Carbon Contracts Cornerstones - Drafting Contracts for the Sale of Project-Based Emissions Reductions

This paper considers a carbon emission cap and trade market, where the carbon emission cap for each entity (either government or firm) is allocated first and then the carbon trading price is decided interdependently in the carbon trading market among the non-cooperative entities which make their production decision. We assume that there are n entities emitting carbon during the production process. After allocating the carbon (emission) cap for each participating entity in the carbon cap and trade market, each participant makes a production decision using the Newsvendor model given carbon trading price determined in the carbon trading market and trades some amount of its carbon emission, if its carbon emission is below or above its own carbon cap. Here, the carbon trading price depends on how carbon caps over the entities are allocated, since the carbon trading price is determined through the carbon (emission) trading market, which considers total amount of carbon emission being equal to total carbon caps over entities and some fraction of total carbon emission should be from each entity participating in the carbon cap and trade market. Thus, we can see the interdependency among the production decision, carbon cap and carbon trading price. We model this as a non-cooperative Stackelberg game in which carbon cap for each entity is allocated in the first stage and each entity’s production quantity is decided in the second stage considering the carbon trading price determined in the carbon trading market. First, we show the monotonic property of the carbon trading price and each entity’s production over the carbon cap allocation. In addition, we show that there exists an optimality condition for the carbon cap allocation. Using this optimality condition, we provide various results for carbon cap and trade market.

implemented projects.While additionality and the quantification of emission reductions are, in principle, key considerations for unit quality for crediting mechanisms, the greenhouse gas (GHG) emissions impact from using credits from already implemented projects is more complex.If the supply of credits considerably exceeds demand, a key consideration for the global GHG emissions impact is whether already implemented projects would continue to reduce GHG emissions even without credit revenues, or whether they are 'vulnerable' to discontinuing GHG abatement.A detailed assessment of the status and operating conditions of projects under the Clean Development Mechanism, and their marginal costs of supplying credits, shows that most projects would continue GHG abatement even if they cannot sell credits.If CORSIA allows airline operators the unlimited use of offset credits from these projects, this will not only undermine its environmental objectives but also lead to continued low carbon prices, and thus neither offer incentives for new investments nor lead to any significant revenues for already implemented projects.The thesis recommends limiting eligibility under CORSIA to new or 'vulnerable' projects (Chapter 5).Unit quality is also a key consideration when linking emissions trading systems (ETSs).As linking of ETSs faces several practical and political challenges and risks, including with regard to whether allowances have 'quality' and whether linking provides incentives or disincentives to enhance the ambition of caps, policy-makers are considering also restricted forms of linking ETSs.The thesis uses a simple economic model and three criteria -abatement outcome, economic implications, and feasibility -to assess three different options for implementing restricted linking of ETSs: quotas, exchange rates, or discount rates.The analysis shows that quotas can enhance cost-effectiveness relative to no linking and allow policy-makers to retain control on the extent of unit flows.Exchange rates could enhance abatement and economic benefits or have unintended adverse implications for cost-effectiveness and total abatement, depending on how rates are set.Due to information asymmetries between the regulated entities and policy-makers setting the exchange rate, and uncertainties about future developments, setting exchange rates in a manner that avoids such unintended consequences could prove difficult.Discount rates, in contrast, can ensure that both cost-effectiveness and total abatement are enhanced.The thesis recommends the consideration of quotas or discount rates, but to refrain from using exchange rates, due to the environmental integrity risks (Chapter 6).The varying scope and ambition of current NDC targets, and possible disincentives to broaden their scope and enhance their ambition, could be addressed by facilitating the adoption of ambitious and economy-wide mitigation targets and by preventing the transfer of carbon market units in situations of high environmental integrity risks.This latter approach could be implemented through eligibility criteria or limits on the generation, transfer or use of carbon market units.Limits could in particular address the risk that some countries have mitigation targets that correspond to higher levels of Summary 10 emissions than independent projections of their likely emissions.If such 'hot air' can be transferred to other countries, it could increase aggregated emissions and create a perverse incentive for countries not to enhance the ambition of future mitigation targets.The thesis proposes a typology for such limits, explores key design options, and tests different types of limits in the context of fifteen countries.The analysis indicates that limits to international transfers could, if designed appropriately, prevent most of the hot air contained in current mitigation targets from being transferred, but also involve trade-offs between different policy objectives (Chapter 7).The thesis concludes by discussing how four strategies to mitigate environmental integrity risks -robust accounting, ensuring unit quality, facilitating economy-wide and ambitious mitigation targets, and restricting international transfers -could be implemented under the Paris Agreement and CORSIA (see Figure S-1).Crediting mechanisms pose higher risks for environmental integrity than linking of ETSs and should therefore have a limited role in the future.International oversight can reduce the risks to environmental integrity to some extent.Acquiring countries could also reduce risks by only acquiring units from countries that also have ambitious NDC targets.Overall, policy-makers should not regard carbon market approaches as the one and only 'silver-bullet' to mitigating climate change but carefully assess what policy instrument or mix of instruments is best suited achieve and balance different policy objectives, in particular in light of the rapid transition that is necessary to achieve the goals of the Paris Agreement (Chapter 8). How can the environmental integrity of international carbon market mechanisms be ensured in the new context of the Paris Agreement?To assess this, further research questions are:1. How should environmental integrity be defined in the context of international carbon market mechanisms?1. Accounting for the international transfer of carbon market units: Article 6.2 of the Paris Agreement requires countries to "apply robust accounting to ensure, inter alia, the avoidance of double counting".A lack of robust accounting could undermine environmental integrity in several ways (Chapter 2).If emission reductions are double counted, for example, actual global GHG emissions are higher than the sum of what individual countries report (see Chapter 3).Establishing and implementing robust accounting rules is thus an important prerequisite for achieving environmental integrity (see Chapters 2 and 3).An important question is therefore how robust accounting can be implemented in the new context of the Paris Agreement, taken into account the diverse scopes, metrics, types and timeframes of current NDC targets.Chapter 7: When less is more: Limits to international transfers under Article 6 of the Paris Agreement Chapter 8: Discussion, conclusions and recommendations Note: Dark green indicates that this aspect is the main focus of the chapter.Bright green indicates that this aspect is also considered.Grey indicates that this aspect is not considered.Chapter 5 takes up a matter that is controversially debated under both ICAO and the Paris Agreement: whether carbon market units from the Kyoto mechanisms should be eligible for use after 2020.The chapter assesses the environmental and economic implications of using offset credits from the largest mechanism to date -the CDM -under CORSIA, and analyses what type of eligibility criteria are necessary to perverse environmental integrity.Towards this end, a model is established that estimates the supply potential and the costs of generating certified emission reductions (CERs) for each of the 8,000 registered CDM projects and assesses under which conditions creating new demand for CERs from already existing projects triggers actual emission reductions, taking into account differences between project types.Chapter 6 turns the focus from crediting mechanisms to another form of international carbon market mechanisms: the linking of ETSs.Several jurisdictions are considering, or 'hot air' -a term used in context of mitigation targets that countries over-achieve without pursuing further mitigation actions (Boehringer, 2000;den Elzen & de Moor, 2002;Kollmuss et al., 2015).They could, however, also be used to address other environmental integrity risks, such as the lack of robust accounting system, concerns related unit quality, or possible disincentives to enhance mitigation action in the future.This chapter proposes a typology for limits, explores key design options, and quantitatively tests different types of limits in the context of fifteen countries.Lastly, Chapter 8 discusses the overall findings of the thesis, provides conclusions and makes recommendations.These can inform the ongoing negotiations on Article 6 of the Paris Agreement, and the implementation of carbon market mechanisms by countries, jurisdictions and international organizations, such as ICAO.Chapter 2Environmental integrity of international carbon market mechanisms 19Chapter 2Environmental integrity of international carbon market mechanisms under the Paris

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Major US electric utility climate pledges have the potential to collectively reduce power sector emissions by one-third

One of the most current pressing environmental problems threatening the well-being and survival of the global community is climate change. The change in the Earth's climate is believed to be caused by human-induced activities such as the several decades of uncontrolled emissions of greenhouse gases. There is now a universal consensus that climate change is a global problem that needs urgent global attention and response. The need to compel a paradigm shift in the emissions of several gases accountable for global warming with the resultant effect of climate change led to the negotiation of an international agreement known as the Kyoto Protocol. The Kyoto Protocol commits industrialized nations and nations with economies in transition to reduce their greenhouse gas emissions and achieve their reductions targets. To achieve its aim, the Kyoto Protocol initiated three innovative market-based mechanisms, now known as the carbon market, designed to help Parties meet their national greenhouse emissions reduction targets. This paper reviews the market-based mechanisms (Carbon Market) of the Kyoto Protocol to the United Nations Framework Convention on Climate Change to ascertain whether the Kyoto Protocol has achieved significant global greenhouse gas emissions reduction through its carbon market. The paper also examines the compliance mechanism, the successes, and failures of the Kyoto Protocol. The paper concludes with a recommendation that both the developed and developing countries must be involved in greenhouse gas emissions reduction if any significant global greenhouse gas emissions reduction is to be achieved. Keywords: Kyoto Protocol, Kyoto Protocol market-based mechanisms, Kyoto compliance mechanism, Kyoto Protocol successes, Kyoto Protocol failures. DOI: 10.7176/IAGS/86-03 Publication date: September 30 th 2020

This paper explores the pivotal role of economic incentives in pollution control within the People’s Republic of China, centering specifically on the intricacies and operational dynamics of the carbon trading market. As an integral component of China’s environmental policy and broader economic strategy, the carbon trading market is posited as a critical mechanism for catalyzing reduction in greenhouse gas emissions across various industrial sectors. Through a detailed examination, this study assesses the efficacy of the market in achieving its intended environmental outcomes, alongside a thorough investigation of the challenges and obstacles that impede its operation. At the heart of this analysis is a comprehensive review of how the carbon market has been implemented in China, including the regulatory frameworks, market design, and participation criteria that underpin its functionality. The paper delves into the market’s direct impacts on industries, especially those traditionally associated with high levels of carbon emissions, assessing how economic incentives have spurred or, in some instances, failed to spur significant environmental improvements. Further, the study broadens its scope to consider the carbon trading market’s implications for sustainable development in China. It explores the balance between economic growth and environmental sustainability, investigating how the carbon market aligns with China’s long-term goals for green development. This includes an analysis of the market’s role in promoting technological innovation and investment in renewable energy sources, as well as its influence on corporate behavior and environmental governance. The paper also addresses the multifaceted challenges that confront the carbon trading market in China. These include issues related to market liquidity, price volatility, the accuracy of emissions data, and the enforcement of regulatory measures. Moreover, the study considers the global context, comparing China’s carbon market with international counterparts to identify unique challenges and opportunities. In synthesizing the findings, this paper aims to provide a nuanced understanding of the carbon trading market’s function as an economic incentive for pollution control in China. It highlights the critical importance of continuous refinement and adaptation of the market mechanisms to enhance their effectiveness in reducing emissions. Ultimately, this study contributes to the broader discourse on the role of economic incentives in achieving sustainable development, offering insights into the complexities of integrating environmental policies within the framework of China’s rapidly evolving economy.

There’s a market growing in the United States, but unlike markets that trade in tangible commodities, this one trades in the absence of something no one wants: greenhouse gases in the atmosphere. Hundreds of companies make it possible for individuals, organizations, businesses, and even events such as rock music festivals to proclaim themselves carbon-neutral by paying someone else to reduce their emissions. Worried about your carbon footprint? No problem. For fees of US$2–50 per ton of “avoided emissions,” an offset provider will funnel your money into an activity or technology that keeps greenhouse gases out of the atmosphere. The question is, are offset buyers really getting what they paid for?

To combat global warming, “carbon neutrality” has gradually become a consensus. Some countries have constructed domestic and regional carbon trading markets, and links to global carbon markets are receiving increasing attention. Blue carbon, an important component of nature-based solutions (NbS), has not received the attention it deserves and is still isolated from the carbon trading market. Based on summarizing the existing achievements of blockchain application in carbon trading, this paper analyzes how to make each participating body provide services in the process of blue carbon production, circulation and trading, and designs the architectural diagram of the blue carbon system under peer-to-peer (P2P) transactions based on the theoretical framework of blockchain 3.0. Utilizing the advantages of decentralization, high transparency and non-tamperability of blockchain, we can realize a highly efficient, low-cost and intelligent blue carbon trading management system. Thus, we can make the world pay more attention to the development and utilization of marine resources and increase investment in blue carbon sink projects; and promote the development of blue carbon market, enrich the carbon trading market, and help achieve “emission reduction without reduction in production”.

Carbon markets devolve governance to external institutions and displace power from sovereign states. Major producers in these markets, notably China, have expressed concern about the adverse implications for national interests and sovereignty associated with selling off the rights to emit carbon emissions abroad. This article suggests that such concern has shaped the discursive context in which emission trading schemes have gained popularity in the country. Our discourse analysis shows that notions of market power are made manifest as a powerful storyline. In the Chinese language, “power,” “sovereignty,” and “rights” all use the same character. The storyline captures all these expressions and allows for a positive view about active engagement in carbon trading as a way to protect development rights and redeem carbon sovereignty. Thus, the contested policy of emissions trading becomes embedded in the more appealing narrative of national development and made politically attractive, despite unfavorable realities against it.

points out that one way out of the public goods dilemma on emissions mitigation is to form agreements between sovereign countries. Such agreements involve mutual consent to a global climate policy and its implementation. However, countries are characterised by heterogeneous mitigation costs and benefits. These asymmetries imply that benefits of cooperation differ between countries and there is no straightforward way to allocate the costs in an equitable way. Moreover, cooperating countries who are "doing the job" could be worse off compared to a non-cooperating country. Due to the lack of a supranational authority to enforce participating countries to fulfil their mitigation commitments, agreements have to be implemented voluntarily by countries. To facilitate the formation of international climate agreements, effective economic and institutional instruments need to be designed and implemented. The core of this thesis is the study of design features of an international climate agreement that improve its effectiveness and acceptance by sovereign countries.

As addressed by many studies, greenhouse gas has a significant impact on the different aspects of life and more importantly on the whole environment. The excessive emission of green gas leads to climate change which is regarded as one of the most significant challenges of 21 century. Hence, in this regard, this paper has addressed the changing greenhouse gas (GHG) emissions in 18 countries of the MENA region. For this purpose, ten different scenarios of this disease's future status and its restrictions were considered in an input–output modelling framework. The empirical results indicated that the emission of greenhouse gas is reduced under all scenarios. However, some countries experience more reduction due to the restriction because of COVID-19 like Syria, Iran, Yemen and Lebenon. Based on the ninth scenario, Iran and Syria have the highest reduction in emission of greenhouse gas by 13.1 and 13.8 per cent, and based on the tenth scenario, Lebenan and Syria will experience the highest reduction in emission by about 13.1 and 17.9 per cent. The results show that according to scenario 10 (explosive intensification of the pandemic without the wave subsiding over a while) and scenario 9 (the pandemic worsens step by step without subsiding over a while), Syria and Iran have the highest reduction in greenhouse gas emissions, respectively. According to scenario 1 (rapid and complete control of disease), Bahrain, Qatar, and Kuwait have the lowest reduction in GHG emissions. Besides, the study draws several fruitful implications regarding environmental concerns as sectoral analysis such as Hotels and Restaurants, Retail Trade, Fishing, Wholesale Trade, and Transport sectors. Moreover, policymakers should be alert that notwithstanding all limitations, Private Households and Public Administration develop their emissions during the pandemic since quarantine intensifies the supply of these services. Surprisingly, none of the policy restrictions have a significant impact on GHG emissions from Education, Health, and Other Services, Petroleum,Chemical, and Non-Metallic Mineral Products, Textiles and Wearing Apparel, and Re-export & Re-import, demonstrating the robust and established nature of these sectors' activities. To control the emissions of the quarantine-neutral sectors, long- and mid-term structural and environmental policies should be considered. The researchers are guided by the novel implications in terms of how various industries might reduce emissions in different ways.Graphical abstractSupplementary InformationThe online version contains supplementary material available at 10.1007/s10668-021-02018-3.

The study seeks to provide a deeper insight and strategies into the carbon trading market, the internal mechanism, and the linkage mechanism for emission reduction in the carbon trading market right from its inception. The study differs from most prior research on carbon trading, as this current paper incorporates the carbon market with the dissipative structure theory. Based on the dissipative structure theory, this study adapts the entropy generation principle as the base for the carbon trading market. The study captures the following key dimensions: the change of carbon market value, the entropy generation principle of carbon quota trading process, and the replacement process involved in production factors in carbon trading. The study revealed that the entropy generation of the carbon trading market is mainly caused by the cost gradient formed as a result of the cost difference of emission reduction and the increase of production factor input required by economic development. Moreover, the study revealed clearly the dynamics of the entropy index and the carbon market emission reduction efficiency. Thus, the lower the entropy value of the carbon market, the higher the emission reduction efficiency.

At the United Nations General Assembly, the Chinese government promised to reach the peak of carbon dioxide emissions by 2030 and achieve a relative balance between carbon dioxide production and offsetting by 2060. The research aims to explore the relationship between carbon trading prices and stock prices in various high emission industries in China and analyze the attitudes and behaviors of enterprises towards carbon trading. From a market perspective, this topic has important theoretical significance and practical value for promoting energy transformation, encouraging enterprises to reduce emissions, and controlling greenhouse gas emissions. In addition, understanding the behavior and attitude of enterprises in the carbon market is also of great significance for formulating policies and measures to develop the carbon trading market. The study used the VAR model to empirically analyze the relationship between carbon trading prices and stock prices. Granger causality test, impulse response analysis, and variance decomposition analysis are used for analysis. The research results indicate that the contribution rate of carbon trading prices in the first phase is 100%, which gradually decreases to the lowest value of 98.27% in the eighth phase. The stock price contribution rates of the water, electricity, and gas supply industries reach a peak of 0.74% in the second period and gradually decrease to 5.2% in the eighth period. The contribution rate of stock prices in other industries has gradually increased. At present, the carbon trading market in China is still in the development stage, and it is necessary for the government to adopt various policies to regulate it, including encouraging enterprises in high emission industries to increase investment in emission reduction, strengthening the supervision of the carbon trading market, providing technical support and green innovation incentives, strengthening enterprise emission reduction awareness and information disclosure.

At the national and international levels, human-induced climate change has become a significant political concern, with the large rise in carbon dioxide concentration being a pressing issue that must be addressed. Carbon trading has shown to be one of the most successful strategies to accomplish energy saving and emission reduction as a flexible tool for dealing with climate change. As the nation with the highest carbon emissions today, China’s research on its carbon trading market has a guiding significance to the globe. The study findings of different models focusing on carbon trading markets are presented from three aspects: carbon emission reduction efficiency, carbon market efficiency, and internal information change trends in the carbon market. The results show that the efficiency of China’s pilot carbon market is currently poor, with just a mediocre efficiency attained. The existing carbon market’s key issues are its low transaction volume and weak market liquidity. Based on the comprehensive review of and comparison among existing models studying the carbon trading market, we proposed plausible suggestions for future research directions and development methods of the carbon trading market, including the utilization of carbon tax, improved market transparency, and government oversight.

Carbon trading volume and price forecasting in China using multiple machine learning models