New Market-based Mechanisms after Cancun: Institutional Options and Governance Challenges

The Cancun Agreements in December 2010 have set the basis for the continuing availability of market mechanisms to assist developed countries in meeting their mitigation commitments in a post-2012 climate regime. They provide that the introduction of new market-based mechanisms will be examined at the next COP in Durban. New market-based mechanisms refer, in particular, to sector based crediting. There is no consensus yet on how new market mechanisms could be governed and which role the United Nations (“UN”) should play. While some countries including Japan and Australia favour more decentralized governance models with only minimum criteria defined by the UN and a strong role for bilateral cooperation, the European Union has a preference for more centralized UN based governance. This paper gives an overview of current country positions, discusses pros and cons of different accounting and governance frameworks for NMBMs, and examines inasmuch the Clean Development Mechanism (“CDM”) provides a suitable model for centrally governed sectoral crediting mechanisms (SCMs). It concludes that even if a centralized governance model probably provides the best guarantee for the environmental integrity of the mechanism, the exploration of more decentralized approaches, in particular by Japan and the US, may, if minimum requirements are agreed upon at the international level, speed up the establishment of SCMs and provide useful insights.