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Review collapsed carbon markets before moving onnew markets, say developing countries

Bonn, 12 June (Kate Dooley) Parties have beenexchanging views on market and non-marketmechanisms under the UN FrameworkConvention on Climate Change in three differentcontact groups of the Subsidiary Body on

Scientific and Technological Advice (SBSTA).

Under SBSTA agenda item 12 Parties had a firstround of discussion on the framework for

various approaches (FVA) on 5 June, non-market-based approaches on 4 June, and a newmarket-based mechanism (NMM) also on 5 June.

In the FVA contact group, Parties expressed awide range of views on the purpose and scope ofthe framework. While some Parties saw this as abroad framework to guide market and non-

market approaches, others, including theEuropean Union, Norway, Australia and theRepublic of Korea saw the framework ascreating guidance for international aspects ofnational and other markets, providing UNoversight for internationally traded units. The

Alliance of Small Island States (AOSIS)cautioned against the risk of marketfragmentation in this context, calling for existingrules and eligibility criteria under the KyotoProtocol (KP) to be applied to any new markets

under the Convention.

A large group of developing countries, includingthe Africa Group, China, the Philippines, India,

Tuvalu, Saudi Arabia, Bolivia and Cubaemphasised the need to learn from the currentcollapse of carbon markets to inform anydiscussion on new markets, and to understandthe relationship between markets and ambition.Several countries also raised concerns that theNMM should not shift the mitigation burden to

developing countries.SBSTA agenda item 12(b): Non-market-based approaches

At the 4 June meeting of the contact group, Co-chairs Jose Eduard Sanhueza (Chile) and NatalyiaKushko (Ukraine) opened the session by

welcoming Parties and inviting views on fourquestions: 1) the expected elements of the work

programme; 2) expectations Parties have forWarsaw (19th meeting of the Conference ofParties) and Bonn; 3) what Parties hope toachieve here in Bonn; and 4) what process isneeded between Bonn and Warsaw to achievethe desired outcome?

They outlined the aim of this first session asachieving a plan for this work programme.

Bolivia opened discussions byoutlining that themarket-based approach has its foundations in the

prominent role of individual private property.Implementing the principles of the Convention common but differentiated responsibility(CBDR), equity, and the commitments topromote cooperation and diffusion of financeand technology are based on a non-marketapproach in Bolivias view.

It proposed a Joint Adaptation and Mitigationmechanism as one of several initiatives toprovide means of implementation for non

market-based approaches and to realign theprinciples of the Convention with the non-market approach. It outlined that this approachshould be based on rights, obligations,responsibilities, and duties.

To enable countries to jointly promotemitigation and adaptation, Bolivia outlined thedevelopment of an international scheme in orderto provide ex-ante public financing through theGreen Climate Fund (GCF). They proposedmethodologies to be established, including a

national action plan to address mitigation; aframework to assess ongoing performance; and a


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TWN Bonn Update No. 18 12 June 2013

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monitoring system based on joint adaptation andmitigation indicators.

Saint Lucia, on behalf of AOSIS, emphasizedthat both market and non-market approaches areneeded under the Convention to achievemitigation at the scale required. It said non-

market-based approaches can achieve emissionsreductions where there is low cost mitigationpotential or concerns of non-permanence anddouble counting. It said approaches which donot rely on offsets can allow countries to accessfinance up-front, and should be used where it isdifficult to measure emissions accurately or datais not reliable, such as with reducing emissionsfrom deforestation and forest degradation(REDD+).

Saint Lucia outlined that it is useful to consider

how non-market-based approaches can achievesubstantial net reductions: when emissionsreductions may not be additional; where ODA isinvolved; where there are negative cost emissionreductions; where market based approaches havealready lead to perverse incentives (such asindustrial gas projects) or where they may lead toincreased fossil fuel dependency or leakage ofemissions (industrial gasses or REDD+); and

where uncertainties do not allow measurement(such as with land use, land use change and

forestry (LULUCF)). It said there are principledreasons to address these issues in a way that doesnot result in offsets.

Tuvalu and Senegal also suggested fossil fuelsubsidy reform, feed-in tariffs, technology andenergy efficiency standards, and the role oftechnology transfer and intellectual propertyrights (IPRs) as elements of a non market-basedapproach. Venezuela called for an element inthe work programme to address unsustainable

consumption patterns, inviting experts who canquantify the abatement potential of limitingconsumption patterns. Saudi Arabia made arequest that reference to subsidy reform alsoincludes agricultural subsidies and other taxreform in developed countries.

China called for clear boundaries fordiscussions, noting these discussions are underthe Convention, not the KP. It stressed thatcountries have the right to choose their ownmitigation approaches, including for mitigation

which creates transfer of credits amongcountries.

Indonesia, the EU and Australia all raisedquestions over whether the non-market-based

approach would result in a unit of somedescription, and how this would differ fromunits in market-based mechanisms.

The US requested an assurance that we are notduplicating efforts which are underway in otherparts of the Convention. New Zealand,

Australia and Korea echoed these concerns, andemphasised the need to clarify what the non-market-based mechanism is, and how it canenhance efficient, cost effective and permanentemissions reductions.

The EU noted that market approaches are notalways the most cost effective measure and

welcomed a general discussion on appropriatenon-market-based approaches, includingnationally appropriate mitigation actions(NAMAs), reducing emissions from

deforestation and degradation (REDD+) andintellectual property rights (IPRs).

Saudi Arabia emphasized the need to focus onareas which are difficult to advance withinmarkets, such as adaptation, pointing to theurgent need for some countries to adapt toextreme events due to failure to meet themitigation gap.

Brazil raised concerns that while many goodideas were being raised, arriving at a decision in

Warsaw would require a focused discussionunder the framework of the Convention, andechoing the concerns of the US regarding theneed to avoid duplication with other

workstreams.

Ecuador outlined important elements for takingdiscussions forward as: environmental integrity;achieving a net decrease/avoidance of emissions;relation to the CBDR principle; and the need tobe consistent with the objectives of otherinternational Conventions.

Bolivia, Brazil, Tuvalu and Angola supportedthe need for technical papers, workshops andsubmissions from Parties to take the workforward. Saudi Arabia raised concerns with theprovision of a technical note by secretariat,preferring to allow for Party views throughsubmissions and interventions, to allow a Party-driven process.

Simone Lovera from the Global Forest Coalition(GFC), made an intervention as a member ofClimate Justice Now! referring to a submissionon non market-based approaches from acoalition of NGOs, and underscoring theimportance of this discussion.


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Co-chair Sanhueza closed the sessionby statinghe had heard a number of arguments to supportto the importance of these issues, andsummarising Party views. He said there were anumber of different opinions on elements toconsider in the work program. He said it wasimportant to clarify the guiding principles and

objectives to limit the scope of the workprogram, and the issue of linkages and overlaps

with other processes and issues inside this forumand in other conventions needs to be addressed.He referred to the detailed example from Boliviaand a number of other activities which have beenproposed as part of this work programme.

In order to continue the discussion, Sanhuezasuggested that the next round of interventionsfocus on the most important in the list of

questions how are we going to deal with ourmandate? He asked for more concrete inputs onactivities to consider in the work programme, inorder to structure the non-market-basedapproaches and avoid duplication of effort withother items on the agenda.

SBSTA agenda item 12(a): Framework forVarious ApproachesOn 5 June, Co-chairs Giza Gaspar Martins(Angola) and Martin Cames (Germany) opened

the contact group on the Framework for VariousApproaches (FVA) by introducing this as aprocess for conducting a work programme toarrive at a decision by COP 19 (19th meeting ofthe Conference of Parties). They asked the grouphow it can structure work in Bonn to elaboratethe framework in an efficient manner, and whatis the purpose of the framework.

Ecuador, speaking on behalf of the G77 andChina, opened discussions by emphasising theneed to develop a framework under the guidance

of the COP. It said that clarity on what theframework should be and what approaches cameunder it was important, including the need toensure environmental integrity and avoid doublecounting.

On the purpose, Ecuador said the main objectivewas to harmonise concepts, practices and criteriaso all approaches for mitigation meet certainprinciples. These principles should take intoaccount thresholds for crediting periods, sectorcoverage and boundaries, fungibility andtracking, pilot schemes for market and nonmarket approaches, and an analysis of the impactof consumption patterns on climate change

Korea on behalf of the EnvironmentalIntegrity Group (EIG) said it would like asubstantial decision on this topic to accompanydecisions on non-markets and modalities andprocedures for the NMM at COP19. The EIGproposed common accounting elements andconformity checks for minimum environmental

integrity, and suggested the establishment of apilot phase to benefit from learning by doing,and to promote capacity building under theframework.

It said the purpose of the framework was topromote mitigation, facilitate an increase inambition, and ensure standards are met to deliverreal verifiable outcomes, avoiding doublecounting, and taking into account differentnational circumstances.

For Bolivia it is important to focus on thepurpose of the framework and the scope of theapproaches to be included in the framework. Itpointed to the meta-theoretical language offrameworks to provide a theory of approaches,and said that a framework is a general platformor meta-language to assess, compare and buildclimate strategies. The purpose of the frameworkis therefore to establish the criteria to assess theeligibility of approaches.

Bolivia said that the criteria for the eligibility ofapproaches should be related not only tomitigation but also to joint adaptationapproaches. Among the different approaches toachieving sustainable development, it sees theneed to live in harmony with Mother Earth inorder to restore the integrity of the earthecosystem. It also emphasized non-market-basedapproaches, standards to change theunsustainable patterns of consumption, and saidthat approaches should be in line with the basic

science of climate change.Saint Lucia, on behalf of AOSIS believes it isfundamental for Parties to agree on the purposeof the framework before undertaking detailed

work, emphasizing the need to tackle the issue ofdivergent views in order to move forward. Onthe purpose, AOSIS believes that the FVAshould be limited to the regulation andcoordination mechanism established under theCOP and the COP/MOP, to develop commonaccounting frameworks for the NMM and

markets under the KP. The FVA should notendorse a fragmented and decentralizedapproach to the use of international offset units.

An international framework already exists under


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the KP there should be little deviation of theserules, which can be extended to apply under theconvention.

The EU agreed on the need to make progress onwhat is the scope and purpose of the framework.They suggested the work programme could be

organised around the five elements of the Dohadecision. It suggested the FVA should addressthe international aspect of the many regional andnational market mechanisms which are beinginitiated - in particular units which are crossingborders and used for compliance under theConvention.It emphasised those units must represent real,additional, measurable, avoidable andcomparable emissions reductions, and avoiddouble counting, summarising that units from

the three existing flexible mechanisms under theKP, as well as the NMM, could be used for UNcompliance, while other units generated outsidethese UN mechanisms could utilise a commonaccounting framework under the FVA to provideex-ante recognition.

Angola, on behalf of the Africa Group saidthat market approaches are important topromote mitigation efforts and to achievesustainable development. The FVA shouldtherefore guide the multiple initiatives under the

guidance of the COP. It referred to the need toapply the principles of the Convention wheresome have commitments and some have actionsto promote mitigation efforts. It remindedParties that to have a market under the guidanceof the COP, there would need to becommitments under the COP. Angola statedthere was a need to assess the role of newmarkets in the context of climate change issuesgiven the lack of commitments at this stage.

The Philippines said that form followsfunction, and it would therefore like to focus onthe scope of the FVA. Echoing the G77, it notedthe importance of environmental integrity as agoverning function in the discussion on markets.It emphasised the need to learn from pastexperience to decide if markets are effective arenot, with current prices on carbon markets notcontributing to achieving the overall goal of theConvention.

On the purpose, the Philippines said that market

mechanisms must respect environmentalintegrity and not place a burden on developingcountries. It stated that opportunities for usingmarkets must look into differentiated

responsibilities between developed anddeveloping countries and noted two specificconcerns with regards to this. The first was theDurban decision language on elements of

various approaches, which referred to assistingdeveloping country Parties to meet part of theirmitigation targets through markets. This is also

in Article 12 of the KP, yet this Article includes aprovision that the CDM is used to assistdeveloping countries to achieve sustainabledevelopment, which has now been droppedfrom paragraph 83 of the Durban decision. ThePhilippines said that this was one way to imposeadditional burdens if you MRV (measure,report and verify) a NAMA it is acommitment.

The Philippines said that the NMM must be

defined under the guidance and authority of theCOP (as for the CDM), and market mechanismsshould not be used so that developing countriescan assist developed countries to meet some oftheir commitments. It suggested that the way thisdecision has evolved will impose additionalburdens to developing countries to assistdeveloped countries this is not going to helpenvironmental integrity, not going to helpachieve the ultimate objective and not inaccordance with Convention.

Indonesia stated that the FVA should includemarket and non-market approaches that produce

verifiable and permanent mitigation reductions.It stated that emission reductions under the FVAshould be internationally transferable and usableas domestic offsets or to fulfill internationalcommitments.

Japan said it would like to see the FVAestablished at COP 19, with the Bonn sessionused to formulate elements for the COP

decision. It proposed a technical paper from theSecretariat, based on submissions from Parties,to facilitate progress between the sessions. Japanalso suggested that it was not productive todiscuss divergence, but to concentrate on issues

with convergence, to build elements for COP19.For Japan, the purpose of the framework is toensure environmental integrity when accountingfor transferred mitigation units.

Norway said that the role of the carbon marketis cost effective emission reductions, and the

potential to raise ambition. For this to work,Norway outlined that a proper design mustensure environmental integrity, identify results,and see deep cuts in emissions. It suggested UN


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oversight to keep track of units that crossborders in an international framework. Creditsthat do not cross borders not need to be assessedunder the FVA. Norway said that a stronginternational accounting framework would createtrust in units from different market mechanismsand reduce the risk of fragmentation from

different carbon markets.

Australia and the US both referred to theincreasing development of emission tradingschemes (ETS) around the world, with Australiasaying that there were now thirty-five nationaland thirteen sub-national ETS in place. Australiasees the FVA as a means by which Parties candemonstrate the environmental integrity of theirmarket approaches and other approaches.

The US elaborated on the purpose of the FVA

being to promote the use of high quality marketmechanisms through comprehensive reportingand accounting to any Party that applies units totheir UNFCCC pledge, and to any other Partythat transfers units to apply towards pledge. Bothcountries noted the need to avoid doublecounting.

China said that it was only interested indiscussing mechanisms that apply to transferbetween Parties and for compliance purposes

under the Convention, not to dictate how Partiesfulfill their mitigation commitments or pledges.It said the FVA must operate under the authorityand guidance of the COP, and the use of variousapproaches should increase the ambition ofdeveloped countries. In Chinas view thepurpose of the FVA is clear to allow flexibilityfor Parties to propose nationally appropriate

ways to achieve mitigation commitments, withprocedures and rules for the approval of suchapproaches

Saudi Arabia noted that this agenda item wasintroduced in the Bali Action Plan (BAP) to meetthe objective of the Convention, and should be

viewed in the context of complementing otherelements of the BAP in particular adaptation,finance, technology transfer. The FVA shouldensure differentiation, be consistent with theConvention principles of equity and CBDR, andshould not introduce commitments fordeveloping countries.

Brazil said there was a need for a clear pictureon scope before moving to discuss the otherelements of the FVA.

India agreed with Bolivia on the need for abroad set of principles for a balanced frameworkto focus on both approaches (markets and non-markets). It listed some critical principles,including the promotion of environmentalintegrity, activities that take an integrated view ofmitigation, and technology transfer.

India said these approaches should help toenhance the mitigation ambition of developedcountries, and assist developing countries toachieve sustainable development. It referred tothe principles of the Convention as anoverarching principle, and said that the purposeof the FVA is not to impose standards or tocreate mitigation burdens for developingcountries

Senegal, on behalf of LDCs, said that we need

to define the purpose of the framework and thescope of approaches to be included under thenew framework. It referred to the need to avoiddouble counting of units generated by non-market and new market mechanisms, and tocoordinate these discussions to avoid the sameactivities under different frameworks.

Malaysia said there was a need to achieveabsolute clarity on the purpose which shouldbe to enhance the implementation of the

Convention. This should not focus only onmarkets. Malaysia expressed a strong concernabout the way markets function in the same

way increased consumption has seen productionshift to developing countries, shifting theassociated environmental impacts, Malaysia doesnot want to see a situation where there is anaccumulation of response measures indeveloping countries, increasing the adverseimpacts in these countries.

The Chair closed the meeting, announcing that

the first informal would focus on the scope ofthe framework.

SBSTA agenda item 12(c) : New MarketMechanismsOn 5 June, Co-Chairs Collin Beck (SolomanIslands) and Laurence Mortier (Switzerland)opened the first contact group on New MarketMechanisms (NMM) with questions to Partieson the elements of the NMM, and how to moveforward to fulfill our expectations moving

towards Warsaw.

Bolivia opened discussions by stating that theyare opposed to any kind of market mechanism


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which is oriented to commodify the atmosphere,saying that carbon markets support theconstitution of a new global right the right topollute. It considers there are importantproblems attached to carbon markets, whichshow an incongruity with the basic science ofclimate change, and are contradictory with

environmental integrity.

Bolivia called for a decision in COP19 toestablish a moratorium on the establishment ofNMM under the precautionary principle, due tothe ineffectiveness of carbon markets withregards to reduction of GHG emissions, and thelack of contribution to sustainable development.

Brazil reminded Parties that the list of elementsof the NMM in the Doha decision is a list ofpossible elements, not a complete list, and not a

consensus that these are essential elements forthe NMM. It stated that this work programmemust coordinate with other groups, and there isno hurry to take a decision here that is not insynergy with decisions in different places.

Senegal on behalf of LDCs said that any newmarket mechanism must ensure environmentalintegrity of the overall climate system. It istherefore important that eligibility rules areconsidered, and should be based on KP rules. As

units under the Convention and under the KPare fungible, it said there is no rationale toundermine rules, which currently exist under theKP. Eligibility rules should include theestablishment of binding economy wide emissionreduction targets.

The Philippines highlighted the need to takestock of the current collapse of carbon markets.It said we need to understand why this ishappening and what are the factors that need tobe addressed before we can move forward on

the NMM. It called for a review of marketmechanisms for undertaking mitigation action,and viewed proposals for market expansion withsome caution, questioning the long term viabilityand utility of market mechanisms to addressclimate change.

The Philippines noted there were manyquestions to be resolved, such as eligibilitycriteria, questioning whether Parties withoutquantified emission limitation reductionobligations (QELROS) should be allowed toaccess market mechanisms. It suggested to focuson the work programme more as a learningexercise, utilising workshops, roundtables andmeetings to examine environmental integrity in

markets, and how they could actually providesupport to developing countries.

The Philipines further emphasised that newmarkets must not undermine the need for Annex1 Parties to make domestic emission reductionsrather than shifting these overseas, calling for a

link between these discussions and progress inincreasing Annex 1 ambition in the pre-2020period (under discussion in the Ad Hoc WorkingGroup on the Durban Platform), and progress inaccounting frameworks for Annex 1 Parties inmeeting mitigation targets.

Many other Parties emphasised the need toestablish linkages between the possibility of aNMM and an increase in Annex 1 mitigationambition, and the need to review the collapse ofthe current carbon market, including China,

India, Tuvalu, Saudi Arabia, Bolivia andCuba.

Korea on behalf of the EnvironmentalIntegrity Group (EIG) said they expect tomake progress for decision on the NMM atCOP19. This will need to include criteria for themechanism to be operational by the end of thisyear, including a pilot phase for learning by doingand to promote capacity building. It said there

was a need to create the right incentives for

participation and to create confidence in theglobal carbon market. It suggested that theNAMA crediting mechanism could be useful toapply to all Parties.

Korea also referred to a submission on their ownbehalf of on the C NAMA a credited NAMAproposal, covering all sectors including REDD+.

Norway said it places great importance on thedevelopment of an NMM. Operating under theguidance and authority of the COP, they believethis can provide means to promote costeffectiveness, and provide scaling up of finance,technology transfer and transition to low carbondevelopment.

It suggested developing standards, which covertwo tracks sectoral crediting and sectoraltrading. Norway said it was time to begin moredetailed discussions on the NMM, and itsupports the establishment of a pilot phase atCOP 19.

Saint Lucia, on behalf of AOSIS stressed theneed for eligibility criteria for Parties to accessthe NMM. It said there cannot be any lessstringent requirements than we have now underthe KP, which includes internationally legally


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binding commitments, recorded QUEROs,registries, annual inventories for review,information on annual holding units andavoiding double counting.

The EU said it hopes to build on convergence ofviews on NMM seen in submissions, and is keen

to adopt modalities and procedures withcommon core rules for international level andnational options to be adopted by COP 19.

Co-chair Laurence Mortier summarized that shehad heard that Parties would like to see this workprogramme move forward with moresubmissions, a technical paper and workshops.She noted the widespread view that it isimportant to integrate lessons learned fromexisting markets and to include the role of hostcountries. She then suggested to commence

discussions on the 12 elements in (the Doha)Decision1/CP.18, paragraph 52. She requestedParties to focus on elements (a) operation underthe COP; (b) voluntary participation; (e) broadeconomic sectors; (h) supplementarity; (i) shareof proceeds; (j) sustainable development; (k)effective participation; and (l) prompt start.

There followed a process discussion amongParties, with Brazil suggesting it was difficult toengage in a discussion of so many elements in a

short period of time and requesting an overallpicture of the objective of this group for theBonn session.

Tuvalu said there was a need to establish aprocess for the work programme before goinginto detail with the elements of establishing aNMM. Tuvalu said it would like to develop

criteria, based on experience of existingmechanisms, to guide the discussions onelements of the NMM.

Saint Lucia and Cuba echoed the need to take astep back and look at how we draw on previousexperience, before we get to a prescriptive

discussion of the elements, and Indonesiacautioned against duplicating work between theFVA and the NMM.

In response to a question from Brazil, the EU,Papua New Guinea, Australia and SaintLucia agreed that any NMM would beestablished under the guidance and authority ofthe COP.

The EU suggested to focus on areas ofconsensus and Australia supported the Co-

chairs proposed way forward, but suggesteddrawing on previous experience as each elementis discussed, to which the Philippinesresponded that there is a difference betweenlesson learned on the big picture, and lessonslearned on specific levels. It said there was anurgent need to first look at the big picturelessons in order to make progress on specificlevels. It questioned why the CDM price is solow now, and the link between low carbon pricesand the effectiveness of market mechanisms.

Co-chair Laurence Mortier closed the session byrepeating Australias proposal that Parties couldlink discussions of the elements of the NMM totheir experience of existing mechanisms. Sheannounced there would be a contact group on

Wednesday 12 June, and Parties would meet intwo more informal sessions before then.

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