UN eyes policy crediting for carbon markets
The UN is considering extending the scope of carbon mitigation credit generation under the Paris climate agreement to policy implementation.
The UN's climate arm has tasked research institute Perspectives Climate Group senior founding partner Axel Michaelowa with drawing up a paper on how to incorporate policy crediting into the new carbon market being developed under Article 6.4 of the Paris deal. This is expected to be finalised by the UN Cop 29 climate conference in Azerbaijan in November following persistent disagreements between countries at previous summits.
Policy crediting is increasingly viewed as crucial amid the rising urgency to scale up mitigation activities, Michaelowa said at an industry event in Zurich yesterday.
But policy crediting presents challenges, such as how to determine the additionality of the instruments for mitigation efforts.
The World Bank, which developed the first ever policy crediting activity — the Transformative Carbon Asset Facility — in 2016, determines additionality indirectly as the difference between the facility's baseline and actual emissions.
Michaelowa believes this is insufficient, urging separate additionality tests to prove the policy instrument mobilises mitigation.
An eligible policy instrument typically closes the cost gap between mitigation and business-as-usual technologies, Michaelowa said. "Creditable" policy instruments are mandates, or financial incentives, for deploying low-carbon technologies or behaviours.
Policies that reverse previous bad governance by eliminating obstacles to mitigation activities also qualify, Michaelowa said, for example a grid operator enforcing a stop on renewable power growth to ensure grid stability, as investments in the grid would be too costly.
Uzbekistan signed an agreement under the World Bank's facility in June 2023 under which it can sell carbon credits issued for the emissions reductions resulting from its cuts to high fossil fuel subsidies. The resulting funds are used to mitigate the impact of rising energy prices on the lowest income consumers, and fund awareness campaigns on the need for cost-covering energy tariffs.
Uzbekistan expects to reduce its emissions by 60mn t of CO2 equivalent (CO2e) between 2022-27 as a result of the cuts, of which 2mn-2.5mn t CO2e are attributed directly to the facility's intervention, funded with $46.25mn by donor countries to result in a carbon price of between $18.50-23.12/t CO2e.
The World Bank is looking at other countries and sectors to apply the lessons learned from the Uzbekistan pilot, its senior climate finance specialist Nuyi Tao said.
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