Background and Objectives
The Paris Agreement signals a shift towards a bottom-up approach where climate activities, as reflected in their Nationally Determined Contributions (NDCs), are driven by national reality, economic growth and political priorities. While enabling broad participation, the World Bank recognizes that far more financing is required to help countries implement their NDCs and ultimately reach the global 1.5 – 2C goal. The World Bank Group (WBG) believes that the use of markets will have an important role to play in the successful, cost-effective implementation of the Paris Agreement by reducing costs and facilitating greater resource mobilization. WBG also recognizes that the Paris Agreement gives climate markets a much needed, renewed basis for support by enabling Parties to voluntarily cooperate in achieving their NDCs through Internationally Transferred Mitigation Outcomes (ITMOs) under Article 6. However, it also notes that the definition and required architecture for post-2020 markets are largely left to future negotiations.
Against this backdrop, the World Bank’s Carbon Markets and Innovation Practice has set as its principal mandate the facilitation of its client countries in exploring the specific role of markets under Paris, and helping decision makers develop and pilot the architecture that may be required to generate, issue and transfer MOs internationally. Towards this mandate, the CMI supports countries that are interested in international climate markets through programs such as the Carbon Pricing Leadership Coalition (CPLC), the Partnership for Market Readiness (PMR) and the Networked Carbon Markets (NCM) initiative, to provide the relevant investment, advocacy, advisory, and knowledge services.
Specifically, the NCM initiative, which has been financially supported by the Swiss State Secretariat for Economic Affairs (SECO) since 2015, is working with Governments, the private sector, academia and civil society to develop and pilot innovative tools, services and institutions that could support bottom-up, linked international climate markets. The end-goal is to enhance the transparency, comparability and potential fungibility of heterogeneous climate actions to enable more countries to participate in liquid and scalable international climate markets, while still preserving the environmental integrity of the trade. Furthermore, it is envisioned that the mechanisms developed by the initiative would have multi-purpose, stand-alone benefits, in addition to supporting linkage. For instance, comparing the MOs of actions through a common, robust and transparent assessment framework could enable benchmarking of climate mitigation programs, policies and commitments; guide financing and capacity building priorities; track and monitor progress towards NDC implementation; and incentivize greater ambition through a race-to-the-top.
The NCM initiative’s activities are divided into four key work-streams, as summarized in the Figure 1. Key documents for these four work-streams are provided in the “Related Documents” section below.