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.


The international carbon market is in transition from project-based carbon market mechanisms such as the Clean Development Mechanism (CDM) with fading activity to new international mechanisms which are not yet defined. This critical situation is characterised by an activity gap between existing and future market-based mechanisms. However, a minimum activity level is required to maintain the expertise of various stakeholder groups and to test new mechanism approaches in practice.

Against this background, a research project funded by the German Emissions Trading Authority (DEHSt) and conducted by a consortium of NewClimate Institute and Ecofys assessed 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.

Concepts to define crediting thresholds based on benchmarking steps are analysed for two different sectors. We find that for electricity generation in Chile elements from CDM can mostly be adapted to support a prompt start of sectoral piloting activities. For low income housing in South Africa we suggest own simplified approaches for crediting thresholds measured per home built. The suggested approaches allow to ensure environmental integrity, a net mitigation effect and balanced monitoring requirements at the same time. They furthermore have potential to facilitate the development of a new market-based mechanism.

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