New Market-Based Mechanisms Post-2012: Institutional Options and Governance Challenges When Establishing a Sectoral Crediting Mechanism

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-2010 climate regime. They provide that the introduction of new Market Based Mechanisms ("NMMs") will be examined at the next COP in Durban. NMMs refer, in particular, to sector based crediting. There is not yet sufficient consensus 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 cretiria defined by the UN and a strong role for bilateral cooperation, the EU still has a preference for more centralized  UN based governance. This paper gives an overview of current country positions, discusses pro and cons of different accounting and governance frameworks for NNMs, and examines inasmuch the Clean Development Mechanism ("CDM") provides a suitable model for centrally governed sectoral crediting mechanisms. It concludes that even if decentralized approaches also have their strenghts compared to centralized governance models, minimum requirements need to be agreed upon under the UN to guarantee the environmental integrity of the mechanism.