Non-market approaches in Paris Agreement

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Date produced: 06/07/2018

What are the non-market approaches referenced in Art.6 paras.8 and 9 of the Paris Agreement?

Advice:

Article 6 of the Paris Agreement defines a framework for non-market approaches (NMAs) to sustainable development (para.9) which aim to (a) promote mitigation and adaptation ambition; (b) enhance public and private sector participation in the implementation of nationally determined contributions; and (c) enable opportunities for coordination across instruments and relevant institutional arrangements (para.8).

The notion of NMAs was firstly introduced during COP 16 in Cancun in 2010. The Cancun Agreements request the Ad Hoc Working Group on Long-term Cooperative Action under the Convention (AWG-LCA) to elaborate on the concept of the non-market mechanisms with the main objective of increasing climate mitigation effectiveness.[1] Subsequently, the work on NMAs has been continued by the Subsidiary Body for Scientific and Technological Advice (SBSTA).

Following a request by SBSTA, technical paper FCCC/TP2014/10 dated 24 November 2014 was prepared to analyse the design and operation of NMAs.[2] The document lists various instruments serving as NMAs based on the SBSTA assessment of Party submissions, the SBSTA discussions and other sources. The term NMAs is defined as ‘any actions that drive cost-effective mitigation without relying on market-based approaches or mechanisms’, that is ‘without resulting in transferable or tradable units’.[3] The UNFCCC technical paper classifies the NMAs into six categories:

  • Economic and fiscal instruments
  • Regulations
  • Voluntary agreements
  • Framework targets
  • Information, education and awareness programs
  • Research and development.[4]

Using the broad overall headings in the technical paper, the following section provides some examples of different NMAs:

1. Economic and fiscal instruments

To incentivize climate friendly behavior government often levy additional taxes (rates or levies) on particular activities, products or services. A tax is a compulsory unrequited payment to the government.[5] It constitutes an involuntary fee on either individuals, or corporations and is enforced by a government (to finance public activities).

Taxes on greenhouse gases can come as an emissions tax based on the quantity an entity produces; or a tax on goods or services that are generally greenhouse gas-intensive, such as a carbon tax on gasoline. A carbon tax directly puts a price on carbon by determining a tax rate on greenhouse gas emissions[6], whereas an energy tax is levied on the energy content of fuels[7].

Putting a tax on carbon makes the fossil fuel production more expensive and less profitable. A carbon tax therefore encourages and provides an incentive to reduce the output of GHG emission and to provide corporations and individuals with an incentive to use clean energy sources.

While many countries have already implemented explicit or implicit carbon taxes their approach varies. They often only address a subset of economic sectors and focus on different stages of the global supply-chain: i.e. when the carbon price is applied at the point where carbon is removed from the ground (extraction), is combusted (production), or where goods and services are consumed (consumption).[8]

Global policy proposals, in this context, include, the introduction of a fossil fuel extraction charge (or tax) for the producers of oil, gas and coal. The money generated could be invested in renewable energy research, climate adaptation or to pay for the damage and costs caused by climate change.

Other fiscal measures aiming to mitigate climate change are vehicle taxes and congestion charges to regulate emissions from vehicles, or levies on products such as batteries, plastic bags or tires.

Custom duties on products that are particularly greenhouse gas intensive or benefit from a regulatory environment that does not sufficiently address the causes of climate change would also be a NMA. E.g. products and services originating in a country that is not a party to the Paris Agreement may have a large carbon footprint but enjoy a competitive advantage on the world market. If and to what extent such duties on imports from another state may conflict with World Trade Organization (WTO) rules is a complex question that cannot be addressed here.

While taxes, levies and other charges represent a degree of “punishment”, economic and fiscal instruments can also offer rewards and incentives to motivate people towards the desired behavior. This can include fees structures, financial subsidies or project funding. They are often used to promote green transport, energy efficiency or sustainable consumption.

Grants or interest free loans, for example, can be made available to homeowners to improve the energy efficiency of buildings, install solar panels or update appliances. The state can financially subsidies services such as public transport or purchases of energy-efficient product (e.g. for electric or hybrid cars) via payments to the company or the customer.

Guaranteed minimum tariffs for electricity generated from renewable energy sources and fed into the grid (‘minimum feed-in tariffs’) are also a common tool to promote low carbon development. They can offer a way to subsidies renewables by distributing the cost and do not necessarily require large government resources.

While states have taken measures to incentivize climate friendly behavior may of them also disburse vast amounts of financial resources in fossil fuel subsidies. The removal of fossil fuel subsidies could make a simple and cost-effective contribution to climate change mitigation. In most cases, this would require the revision of existing economic and fiscal instrument.

2. Regulations

Regulations are rules, standards and permitting requirements established in order to promote either the reduction of carbon emissions, or sustainable, low-carbon practices, such as clean energy technology. This includes, for example, building regulations, rules on emissions from factories or vehicles and energy efficiency standards. Non-compliance with such regulations can render an activity illegal and result in penalties. As part of a regulatory regime the government may issue permits and approvals, monitor performance and take further steps to ensure and enhance compliance with the regulations.

3. Voluntary agreements

Another NMA to reduce carbon emissions are agreements between the industry and government and/or other stakeholders that include voluntary targets and time frames. The UNFCCC technical paper distinguishes broadly between unilateral commitments by the industry; private agreements between industry and stakeholders; environmental agreements negotiated between industry and government; and voluntary programs developed by government that individual firms can join.[9]

Such agreements are often part of the industry’s or companies’ social corporate responsibility commitments. To some extent, they may integrate other NMAs. There may, for example, be a financial incentive (tax rebate) to join an agreement or if the voluntary agreement does not meet its target new (mandatory) regulations could be introduced.

4. Framework targets

Framework targets are ‘legally binding or indicative goals for GHG emissions, technology shares, fuel shares and efficiency, followed up with monitoring, reporting and verification procedures to ensure compliance’.[10] To ensure the EU as a whole met its Kyoto Protocol target its member states agreed on legally binding individual emission reduction or limitation targets (for each country).

5. Information, education and awareness programs

Information, education and awareness programs aim to enhance people’s knowledge about the impacts of climate change and encourage them to adopt ‘climate-friendly’ behaviors. This can include government sponsored outreach and education programs in schools, the promotion of good practice case studies, the use of energy efficiency labels on electric appliances and various other communication tools. Social media are likely to play an increasingly important role in this context.

Parties to the UN Framework Convention on Climate Change have undertaken a variety of relevant activities under Art.6 of the Convention (on education, training and public awareness). The Paris Agreement (in Art.12) reiterates parties’ commitment to further cooperate in this area.

6. Research and development

Research and development policies lead to the development of new procedures, methods and technologies or the improvement of existing ones. They may not immediately generate results but aim to ensure that countries will be able to adequately confront the consequences of climate change in the long-term. Art.10 of the Paris Agreement addresses the necessary technology and transfer of technology to adapt and mitigate. The existing technology mechanism shall provide the operational framework for the international collaboration

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[1] FCCC/CP/2010/7/Add.1. paras. 84 and 85; FCCC/TP2014/10, para. 8.

[2] FCCC/TP2014/10, https://unfccc.int/resource/docs/2014/tp/10.pdf.

[3] FCCC/TP2014/10, supra n. 8, para. 10.

[4] FCCC/TP2014/10, supra n. 8, para. 16.

[5] Official OECD definition see http://www.oecd.org/ctp/glossaryoftaxterms.htm.

[6] http://www.worldbank.org/en/news/feature/2014/06/11/what-does-it-mean-to-put-a-price-on-carbon.

[7] FCCC/TP2014/10, supra n. 8, para. 18.

[8] Jonas Karstensen1,2 and Glen Peters1Distributions of carbon pricing on extraction, combustion and consumption of fossil fuels in the global supply-chain, Environmental Research Letters, 2018 available at http://iopscience.iop.org/article/10.1088/1748-9326/aa94a3

[9] FCCC/TP2014/10, supra n. 8, para. 46.

[10] Ibid, para. 50.