abatement costs by sector; and– Net trade balance by sector;

• EVALUATE tool populated with Mexico and California MACCs could be provided to the WB NCM Initiative.

• Identification of advantages and challenges for each jurisdiction of linking

• Provide technical support to WB to support stakeholder discussions on ETS linking.



www.enerdata.net

Thank you for your attention!

Contact:

About Enerdata:

Enerdata is an energy intelligence and consulting company established in 1991. Our experts will help you tackle key energy and climate issues and make sound strategic and business decisions. We provide research, solutions, consulting and training to key energy players worldwide.

Cyril CASSISA

Global Energy Forecasting

[email protected]



http://www.enerdata.net/

Annex: POLES and GHG models

Enerdata, NCM Initiative Expert Workshop, Barcelona, 26 May 2017

POLES: a Multi-Issue Energy Model

Consumption

Production

GHG emissions

Climate and Energy policies

Macroeconomic assumptions

National energy balances (66)

SUPPLY

International markets

Resources

PRIMARY DEMAND

TRANSFORMATION

Domestic production

Import/Export

Trade routes

Fossil fuels

Nuclear Hydro

Biomass & wastes

Oth. RES

Power sector Investments/capacity planning Electricity generation

Refineries(incl. synfuels)

FINAL DEMAND

Industry Transport Buildings Agriculture

Technologies

Gas(3 markets)

Coal(15 markets)

Biomass(1 market)

Oil(1 market) International

prices



Marginal Abatement Cost Curves (MACCs)

• Top-down MACCs produced by the POLES model as the resultof sensitivities on carbon value

• Curves are produced by POLES for:

– 66 countries/regions

– 20 emitting sectors

– 6 GHGs (from energy and industrial activities)

– All years from 2020 to 2050

• The MACCs from POLES are based on:

– Power sector: full technological description and load curve simulation

– Final demand sectors: econometric demand functions (including short-term price and long-term price elasticities), incorporating explicit description of technologies in road transport and buildings



Exemplary MAC curves

China Mexico South Korea



MACCs are an essential inputs

• A set of coherent and interdependent MACCs for all sectors and countries considered

• Covers all GHG and emitting sectors, with the exception of LULUCF and non-CO2 agriculture

• MACCs for the year 2030 constitute the main input data to the EVALUATE model

More information can be foundin EVALUATE Carbon Expo presentation&WB internal presentations 2016



Justin Macinante

Link to published paper:

http://ssrn.com/abstract=2948580

Conceptual model for NCM

on DLT architecture

http://ssrn.com/abstract=2948580

57

Map of existing, emerging and potential regional, national and sub-national carbon pricing instruments

62

Ju

risd

icti

on

s ar

e c

urr

en

tly

pu

ttin

g a

pri

ce o

n c

arb

on

Type of Linking Definition

FullCompliance unit in one jurisdiction is accepted without

restriction in the “linked” jurisdiction

Limited

Compliance unit in one jurisdiction is accepted with

qualitative/quantitative restrictions in the “linked”

jurisdiction

IndirectMarkets are not linked directly, but have access to the

same third carbon market.

NetworkingFungibility of carbon assets across schemes facilitated by

an Independent Assessment Framework that recognizes

the differences between schemes

Different types of Linking

The NCM initiative

The assumptions underlying NCM accord with the principles evident in the Paris Agreement:• Governments need information about jurisdictions and schemes with which

they might ‘link’• Changes may take place in a scheme and its effectiveness over time, or with a

jurisdiction’s economy, so information needs to be collected and monitored on an on-going basis

• Similarly, market participants need information to make informed investment decisions

• Some governments and market participants have the resources to make these assessments, others will not

• Implicit that governments retain the sovereignty to act on this information as they see fit, and the hegemony over their schemes and policies

Key components of Networked Carbon Markets

1

3

2

Independent assessment framework to determine the

climate change mitigation value of different climate

actions and enable their fungibility in the international

market.

International Carbon Asset Reserve to support and facilitate carbon market related functions.

International Settlement Platform to track cross-

border trades and possible clearing house function.

The NCM initiative is comprised of 3 key components

8/10/2017

Mitigation value

Risk relating to the characteristics of a specific program

Risk relating to the characteristics of a

jurisdiction’s collective low-carbon

policiesRisk relating to the characteristics of a

jurisdiction’s contribution to

addressing global climate change

Determining mitigation value is a function of a robust MRV framework that assesses:

The concept of Mitigation Value is fundamental to the Independent Assessment Framework

Overarching Supervisory Body

Settlement Platform/ Clearing

Central Registry

ICAR

Conversion Rate

Setting

Regulatory Supervision of

conversion setting

Suitable Entities Performing

MV Assessments

Regulatory Supervisory Body for MV Assessment

Trading

Jurisdiction A

Jurisdiction B

Jurisdiction C

A1

A3

A2

B1

B3

B2

C1

C3

C2

Conceptual model for NCM on DLT architecture

What is distributed ledger technology?

• Combination of a distributed database,

• with public/private key encryption, and

• decentralised infrastructure

Doesn’t offer significant functionality that couldn’t be achieved otherwise

BUT does provide potential for innovative solutions to data sharing and transaction

management application areas


Paper sets out key elements of underlying technology framework as platform for the

components of inter-jurisdictional emissions trading

I how such a market might come into being

II possible alternative mechanisms for transactions

III institutional elements and requirements of digital infrastructure

IV ‘smart contracts’ as the key transactional component

V types and roles of participants

VI other legal and regulatory concerns

‘Smart Contracts’

• term of art for transactional T&Cs embedded in computer code

• allows automatic execution, once precise conformity with T&Cs has been

established


Firstly, there might be rules governing jurisdictional participation and market

operation, including, for example:

• Preservation of environmental integrity

• Application of the supplementarity principle

• Applying an national rules for acceptance or exclusion

Then, there are the rules for the transaction, that might include:

• Seller holding the units offered for sale

• Buyer having the funds necessary to complete transaction

• Automatic application of a conversion rate between the jurisdictions

• On settlement, automatic updating of all copies of the ledger


As set out in the paper, preconditions for a contract might typically include the following information and specifications:

• name and jurisdiction of seller;

• domestic authorization, satisfactory KYC and AML checks on seller;

• name and jurisdiction of buyer;

• domestic authorization, satisfactory KYC and AML checks on buyer;

• certification or proof that the transaction is accepted as not negatively impacting upon environmental integrity;

• certification that the transaction would not cause the buyer’s jurisdiction to breach the supplementarity principle (noting that either jurisdiction may have the level set lower than maximum applicable in the distributed system as a whole);

• certification that the transaction would not cause either the seller or the seller’s jurisdiction to breach the compliance reserve (noting that the level may have been set higher than the minimum required for the distributed system as a whole);

• that the conversion rate is acceptable to the buyer’s jurisdiction;

• that both jurisdictions have provided and maintain an acceptable surety in regard to their financial obligations towards the operation of the distributed network;

• confirmation that the seller holds and is entitled to sell the units offered for sale;

• confirmation that buyer has funds to complete transaction; and

• the application of the correct conversion rate between jurisdictions


What does it offer? (potentially!)

• Flexibility

• Cost and time efficiencies

• Consensus + cooperation + voluntary engagement

• Simplicity with certainty

• Transparency and confidentiality


DLT element Paris Agreement

Blockchain (ledger) accumulative, immutable • Security of transaction (e.g., fraud prevention)• Robust accounting, double-counting control• auditable

Distributed database, ‘permissioning’ • Transparency (based on permissioning)• Confidentiality protected as necessary• Security against IT attack (e.g., loss of data)

Private/public key encryption • Security against IT attack (e.g., fraud, theft)• Transparency but with appropriate protection

of confidentiality

Decentralised infrastructure • Cost efficiency• Other peer-to-peer efficiency (e.g., transaction

time)

Regulation by code (contract terms) • Environmental integrity• Supplementarity• National rules flexibility (sovereignty)


Conceptual Model:

• Key elements of underlying technology framework as platform for the components of inter-jurisdictional emissions trading

– how such a market might come into being

– possible alternative mechanisms for transactions

– institutional elements and requirements of digital infrastructure

– ‘smart contracts’ as the key transactional component

– types and roles of participants

– other legal and regulatory concerns

• Elements of the application need to be developed, especially the concept of how a value is put on the mitigation outcomes that will be transferred

THANK YOUfor your attention

8/10/2017 70

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