New Market Mechanisms

Perspectives - innovative thinking on future market based mechanisms

Possible design options for future market-based mechanisms

The design of a future market-based mechanism (FMM) should be tailored to the specific target sector and national context in which the mechanism will be implemented. For example, on sector levels there are differences between the sensitivity of the sector to market-based incentives, the risk for carbon leakage and the extent to which a sector is willing and able to reduce emissions higher or lower in the value chain. On a national level the context will differ in terms of data availability, ability to enforce environmental legislation, government policies and existing mitigation incentives, technical transaction infrastructure, etc.

Perspectives seeks common ground for FMM design options which are crucial for the ability of a mechanism to link to other mechanisms. Although sectors and countries differ, the extent to which the design of different FMM can vary is limited by the ambition to link different initiatives over the long term. Allowing for an exchange of carbon units between systems is possible only if the registry infrastructure, definition of a carbon unit and maybe even the level of ambition reflected in the baselines or reference scenarios are aligned.

Perspectives' support for future market-based mechanisms

While FMM are widely discussed, many details in their design are still evolving and need further clarification. Essential design questions related to FMM are being worked on by Perspectives. These subjects include:

  • Defining programme boundaries
    • Methods and criteria for determining greenhouse gas emissions baselines and crediting thresholds
    • Minimum requirements for MRV
    • Provisions for issuance, tracking and registry of greenhouse gas units or credits
    • Provisions for avoiding double counting of emission reductions