New Market-based Mechanisms post-2012: Institutional Options and Governance Challenges when Establishing a Sectoral Crediting Mechanism

The document analyzes the transition from project-based mechanisms like the Clean Development Mechanism (CDM) to sectoral-scale mechanisms. It evaluates three governance models for a Sectoral Crediting Mechanism (SCM): centralized (UN-led), hybrid (bilateral with UN minimum standards), and decentralized (independent of the UN). The authors argue that while decentralized models offer flexibility, they risk undermining environmental integrity and market credibility. The paper proposes a centralized SCM project cycle that improves upon the CDM by introducing more interactive baseline reviews, professionalizing the regulatory body, and utilizing biennial update reports for better verification.

• A Sectoral Crediting Mechanism (SCM) differs from the Clean Development Mechanism (CDM) by rewarding sector-wide mitigation efforts rather than isolated projects, with credits typically issued to governments to stimulate climate-friendly policies.
• Japan and Australia support more flexible, decentralized or hybrid governance models where the UNFCCC provides only minimum standards and guidance, allowing for bilateral agreements tailored to national circumstances.
• California's proposed cap-and-trade system represents a fully decentralized model, as it requires all offset credits to be issued and verified by the Californian Air Resources Board (CARB), independent of the UNFCCC.
• The authors identify a significant risk of 'hot air' in SCMs if baselines are set too high, noting that seller countries have incentives to inflate credits to increase revenue.
• Experience with Track 1 Joint Implementation (JI) and Green Investment Schemes (GIS) suggests that a lack of international standardization and oversight leads to fragmentation, transparency issues, and credibility problems.
• To improve the environmental integrity of a centralized SCM, the authors recommend replacing the CDM's 'desk review' of methodologies with a more interactive process including in-country assessments and stakeholder consultations.

APA

de Sépibus, J., & Tuerk, A. (2011). New Market-based Mechanisms post-2012: Institutional Options and Governance Challenges when Establishing a Sectoral Crediting Mechanism. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/new-market-mechanisms.pdf

Chicago

de Sépibus, Joëlle, and Andreas Tuerk. New Market-based Mechanisms post-2012: Institutional Options and Governance Challenges when Establishing a Sectoral Crediting Mechanism. Climate Strategies, 2011. https://climatestrategies.org/wp-content/uploads/2014/11/new-market-mechanisms.pdf.

Wikipedia

{{cite report |last1=de Sépibus |first1=Joëlle |last2=Tuerk |first2=Andreas |title=New Market-based Mechanisms post-2012: Institutional Options and Governance Challenges when Establishing a Sectoral Crediting Mechanism |publisher=Climate Strategies |date=2011 |url=https://climatestrategies.org/wp-content/uploads/2014/11/new-market-mechanisms.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{despibus2011new, author = {de Sépibus, Joëlle and Tuerk, Andreas}, title = {{New Market-based Mechanisms post-2012: Institutional Options and Governance Challenges when Establishing a Sectoral Crediting Mechanism}}, institution = {Climate Strategies}, year = {2011}, url = {https://climatestrategies.org/wp-content/uploads/2014/11/new-market-mechanisms.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }