Evaluation and analysis of domestic and international carbon market mechanisms, with the objective to inform design of new mechanisms which can support countries to achieve their climate commitments, to increase future ambition, and to support sustainable development.

x% of the world's heavy polluting industries are now covered under carbon market mechanisms.
Many of the world’s heavy polluting industries are now covered under carbon market mechanisms.

Carbon market mechanisms play an important role in many international and domestic discussions around climate change mitigation efforts and come with both opportunities, but also risks. Internationally, the 2015 Paris Agreement set out provisions for market mechanisms to assist countries in achieving their nationally determined contributions, increase ambition and support sustainable development. Parties continue to work on the exact design of these mechanisms. International aviation and shipping are also considering carbon market mechanisms as a climate change measure. The “Carbon Offsetting and Reduction Scheme for International Aviation” (CORSIA), is set to begin from 2021; and International Maritime Organization (IMO) also lists market-based measures as a candidate measure for its strategy to reduce GHG from global shipping. Increasing numbers of national and sub-national jurisdictions are also working on various forms of carbon pricing.

NewClimate Institute is active in the field of analysis, evaluation and design of international and domestic carbon market mechanisms. We evaluate the Kyoto mechanisms and reflect on the lessons learned from them to inform the design and development of future mechanisms, particularly those that increase mitigation ambition of countries and deliver an overall mitigation impact. Our experts combine years of experience working in various capacities with the Kyoto Protocol mechanisms such as the Clean Development Mechanism (CDM) and the Joint Implementation (JI), the EU ETS and voluntary offsetting markets; provide inputs to discussions under CORSIA and IMO; and advise international policy makers on emerging market concepts and piloting activities.

Key contacts

Carsten Warnecke
Carsten Warnecke

Thomas Day

Return to all expertise

Associated projects

CORSIA: Analysis and evaluation of regulating international aviation emissions through offsetting

NewClimate Institute is in the process of carrying out a 2-year project to support the German Emission Trading Authority (DEHSt) with its contributions to the design of CORSIA.

Future role for voluntary carbon markets after 2020

This research project considers the future role for voluntary carbon markets after 2020.

Analysis of pre-2020 developments in the global carbon market

Continuous analysis of the status and developments of mitigation activities in the global carbon market up to 2020. Return to all expertise and projects The German Emission Trading Authority (DEHSt) at the Federal Environment Agency (UBA) contracted a consortium, led by NewClimate Institute, to evaluate the situation and developments in the international carbon market over… Read More

Virtual Article 6 Pilots

In this project, NewClimate Institute is working to elaborate virtual Article 6 pilots to contribute to the discussion regarding rulemaking for Article 6 of the Paris Agreement and inform eventual future investment considerations.

Sustainable development framework for market mechanisms

This ongoing research project aims to overcome the previously identified barriers to combine SD and GHG mitigation impacts through the identification of practical solutions and concrete proposals for the implementation of SD indicators in GHG mitigation projects.

Technical advisory services “Global Carbon Market”

NewClimate Institute was contracted by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), as part of a larger consortium, to advise GIZ’s agency on its “Global Carbon Market” project.

Benchmarking Guide for climate policy instruments

Creating a practical and in-depth guide on how to design and implement benchmarks for policy makers. Return to all expertise and projects World Bank Partnership for Market Readiness programme (PMR) has contracted NewClimate Institute and Ricardo Energy and Environment to develop a Guide for providing an overview and practical guidance for policy-makers and practitioners on the main design elements… Read More

Innovative Financing Options for the Adaptation Fund

Assessing potentials and pathways for financing adaptation through carbon pricing approaches

Development of a sectoral market based approach

Energy Efficiency and Climate Change Mitigation in Colombian Housing Return to all expertise and projects Colombia faces an affordable housing deficit, rapid urbanisation pressure, and the need to improve energy efficiency to reduce emissions from the building sector while working towards longer term decarbonisation. To address these challenges, NewClimate Institute and Oeko Institute, supported by… Read More

Integration of market mechanisms and emission trading schemes

Design and integration of market mechanisms and emission trading schemes under a new climate change agreement. The German emission trading authority (DEHSt/UBA) contracted NewClimate Institute together with adelphi and Öko-Institut to provide a foundation for the formulation and further development of a German position in the climate negotiations, and to facilitate a scientifically-based contribution of… Read More

Offsetting in carbon taxation systems

Analysis of the potentials and limits of different offset standards in bilateral and global CO2 price systems. Currently, an increasing number of countries and regions develops CO2 pricing mechanisms, including carbon taxes and emission trading systems. Some of these countries are designing or plan to design standards for the use of offsets in their pricing… Read More

Carbon market mechanisms in future international cooperation on climate change

Overview of the options for the use of carbon market mechanisms in a 2015 climate change agreement

Carbon integrity assessment of mitigation actions

Development of a methodology and scorecard to assess the carbon integrity of mitigation actions

Results-based financing in Carbon Markets – connecting market and non-market based approaches

Current situation of results-based financing (RBF) approaches in climate policy.

Bilateral agreements as basis towards piloting sectoral market mechanisms

Opportunities provided by bilateral agreements for piloting market-based approaches at sectoral levels. The research work analyses how bilateral agreements between countries could be used to pilot international carbon market activities on sectoral levels to ensure a minimum activity level in this transition period from existing to new mechanisms. Return to all expertise and projects The… Read More

Evaluating the state of the CDM

Evaluation of the present implementation status of CDM projects and identification of support measures to keep CDM projects mitigating. Return to all expertise and projects The Clean Development Mechanism (CDM) was introduced by the Kyoto Protocol and has developed into one of the most important international carbon market instruments. The CDM stimulated investments in greenhouse… Read More

Further reading

Analysing the interactions between new market mechanisms and emissions trading schemes: Opportunities and prospects for countries to use Article 6 of the Paris Agreement Apr 2019 - This report conducts a detailed analysis of the provisions related to market mechanisms of the Paris Agreement (Article 6), identifies issues that should be taken into account when elaborating the rulebook for the Paris Agreement, and answers the question whether different countries are ready for engaging with market mechanisms under the Paris Agreement.
Carbon pricing options for international maritime emissions Mar 2019 - In this paper we explore three different options for a market-based measure to address the climate impact of shipping: an offsetting scheme, a maritime emissions trading scheme, and a climate levy. We conclude that a climate levy would be the most appropriate measure to reduce emissions in the maritime sector.
Robust eligibility criteria essential for new global scheme to offset aviation emissions Feb 2019 - This letter in Nature Climate Change finds that CORSIA will only compensate for the emissions increase of international aviation if robust criteria for the eligibility of offset credits are adopted.
The future role of the Adaptation Fund in the international climate finance architecture Oct 2018 - Parties will take important decisions about the future of the Adaptation Fund at COP 24 in Katowice, Poland. This paper provides recommendations for those negotiations specifically regarding the Fund’s operating modalities including future mobilization of sources of finance; safeguards; and governance.
Crediting Forest-related Mitigation under International Carbon Market Mechanisms Sep 2018 - This discussion paper explores environmental risks from the inclusion of forest offset credits in the Paris Agreement’s Article 6 and CORSIA, and examines approaches to address such risks. A number of challenges surrounding environmental integrity notably baseline determination, additionality, permanence, and leakage are discussed as well as environmental and social safeguards in forest mitigation initiatives.
Opportunities and safeguards for ambition raising through Article 6 May 2018 - In this paper, we discuss the ambition raising implications to engage in voluntary cooperation under Article 6 for the originating Parties. The paper shows why Article 6 should focus on driving mitigation in otherwise inaccessible abatement options and why it is critical that support should only last for a limited time period, after which own action must kick-in.
Discussion paper: Marginal cost of CER supply and implications of demand sources Mar 2018 - In this discussion paper we estimate the marginal cost of supplying certified emissions reduction units (CERs) from projects that are currently registered under the Clean Development Mechanism (CDM). We develop a supply curve using data on the individual ability of projects to potentially supply CERs over the period up to 2020. We analyse changes to the supply curve based on a number of scenarios which restrict the eligibility of CERs based on the timing of emission reductions, the timing of project investment decisions and registration under the CDM, as well as an assessment of the extent to which projects are vulnerable to the risk of discontinuing abatement activities without CER revenues.
Germany’s international cooperation on carbon markets: Status and prospects in select partner countries Nov 2017 - This suite of four publications try to unpack the black box of where countries stand on their readiness to engage in Article 6 of the Paris Agreement. Article 6 lays down the vision for carbon markets under the Paris Agreement. The three standalone case studies on Ethiopia, Viet Nam and Ukraine discuss country-contexts on Article 6 readiness in an objective manner, looking at the enabling conditions in these countries, the feasibility to maintain robust accounting and MRV, and compatibility of their NDCs. Potential entry-points for international support to facilitate readiness are also discussed. NewClimate institute conducted this work along with partners Oeko Institute and adelphi through the generous support of the German Environment Agency (UBA).
Discussion Paper: CDM Supply Potential up to 2020 Aug 2017 - Authored by NewClimate Institute, Lambert Schneider and Stephanie La Hoz Theuer, this publication forms part of a broader project, commissioned by the German Emissions Trading Authority (DEHSt) at the German Environment Agency (Umweltbundesamt, UBA), with the primary objective to analyse the current situation and development of the international carbon markets.
A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments May 2017 - NewClimate Institute and Ricardo Energy and Environment developed a comprehensive technical note for World Bank’s Partnership for Market Readiness program (PMR) on the topic of ‘GHG benchmarking for climate policy instruments’.

Public presentations & interviews

Offsetting emissions under CORSIA – Analysing the potential supply of credits Jun 2019 - Carsten Warnecke presented on "Offsetting emissions under CORSIA - Analysing the potential supply of credits" at Innovate4Climate in June 2019.
From the skies or the sea: How can regulation align international transport with the Paris goals? Dec 2018 - Aki Kachi, Harry Fearnehough and Thomas day presented on "From the skies or the sea: How can regulation align international transport with the Paris goals?" at COP24.
Are countries ready for Article 6? – COP 23 Nov 2017 - Ritika Tewari (alumni) from NewClimate Institute presented findings from the Germany’s international cooperation on carbon markets report that is looking at Ukraine, Vietnam and Ethiopia readiness to implement Paris Agreement’s Article 6.
Innovative Financing for the Adaptation Fund (AFB29) Mar 2017 - Climate Policy Analyst, Ritika Tewari (alumni), presented the findings of the ‘Innovative Financing for the Adaptation Fund: Pathways and Potentials’ report at the 29th Adpatation Fund Board meeting that took place during the 16th and 17th March in Bonn, Germany. Read the full report
Innovative financing options for the Adaptation Fund Nov 2016 - Carsten Warnecke from NewClimate Institute presents at COP22 in Marrakesh on innovative financing options for the Adaptation Fund.  09 November 2016, 11:30 Mediterranean Room, COP22 Livestream
Impact of the Clean Development Mechanism Dec 2015 - 02 December 2015 Thomas Day of NewClimate Institute presents at COP 21 on “The impact of the Clean Development Mechanism – Quantifying the current and pre-2020 mitigation impact of the CDM”. Wednesday, 2 December, 12.00, German Pavilion.    
An overview of the status quo, prospects and outlook of market mechanisms Dec 2015 - 02 December 2015 Carsten Warnecke of NewClimate Institute presents at COP 21 on “The status quo, prospects and outlook of market mechanisms”. Wednesday, 2 December, 12.00, German Pavilion.    
Approaches to lift sectoral mitigation potential with markets in transition Dec 2014 - NewClimate Institute at COP 20 presents insights from research project on "Bilateral Agreements as Basis Towards Piloting Sectoral Market Mechanisms".