Climate Finance: Regulatory and Funding Strategies for Climate Change and Global Development

Chapter 19 Operationalizing a Bottom-Up Regime: Registering and Crediting NAMAs

Climate Finance 179 Chapter 19 Operationalizing a Bottom-Up Regime Registering and Crediting NAMAs Rae Kwon Chung Ambassador for Climate Change, Republic of Korea Key Points • Nationally appropriate mitigation actions (NAMAs) are one type of mechanism to accelerate developing country participation in GHG emissions reduction efforts. • NAMAs could be purely voluntary (for inherently financially viable projects), internationally supported (for risky or expensive projects), or capable of producing tradable credits (for projects in between these two categories), the latter categories requiring international consensus. • NAMAs would run their MRV through a central global registry, with greater levels of regulation for projects that are not purely voluntary , especially for those projects that require significant levels of finance up front. • Tradable credits would draw the lowest cost emissions reductions and bring in large financial flows, assuming that sufficient demand can be realized from market participants and governments in developed countries. Although the historical burden of climate change rests with Annex I countries , non–Annex I countries are assisting—in their own ways—with mitigating climate change. However, the current structure of the United Nations Framework Convention on Climate Change (UNFCCC) and Kyoto 180 Rae Kwon Chung Protocol allows these contributions to be neither recognized nor coordinated . South Korea has proposed that Nationally Appropriate Mitigation Actions (NAMAs) undertaken by governments be registered with an international NAMA registry, and for appropriate countries and NAMAs, carbon credit or development assistance might be given. This paper outlines the South Korean NAMA proposal, and in doing so, it aims to address three major concerns related to such bottom-up approaches, as they are likely to be a component of any future climate agreement. The first concern is that a bottom-up approach will be unable to guarantee sufficient reductions to prevent catastrophic warming. The second concern is that a bottom-up approach will not provide sufficient accountability to ensure that carbon finance funds are used effectively. The third concern is that a bottom-up approach will not be able to guarantee that mitigation measures are undertaken as efficiently as possible. The NAMA proposal contains means of effectively addressing all three concerns. Nationally Appropriate Mitigation Actions A NAMA could be any action ranging from economy-wide mitigation targets to a specific project in a specific sector. Examples include sustainable development policies and measures (SD-PAMs), reducing emissions from deforestation and forest degradation (REDD), cap-and-trade schemes, sector-wide technology standards, sectoral targets, a carbon tax, building insulation codes, or congestion targets. Nations would be free to choose to undertake as many or as few NAMAs as they would like. However, NAMAs would only be eligible for carbon credits or other financial support if they fulfilled certain conditions. Consequently, there would be three types of NAMA. The first would be voluntary NAMAs, or those that require no support and do not qualify for credits. The second would be NAMAs that qualify for international support. The standards for determining whether or not a NAMA would receive financial support could be determined by either bilateral or multilateral agreement. The third would be NAMAs which are eligible for carbon credits. The standards for determining whether or not a NAMA would be eligible for carbon credits would need to be consistent with the standards adopted by other carbon markets to allow for linkage to those markets. In theory, a Operationalizing a Bottom-Up Regime 181 project may fall into both the second and third categories, i.e., it may both qualify for support at the outset and be eligible for carbon credits upon completion. The boundaries between these three types of categories will need to be determined by some form of international consensus or cooperation. In the absence of such cooperation, all NAMAs are voluntary. As a result , this approach provides substantial flexibility to alter the crediting and support standards to achieve policy goals. The most efficient and effective outcome would be achieved by (a) making NAMAs that will pay for themselves voluntary, (b) providing credits but no additional support for those NAMAs that are not cost-effective on their own but would be cost-effective if credited, and (c) providing additional financial support for valuable mitigation actions that are too risky or expensive to pay for themselves through crediting alone. Under this approach, NAMAs that qualify for carbon credits would likely be the primary mechanism for financing mitigation measures in developing countries. The crediting of NAMAs could be structured similarly to...