Carbon credit and emission traders want United Nations climate talks in November to set rules on a trial system of globally linked carbon markets, according to the lobby group IETA.
To meet a 2°C temperature limitation goal, IETA proposes a stepwise approach to building a global carbon market. Through an arrangement that allows linkage between emission reduction approaches within the Framework for Various Approaches or FVA, parties can utilize existing and the New Market Mechanism (NMM) to establish future supply and demand for carbon pricing units. This approach will ensure environmental performance, enhance economic growth and avoid competitive distortions.
The FVA should act as a basic framework with a broad, flexible scope that provides structure to emerging carbon markets. It should ensure environmental integrity for market and non-market approaches alike. IETA is convinced that a global carbon market is the most efficient
way for governments to achieve the necessary greenhouse gas emissions reductions in the long-term. The FVA is a step in this direction due to its inclusiveness, but it should also enable the transition from current structures to future systems to allow for longterm continuity and stability in climate change mitigation.
COP 19 should begin the process of this step-wise approach by establishing the modalities and procedures for both the FVA and the NMM. By establishing these procedures now, it will attract the attention and interest of the private sector and begin the process of re-investing in emissions reductions that will be encapsulated at the UN level by 2020.
The FVA can allow Parties to decide whether to include a national, sub-national or sectoral level approach in multilateral participation in developing a global carbon market. In order to do so, the FVA would encourage Parties to accept a fixed carbon emissions budget for a given future period in the form of tradable international allowances (an FVA unit, or “FVU”).
These budgets could arise from the goals of specific policies or programs as a contribution to the global effort. The budgets would be fixed
(i.e. absolute), irrespective of the nature of the mitigation program operating within the economy. By fixing an appropriate emissions budget for the approach, the Party would assure environmental integrity.
The NMM should not follow the structure of the project based CDM, but be modeled on the current AAU-led system. Whereas the FVA provides the parameters within which an international carbon market can function, the NMM governs the exchange of units. For cross-jurisdictional trading, this is crucial. The trading structure within the Kyoto Protocol illustrates the part played by the market mechanism. Within its design, the unit of account is the Assigned Amount Unit (AAU). The AAU establishes the need for trade and creates basic supply and demand through the allocation process against national targets to actual emissions. This gives value to the AAU, which in turn creates demand and value for CERs under the CDM. Without the AAU, the CER and similar instruments would have no value and could not exist in a meaningful sense.