Carbon Pricing Instruments: Options for Latin America and the Caribbean

John Kilani, Director, UNFCCC Sustainable Development Mechanisms

Latin American and Caribbean Carbon Forum Bogota, 4 September 2014

The Dual function: MRV instrument and pricing instrument

CDM M&P MRV instrument: generation of the carbon unit One ton of CO2 reduced KP rules, GCF rules, RBF rules, jurisdiction’s rules Pricing instrument: Incentive that gives value to the carbon unit making it become a carbon asset One ton of CO2 recognized as one carbon unit issued Carbon unit transformed into carbon asset CDM as a MRV tool governed by the CDM regulatory body : CERs are generated following requirements of the CDM M&P and one ton of CO 2 is one ton of CO 2 regardless of (i) its abatement cost , (ii) what the CER will be used for, (iii) the incentive and (iv) the conditions of purchase and sale The pricing instrument give value to the carbon unit that become a carbon asset: as a commodity, the carbon asset can have different values and can be used for different purpose, e.g. for compliance under the KP or for cancellation under RBF programmes, including GCF.

Need for greater clarity on these two functions of carbon market mechanisms

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Unleashing the CDM potential

Some RBF programmes/initiatives are already beginning to see the need of combining the CDM, as a credible and readily available MRV instrument, with their specific pricing instrument, for prompt action Some donors countries are supporting such combination to ensure efficiency, effectiveness and recognition and to fill the pre 2020 gap, with the enabling of cancellation of the CERs CP.19 further enhances the MRV role of the CDM by inviting Parties to promote the voluntary cancellation of CER, without double counting, as a means of closing the pre-2020 ambition gap. This has created the basis for realizing the CDM’s full potential by promoting the use, as an MRV tool, that can also serve the Convention 3

Thank you!