POSSIBLE MARKET MECHANISMS FOR THE POST-KYOTO REGIME: A FOCUS ON ASIA PACIFIC

Abstract

Climate change and global warming has been a notable concern for the past few years. International governance has recognized this and the UN General Assembly launched climate negotiations in December 1990, giving birth to the UN Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol (KP) establishing binding emission targets for industrialized countries and a range of mechanisms to encourage cost-effective compliance.

The climate mitigation market mechanisms available under the KP have somewhat been effective starting tools for bringing down emissions, as they have been the most rigorous and are the only comprehensive system of compliance. However, with the first commitment period ending in 2012 for the EU Emissions Trading Scheme, it remains to be seen how implementation of climate change mitigation projects will move forward with the absence of a strong legally-binding international framework which creates the demand for these types of projects.

The study first looks into the existing market mechanisms available under the KP followed by an analysis of how effective they have been. The study then provides an overview of the regulatory approaches being introduced under the UNFCCC and those being initiated by different governments. These new market mechanisms will serve as a reference for regulators who need to formulate their own nationally-appropriate mitigation actions, design their own domestic schemes, and propose their own positions in the international negotiations. This study will also be useful for market actors who need to analyze their current business position and determine which opportunities are relevant to their practice.

Market mechanisms being implemented in Asia Pacific, particularly, Australia, Japan, China, India, and some ASEAN countries are examined. Japan and Australia are chosen as representatives of developed countries who are pursuing their own efforts to comply with their commitments while an international framework is not yet in place. India and China are representatives of the BASIC countries, while ASEAN is kept as a region of interest because of the large potential in this area.

The focus of most mechanisms are low carbon development and energy schemes. Agriculture and forest management related measures are also being considered.

All these different mechanisms need to consider the information requirements of each mechanism: the coverage or boundaries, potential for leakage, projected business as usual emissions, reference levels or sectoral targets and the estimated emissions reduction potential. A system for measurement, reporting and verification of emissions reductions or removals should also be established, as well as a registry that will issue and track them to avoid double counting. Furthermore, they should be in line with the host country’s sustainable development goals. Finally, there is a need to simplify the process to achieving credits from emission reduction initiatives, and to ensure that they have enough parallelism amongst the different regional and country mechanisms to allow for the trade over different markets. Incentives must be right for host countries, buyer countries, and the private sector, and risks must be acceptable in order to attract the required investments.