The global carbon market-mechanism landscape: pre and post 2020 perspectives

With market-mechanisms likely to achieve emission reductions at lower cost than alternative approaches, there is a presumption that they will be embraced by those who are serious about achieving ambitious reductions. Two broad messages exist; there is already considerable activity and some ambition in many parts of the world – a fragmented but embryonic ‘global’ trading landscape is emerging – and there are efforts at UN level to provide a unifying framework for these bottom-up developments. The topography of interest and response varies considerably across groups of countries, and there have been delays in making progress on a unifying framework. This article analyses the current carbon market landscape in terms of market dynamics and market-mechanism developments whilst undertaking an examination of how climate change negotiations under the United Nations Framework Convention on Climate Change (UNFCCC) is shaping the future carbon market landscape. This work shows that the combination of existing, emerging, and potential carbon market-mechanisms can be regarded as an emerging pre-2020 fragmented ‘global’ carbon market landscape based on differing bottom-up market based approaches. One outcome of a 2015 Climate Agreement could be a post-2020 global carbon market which would include new domestic and international market initiatives such as the Framework for Various Approaches and New Market Mechanism, together with reformed Kyoto mechanisms.

Policy relevance

With the 2015 Agreement under the United Nations Framework Convention on Climate Change (UNFCCC) expected to see Parties commit to ambitious mitigation commitments, post-2020 could see significant Party (& industry) investment in market-mechanisms and associated emissions units in an effort to achieve some of the abatement cost minimization offered by market approaches. This article is written for those who have an interest in understanding what is happening – and what is not happening – as regards the emergence of market-related approaches to GHG mitigation globally in the run up to the 21st Conference of the Parties (COP) of the UNFCCC which meets in Paris in December 2015, and what could be the shape of things to come post-2020.